The Big Story Blog

Housing construction key to Minnesota's recovery?

Posted at 10:41 AM on December 20, 2011 by Paul Tosto
Filed under: Housing and mortgages

In past recessions, new housing construction was the business that always seemed to save the economy. That hasn't been the case this time.

Housing starts, though, still matter. Minnesota economic officials recently detailed how important growth in new housing will be to the state's fragile economic recovery -- even as they cautioned not to expect much until 2013.

In the official November economic forecast, Minnesota economists noted that the recession has caused many Minnesotans to "double up" on housing, moving in with relatives or delaying new housing purchases to save money. As a result, "new household formation," people buying their own place, fell to 20-year lows here in 2010.

Assuming stronger job growth, economists expected that to bounce back through 2010 but also warned: "If household formation rates continue to worsen in 2011 and 2012 as a result of weaker labor market conditions and the housing downturn continues to deepen later into 2013 it is unlikely that Minnesota's economy will perform as forecast."

Here's the state's chart:


It shows just how overbuilt Minnesota's new housing market had become by 2005. It all came crashing down a couple years later.

The national data released today on housing starts for November is encouraging and it's helping buoy the stock market. But there's still a long way to go.

From the state November economic forecast:

While improving job growth and increasing household formation rates will help absorb most, if not all, excesses into the market by 2014, there will continue to be very little demand for new residential home construction in 2012 and early 2013.

As a result, after nearly six years of severe declines, the total number of authorized monthly residential building permits in Minnesota will continue to drag along the bottom through much of 2012 before beginning a modest recovery in early-to-mid 2013.

About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.

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