Housing Industry News Vol. 4 Issue 5 - October 2020 by Housing First Minnesota

VOL. 4 ISSUE 5, OCT. 2020

THE MINNESOTA HOUSING INDUSTRY NEWS SOURCE BY HOUSING FIRST MINNESOTA • HOUSINGINDUSTRYNEWS.ORG

According to data supplied by the Minnesota REALTORS®, just 14,875 homes were listed for sale in the month of August, down 36% when compared to last August.

Home prices soar, inventory drops to historic levels Concerns grow over housing afforability crisis across the state As summer faded into fall, the region’s housing market continued its remarkable surge. Buttressed by low interest rates and strong demand, Minnesota’s housing market has produced historically low home inventory rates, record-setting price increases in existing homes, and an increase in new home construction and remodeling projects. The pace of activity and market changes are a surprise to many industry leaders, exceeding even the most optimistic projections following the onset of the COVID-19 pandemic in the first quarter of 2020. Grabbing the attention of buyers and sellers alike, home prices have surged. Minneapolis Area REALTORS® data shows that the median sales price of existing homes in August was $315,000, nearly 10% higher than the same month last year. Statewide data from the Minnesota REALTORS® shows that the median sales

price was just over $283,000 in August, roughly 9% higher than the same point last year. Looking back two years to 2018, the current home price median has increased by more than 17%. Connected closely to the surging prices is a severe shortage of homes on the market. According to data supplied by the Minnesota REALTORS®, just 14,875 homes were listed for sale in the month of August, down 36% when compared to last August. In the Minneapolis-St. Paul region, the Minneapolis Area REALTORS® reported that 12,948 homes were listed for sale in August, down 32% from the same month last year. For many current homeowners, the inventory shortage and price increases can be seen favorably, driving the rapid sale of their current home and strong value appreciation. However, the historic imbalance

between the demand for housing and the ability of the housing industry to supply an adequate number of homes has the attention of industry leaders and policymakers who are concerned with the current trends. The growing consensus among industry observers is that building more homes is the foundation of not only a market rebalance in the short term, but the long-term health of the housing industry and more broadly, Minnesota’s economy. On the supply side of the equation, homebuilding activity in the Twin Cities region increased in early fall with a surge in single-family construction permits that was 38% higher than the same period in 2019. This is welcome news for a housing market with few homes and rising prices, but industry leaders say that much more homebuilding activity is necessary to balance the housing market. CONTINUED >> PAGE 9

INSIDE THIS ISSUE

Sparks fly during electrical code judicial hearing PAGE 4

Minnesota’s 2020 election outlook PAGE 7

Builder confidence hits all-time high PAGE 12

Judge recommends no energy code 'update', commissioner to get final word Administrative Law Judge Eric Lipman has recommended not opening rulemaking on the Minnesota residential energy code. This nonbinding decision comes a year after the rest of the state’s building codes were finalized and six months into the new code cycle. Lipman’s recommendation is nonbinding, and

the commissioner of the Minnesota Department of Labor and Industry (DLI) will make the final decision on opening rulemaking for Chapter 1322. During the Aug. 3 hearing and subsequent comment period, two viewpoints were put forward by CONTINUED >> PAGE 5

HOUSING INDUSTRY NEWS

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2960 Centre Pointe Drive Roseville, MN 55113 HousingFirstMN.org

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PRESIDENT’S NOTE

Strong housing demand As we’ve turned the Labor Day corner and moved into fall, the surprise of a strong housing market in the midst of a pandemic has grown into a truly remarkable phenomenon. Driving our housing market is an intense demand for homes at all levels, but especially at the first-time and move-up buyer segments. These buyers are driven by low interest rates and for many, a newfound appreciation for homeownership. On the new home and remodeling side, we have seen strong activity that has now begun to outpace 2019. As it is with any market fluctuation, the housing industry has had to adjust to challenges in 2020. The early days of COVID-19 required us to learn, create and implement new safety protocols to protect our employees and customers. The market disruption of early spring has

impacted supply chains and forced us to sharpen our project timelines and pricing. And now we find ourselves in a market dynamic of exploding demands and the limits we face in trying to build enough homes to balance our market. I know we all feel immense pride and gratitude for the opportunity to work in the housing industry. The last six months have provided an even stronger reminder of how important home is for our customers, our employees and our families. As we move into fall, many of us are thinking about the elections and about what the housing market will look like in 2021. We know there will be challenges and opportunities, but if we’ve learned anything in 2020, it’s that housing is one of the most important issues in the lives of Minnesotans. Creating the opportunity of homeownership for everyone, everywhere is a cause we can all

HOUSING INDUSTRY NEWS October 2020, Volume 4, Issue 5 PUBLISHER David Siegel David@HousingFirstMN.org EDITOR Katie Elfstrom Katie@HousingFirstMN.org Gary Kraemer 2020 President, Housing First Minnesota

support. I wish everyone in the housing industry a safe and productive fall as we meet the demand for a place to call home.

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Onward,

CONTRIBUTING WRITERS Katie Elfstrom Katie@HousingFirstMN.org

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Nick Erickson

Nick@HousingFirstMN.org

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HousingIndustryNews.org

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Housing First Minnesota David Siegel, Executive Director Gary Kraemer, President

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Housing Industry News is a publication of Housing First Minnesota. Housing Industry News is published and distributed six times per year to housing industry professionals and others associated with the homebuilding industry. Neither the advertisers, nor Housing First Minnesota, will be responsible or liable for misinformation, misprints, typographical errors, etc., herein contained. For address change information, contact Housing First Minnesota. Suggestions, ideas and letters are welcome. HOUSING INDUSTRY NEWS 2960 Centre Pointe Drive Roseville, MN 55113 info@housingfirstmn.org www.HousingFirstMN.org

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Housing First Minnesota is the voice for homebuilders, remodelers and all who are dedicated to building safe, durable homes at a price Minnesotans can afford. Housing First Minnesota is dedicated to advancing the American dream of homeownership for Minnesotans and is the leading resource for housing-related issues in Minnesota. This advocacy work has never been more important. The housing industry remains under intense regulatory and political pressures that impact Minnesota homeowners’ ability to buy, build, and remodel their dream home. Housing First Minnesota supports reasonable policies, regulations and protections, but our call for affordability for families is a voice that must be heard. Learn more at HousingFirstMN.org.

HOUSING INDUSTRY NEWS

THE HOUSING BEAT

Across the country, there is much talk about housing HERE ARE SOME OF THE LATEST QUOTES ON THE STATE OF THE INDUSTRY:

Restrictive zoning and building laws have produced an acute shortage of housing, pushing real estate prices ever higher—and out of reach for a growing number of Americans.” SAM WINTER-LEVY & BRYAN SCHONFELD FOREIGN AFFAIRS

The United States is currently both underhoused and underemployed but possessed of plenty of capacity to build more. A combination of rental assistance for consumers, capital funding for affordable housing, and regulatory relief for builders of all kinds could unleash a massive boom in new construction, creating countless blue-collar jobs and laying the foundation for a new era of inclusive prosperity.” MATTHEW YGLESIAS VOX

To put it bluntly, zoning regulations that aggressively restrict density, both in big cities and in the suburbs, are horrible. They make housing far more expensive than it needs to be. They limit what owners can build on their property.”

There is a growing left-right consensus on housing affordability: Overregulation is the chief barrier to affordable, unsubsidized housing within reach of working families.” SALIM FURTH GEORGE MASON UNIVERSITY

Housing demand is robust but supply is not, and this imbalance will inevitably harm affordability and hinder ownership opportunities. To assure broad gains in homeownership, more new homes need to be constructed.”

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HOUSING INDUSTRY NEWS

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REGULATORY AFFAIRS

Sparks fly during electrical code judicial hearing Administrative law judge decision expected soon Electrical and general contractors, both commercial and residential, are awaiting the outcome of an Office of Administrative Hearings review of Minnesota’s adoption of the 2020 National Electrical Code (NEC). On Aug. 19, Administrative Law Judge Barbara Case held a multi-hour hearing on the topic. Interested parties had until mid-September to submit written arguments and rebut the comments of others. The law judge action comes after Housing First Minnesota and its members questioned the adoption process and requested this hearing in April. Initially scheduled for May, COVID-19 delayed the hearing until August and pushed the subsequent comment period into September. Process, not technical matters, under microscope The administrative law judge hearing process is often misunderstood. It is not an exercise in addressing the specifics of a code proposal, although listening to the hearing and reading the comments submitted by more than a dozen different parties, one might think it is. While complaints were raised about the code, and advocates for it defended its provisions, neither was germane nor considered in this process. Unlike any technical review of the model electrical code, which reviews the proposed changes to be adopted in Minnesota’s electrical code, this judicial review instead focused only on the process used by the Board of Electricity in the adoption of the 2020 NEC. According to Nick Erickson, director of research and regulatory affairs for Housing First Minnesota, the process employed by the Board of Electricity was extremely compressed, lasting only 44 days from the time the 2020 NEC was certified until its adoption. The 2020 model NEC was accepted, published and deemed effective on Aug. 25, 2019. Eighteen days later, on Sept. 12, the first technical review meeting was held. On Oct. 8, a second technical review meeting was held. “You simply cannot accomplish that level of rigorous review and stakeholder inclusion in 44 days,” said Erickson during the Aug. 19 hearing. “What’s most concerning, is that this process appears to be the result of a lack of interest in meaningful stakeholder review of how the NEC fits into Minnesota’s housing regulatory landscape.” Tony Wiener of Cardinal Homes testified during the Aug. 19 hearing and shared the perspective of his homebuyers who are unhappy with the current code and do not want the mandates found in the 2020 NEC. “I think that is [what] is missing from this process: the focus on the homebuyer,” Wiener told Judge Case. “Every other code change that occurs in Minnesota conducts rigorous studies, provides ample data, and an explanation of

The law judge action comes after Housing First Minnesota and its members questioned the adoption process and requested this hearing in April.

the process to support their decision. In contrast, the Electrical Board has acted arbitrarily and capriciously,” said Courtney Ernston, construction attorney at Minnesota Construction Law Services, while representing Housing First Minnesota at the hearing. Board disagrees with challenge During the Aug. 19 hearing and in its initial comments, the Board was focused predominantly on the technical matters of the 2020 NEC.

“I think that is [what] is missing from this process: the focus on the homebuyer.” Tony Wiener

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In its later comments, the Board said that its process cannot be compared to any other building code as it is not a model code but an “installation standard.” As a result, it argued the state and national development, review and adoption process of the electrical code is streamlined, more efficient and differs significantly from that of the other building codes. The Board and several supporters suggested that the technical review of the NEC at the federal level, in which representatives from Minnesota participated, should be considered part of a formal state review, a position challenged by Housing First Minnesota, which highlighted state law requiring state consideration of the national proposed standard.

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Decision hinges on SONAR requirements Under Minnesota law, when an agency creates a new rule or modifies an existing one, the agency must develop a Statement of Need and Reasonableness (SONAR). In its written comments, Housing First Minnesota said it believes the Board erred in fulfilling its SONAR requirements. The Board asserted in its filing that it believes necessary standards have been met and that Housing First Minnesota’s challenge lacks proper proof. Wait and see As of printing, Judge Case is currently reviewing the testimony from the hundreds of pages of submitted material. She could rule in several ways. She could find the process sufficient and set a date for the implementation of the new electrical code; she could remand the electrical code back to the Board to undergo proper rulemaking; or she could sever any contested provisions of the 2020 NEC from adoption in Minnesota, leaving the legislature to decide on their implementation. A ruling from Judge Case is expected mid-October.

Note: At the time of printing, the decision of Judge Case was not yet available. Be sure to visit HousingIndustryNews.org for the latest developments on the NEC adoption.

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HOUSING INDUSTRY NEWS

REGULATORY AFFAIRS ROUNDUP:

Construction and demolition update, model code hiccup, solar license clarification Construction and demolition update The Minnesota Pollution Control Agency (MPCA) continues its work on developing programs and new state rules aimed at reducing environmental impacts of construction and demolition. Of noted concern, the MPCA seeks specifically to address materials and to prevent groundwater contamination at construction waste landfills. Its rule advisory panel, which plans to amend existing Minnesota rules governing these landfills, is extending its process for an additional six months. As of printing, the MPCA has no draft language for the rule. NAHB wins model code challenge The National Association of Home Builders (NAHB) won an appeal with the International Code Council (ICC) in September. In the model code development process, ICC had initially approved an efficiency requirement for water heaters that would have violated federal law. Industry observers said the mistake was significant because it demonstrates that the model code process does not always get it right. In this case, the error was in approving a model code provision that preempted federal law. ICC granted NAHB’s appeal

given that the provision, were it to be adopted locally, would have put local jurisdictions at risk of a lawsuit for violating federal law. The proposed code provision at issue in the appeal was initially put forth by the National Resources Defense Council. NAHB has two additional appeals still pending with the ICC related to provisions in the 2021 model codes. Minnesota will not directly adopt the 2021 model codes as the next code adoption cycle in Minnesota will review the 2024 model I-codes. DLI clarifies licensing requirements for solar work In its recent Construction Codes and Licensing Division newsletter, the Department of Labor and Industry (DLI) clarified the licensing requirements for solar photovoltaic (PV) systems on residential roofs. Minnesota’s residential contractor licensing law contains an exemption for “specialty contractors” who perform work in a single area. In keeping with this law, DLI has determined that no state residential building contractor, remodeler or roofer license is required unless “the support system for a residential roof must be reinforced in order to support the additional load of the solar PV system.” In that situation, a license would be required. The MPCA continues to work on new state rules aimed at reducing environmental impacts of construction and demolition.

CONTINUED FROM PAGE 1

interested parties: Special interest groups representing energy groups and product manufacturers wanted the 2018 International Energy Conservation Code adopted without any amendments, and housing industry groups, including REALTORS®, several homebuilder associations and building officials, opposed opening rulemaking. In his comments, Lipman said the commissioner could decide either way, but noted the keeping the current code in place was the best alternative. “Yet, between these two alternatives, the Administrative Law Judge recommends postponement of the rulemaking as the better choice,” wrote Lipman. As early as the 2018 technical review of the model building codes, DLI indicated that it wasn’t sure a new energy code for dwellings falls under Chapter 1322 and no in-depth technical review and consideration of amendments took place. The August hearing came as part of a federally required review of the U.S. Department of Energy’s review of the model energy code and proposed savings. The analysis of the comments provided by Lipman shows a careful review of the viewpoints presented by all parties. The lifetime costs savings

were weighed against the increased barriers to entry provided by increasing housing costs. The viewpoint of helping Minnesota communities reach climate goals was weighed against existing homes, not new homes, which are the issue in terms of efficiency. These considerations, along with a significant disruption to the six-year code cycle led to the recommendation. Lipman also noted that increased energy efficiency is still available for any consumer looking to go beyond code. Interested parties respond “We’re very pleased with this recommendation which underscores the need for increased housing affordability,” said David Siegel, executive director of Housing First Minnesota. “Reading his comments, it is clear that Judge

Lipman grasps the complexity of the housing discussion. Increased energy-efficiency standards hit low- and middle-income Minnesotans the hardest, and new homes are not the cause of cities not meeting their own subjective climate goals.” Siegel noted Housing First Minnesota is close to completing a performance path alternative it pledged to DLI and will do so if the commissioner concurs with Lipman. As of printing, Temporary Commissioner Roslyn Robertson has not indicated if she will concur with Judge Lipman’s decision. Note: This decision was announced just as this issue was going to the printer. Be sure to visit HousingIndustryNews.org for the latest developments on the Energy Code.

“Working together, we made a positive difference for Minnesota and our industry. It’s time state regulators changed the Energy Code amendment process to allow for more meaningful industry input.”

Steve Gottwalt

GOVERNMENT AFFAIRS CONSULTANT | CENTRAL MINNESOTA BUILDERS ASSOCIATION

HOUSING INDUSTRY NEWS

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REGULATORY AFFAIRS

Supply chain disruptions cause construction delays

Excelsior's new “Good Neighbor” requirements are the most restrictive zoning requirements in the state of Minnesota.

Good neighbor in Excelsior? That’s for the planning commission to decide As supply chains and production volumes became strained, builders nationwide noticed delays on certain materials.

Supply chains within every industry are fragile and susceptible to external stressors. Events like national disasters, military conflicts and, most recently, pandemics have thrown supply chains around the world out of rhythm with large-scale manufacturing impacts seen domestically. In early spring of this year, as concerns of the novel coronavirus emerging from Asia began to grow, the Harvard Business Review released a report detailing how this may impact the global supply chain. As China and its neighbors began to slow down manufacturing, the rest of the world began to see the ripple effects on their international and domestic supply chain operations. The Harvard Business Review stated in February that the global supply chain could expect to see the impacts by mid-March. They also warned that manufacturing chains that relied heavily on materials from Asia could be impacted for months. As the COVID-19 pandemic impacts have been closely monitored, the residential construction industry has noticed various areas of concern. The onset of the pandemic caused economic slowdowns and shutdowns around the globe for most of the spring and summer months. Many industries felt the pinch as supply chains and production volumes were strained.

HOUSING INDUSTRY NEWS

Builders nationwide have noticed increasing delays on certain materials. The rising cost and scarcity of softwood lumber have been most notable. In August, the cost of lumber increased 14.9%, according to the National Association of Home Builders. Unfortunately, the price of lumber is just one of many areas throughout the manufacturing industry that has become an area of concern. Home appliances manufacturers and retailers alike have not been able to keep up with the demand for home construction and remodeling projects. Many of these products and their parts are manufactured in Asia and in European countries hit hard by the virus, such as Italy and France. Aluminum has also become a scare material as a run on prepacked food and drinks have tightened the global supply. As a result, construction sites are noting a delay on aluminum-based materials such as garage doors, siding, roofing materials and other items. According to the Associated General Contractors of America, almost 45% of contractors surveyed have reported delays or disruptions in their procurement of impacted materials. As our state’s housing market continues to tighten its available supply, newly built homes are needed more than ever. However, supply chain problems are making the construction of new homes a more lengthy and expensive process.

At its Sept. 21 city council meeting, the city of Excelsior voted to adopt its “Good Neighbor Guidelines” by a 3-2 vote. The “Good Neighbor” requirements are the most restrictive zoning requirements in the state of Minnesota, possibly testing a local government’s authority on land use. The rationale for this change is to enable the city to preserve and enhance “the special character that has made the community so desirable.” While most cities’ zoning requirements include structure type, height and setback, Excelsior’s new guidelines include provisions for front porches, roof designs, building shape and design. The Good Neighbor program applies to all new homes, as well as any residential renovations resulting in “the increase of volume or reorientation or changes in setbacks of principal structure or accessory structure requiring a building permit.” The city’s planning commission, which is appointed by the council, will determine if projects meet the requirements. The city will hire an official city architect to facilitate this new program, with building permit fee increases likely implemented to cover the costs of this new program. According to documents approved on Sept. 21, the “[Excelsior] City Council finds that traditional zoning regulations (imposing setback, height, and lot/hardcover requirements), while necessary, are not sufficient to preserve the small-town character that has made Excelsior such a desirable place to live. Such traditional regulatory tools fail to ensure that new residential structures are compatible with the neighborhoods within which they are built.” Unlike general building permit applications used in most other municipalities, in Excelsior, permit applicants are encouraged to meet in advance of their application with both the city architect and the zoning administrator and provide them with detailed renderings. It is “strongly encouraged” to for property owners to attend these optional meetings, with the goal of troubleshooting the design in advance of a formal application. The new requirements are not without opposition. During the council meeting, opponents of the program said that subjective standards could lead to inconsistent outcomes. Land use experts contacted by Housing Industry News expressed strong concerns over an appointed body having such broad authority.

HOUSING ON THE HILL

Minnesota’s 2020 election outlook Q&A with a Minnesota elections expert and public affairs consultant The 2020 election cycle has been largely dominated by the national presidential race, which has been underway for nearly two years. Beyond the headlining national race, state and local races will be also be decided by voters in November. For the housing industry, no single government body has greater impact than the state legislature. The Minnesota legislature grants authority to cities and townships and also conducts oversight responsibilities for the myriad of state agencies which regulate housing. To better understand the electoral landscape in Minnesota, Housing Industry News interviewed Minnesota elections expert Todd Rapp on Sept. 29. Rapp has been working in elections for over three decades and is currently president of Rapp Strategies, a public affairs consulting firm in Minneapolis.

I will also be watching the 1st and 7th Congressional Districts. If Rep. Jim Hagedorn hangs on in the 1st Congressional District but Rep. Collin Peterson loses in the 7th Congressional District, it will be the final step in the transformation of rural townships and small towns into the state’s Republican base, replacing the western suburbs and exurban areas. Finally, we have had single-party control in Minnesota for only two of the past 30 years. If the DFL controls the legislature, they will control redistricting which will change the political landscape of the state for the next decade. Q: Is there a clear top issue for voters in Minnesota, or is it a mix of several items, such as COVID-19, the economy, public safety, etc.? Rapp: The top issues have changed this year.

Q: What are the key Minnesota outcomes people should be watching for in the 2020 election? Rapp: The most important outcome is wheth-

For many years, the top four issues have been K-12 education, health care coverage, jobs and reducing taxes. Today, COVID-19, law enforcement, economic justice, the supreme court and the limits of executive power are all in the mix.

er Minnesota continues to see 3 million or more voters turn out for a presidential race, even during a pandemic. In terms of the races, the suburbs turned Democratic in 2018, and it will be interesting to see if that result holds in both the presidential race and legislative races.

Q: What impact does the presence of presidential campaigns, with visits and advertising, have on Minnesota's local elections, if any? Rapp: This is a nationalized campaign, and

any time the presidential candidates come to town or makes a substantial ad buy, it energizes the base voters in ways that no local campaign can. At the same time, it can be challenging for candidates who are in districts which are leaning ideologically away from the center of their party—for example, President Trump may not help a Republican candidate in Edina, Minnetonka or Eden Prairie. Q: Can we anticipate any significant impact on legislative election results due to limits on retail politicking (door-knocks, gatherings, etc) in the COVID-19 era? Rapp: In closer legislative races, changes in

campaign strategy can surely have an impact on election results. Campaigns have made greater use of electronic communications and improved their targeting of voters, but door-knocking has been the foundation of local campaigns for decades. This year will be a test of whether campaigns can be successful without large-scale person-to-person contact. Q: What do you make of the shifting/ reordering of the traditional political boundaries in our state? Rapp: There is a significant divide between

urban and rural Minnesota, and it has been difficult for Gov. Walz’s ‘One Minnesota’

Todd Rapp Owner and CEO of Rapp Strategies

agenda to cut through the deep ideological differences in the state. Politically, this division is becoming more meaningful as the population of greater Minnesota shrinks and the population within the 694-494 beltway grows. The battleground is in those districts just outside of that beltway—Democrats had a good year there in 2018, and Republicans need to figure out how to turn that around this November.

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HOUSING INDUSTRY NEWS

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MARKET REPORT

Housing market report Minnesota housing market looks to recovery after COVID-19 The homebuilding industry in Minnesota had a record-breaking summer. However, August indicated a slowdown in permit activity. According to the U.S Census, the statewide number of single-family permits thus far in 2020 amounted to 9,915 new units. This is an 2.8% increase from August 2019. Statewide and metro home prices continue to increase. Home prices in the Twin Cities and Minnesota have increased 9.8% and 9.3%, respectively. Supply of homes for sale continues to get tighter.

State of Minnesota

Moorhead

SOURCE: CITY OF MOORHEAD

18,833

Duluth

Year-to-Date Single-Family Construction Through August, 2020 SOURCE: U.S. CENSUS

SOURCE: U.S. CENSUS

St. Cloud

through Jan. 20, 2020

Twin Cities

SOURCE: CITY OF ST. CLOUD

13,015

St. Cloud-area data not reported to U.S. Census

Mankato

255

SOURCE: U.S. CENSUS

Rochester

273

SOURCE: U.S. CENSUS

SOURCE: U.S. CENSUS. HOUSING FIRST MINNESOTA COLLECTED THE ABOVE PERMIT INFORMATION FROM AVAILABLE PUBLIC RESOURCES.

AUG. 2020

$315,000 +9.8%

$283,075

AUG. 2019

+9.3%

$286,900

Y-Y Change

AUG. 2019

$259,000

2019

$259,000

Twin Cities Median Sales Price

Minnesota Median Sales Price

SOURCE: MINNEAPOLIS REALTORS

SOURCE: MINNESOTA REALTORS

Twin Cities Construction Employment Past 5 Months

United States

South - 73

SOURCE: DEED

Midwest - 75

Northeast - 75

Regional Remodeling Market Indicies, 2020 Q2 SOURCE: NAHB

The Overall Remodeling Market Index is calculated by averaging the Current Marketing Index and the Future Market Indicators Index. Any number over 50 indicates that more remodelers view remodeling market conditions as higher than the previous quarter. Results are seasonally adjusted.

HOUSING INDUSTRY NEWS

SOURCE: DEED

Y-Y Change

$286,900

West - 72

Minnesota Construction Employment Past 5 Months

Employment Update Minnesota’s unemployment rate fell slightly to 7.4% in August, according to the Minnesota Department of Employment and Economic Development (DEED). This is compared to the July unemployment rate of 7.6%. The national unemployment rate also declined from 10.2% in July to 8.4% in August. Construction in Minnesota recorded an employment decline with a 5.9% employment loss, or 8,504 jobs, since August 2019.

CONTINUED FROM PAGE 1

“While we are pleased to see homebuilding activity continue to lead the economic recovery, we remain deeply concerned about the challenge of housing affordability,” said David Siegel, executive director of Housing First Minnesota. “Following more than a decade of underbuilding, our housing market is extremely undersupplied. This is causing existing home prices to continue their steep climb. Those in existing homes cannot move to their new move-up home, breaking the entire ecosystem. We’ve got to be able to reintroduce starter homes into this market, and with today’s regulatory roadblocks, we simply cannot.”

Looking forward, the demographic makeup of Minnesota forecasts sustained demand for housing. That leaves a short-term outlook of continued upward pressure on prices and intense competition for the limited number of homes on the market. “The driving forces behind the median price increase are the lack of inventory, historically low home mortgage interest rates and consumers realizing they need more space as a result of the pandemic,” said Chris Galler, CEO of Minnesota REALTORS® in a recent release. “Unless there is a significant rise in interest rates, we anticipate this trend will continue.”

MINNESOTA MEDIAN SALES PRICE BY MONTH SOURCE: MAR

MINNESOTA INVENTORY OF HOMES FOR SALE BY MONTH SOURCE: MAR

Making sense of mixed economic signals Typically, an economist will look at the traditional economic data signals and get an idea of where the markets may be headed for the next few months. In this economic recession, caused by the global pandemic, those data points have been giving experts mixed signals. Which could explain why few predicted our economy would be where it is today, especially when it comes to housing. “Normally, when we look at household demand, we look at the job numbers, labor and unemployment numbers and think this is going to give us a good sense of the market; not today,” said Ali Wolf, chief economist of Meyers Research. “Some of the strongest housing markets in the country right now, have some of the highest unemployment situations.” While unemployment is moving in the right direction in most regions, jobless claims continue at high levels. Consumers are nervous and yet they continue to spend each month. We’ve reached record highs in the stock market and at the same time have seen record levels of bankruptcies.

Wolf credits the confusing data trends to a K-shaped recovery. “One thing we have to acknowledge is that not all segments of the economy are equal. We’re looking at a K recovery where housing, retail sales, people that can work from home who still have jobs and have been saving money, and industries in the top half of the ‘K’ are living through a better economy, with some of these businesses having their best year in a decade,” said Wolf. “At the bottom half of the ‘K’ we have people that work in travel and tourism, conferences and events, their business is down 80-90%.”

Wolf points to the areas in the housing market where this K-shaped recovery is evident. “Tracking actively selling communities across the country, new home sales are up 33%, but nearly 1 in 6 FHA mortgages are delinquent,” Wolf said. How does the K-shaped recovery end? The hope would be that when the virus is under control and treatments become widely available the top half of the K would lift the bottom half up. “I still hold on to the hope that rising tides can lift all boats, and that the top half of the ‘K’ can lift up the bottom,” said Wolf.

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HOUSING INDUSTRY NEWS

| 9

MARKET REPORT

Record-low interest rates and an increased ability to work from anywhere has given many millenials momentum to get into the market.

More urban residents look to call the suburbs home When the nation began to lock down this past spring to stop the spread of the novel coronavirus, the value of home quickly became apparent. Where one lived turned into the locale for all of life’s activities: a place of work, a school, a workout facility, among many other things. This transformation left many reevaluating where they want to call home. As a result, many began to explore the option of buying a home in the suburbs. With record-low mortgage rates set to curb economic impacts, many all across the state began to view homeownership as a strong prospect. This is especially true for two cohorts nationally: renters and millennials.

According to a survey from Fannie Mae, 55% of consumers believed this summer was an excellent time to buy a home. This survey also reported the highest number of renters in the past five years who shared this sentiment. Access to shared amenities and proximity to restaurants, theatres and downtown offices that made renting an appealing option seemingly evaporated with the onset of the COVID-19 pandemic. According to Minnesota Realtors®, 52% of Realtors statewide reported more buyers searching for homes in the suburbs rather than in urban areas.

Many of those who are opting out of their urban locales come from the millennial generation. Although millennials have been slow to get into the housing market, the record-low interest rates and increased ability to work from anywhere has seemingly given their cohort momentum to get into the market. This increased momentum and demand for homes in the suburbs have caused housing supply issues across many major metro areas. In the Twin Cities metro area, listings were down 32% from August 2019. Additionally, the median sales price of a home in the metro area increased 9% since last year.

TOP CITIES YTD BY PERMIT NUMBERS According to the Keystone Report through September 2020

503 LAKEVILLE

10 |

HOUSING INDUSTRY NEWS

232

WOODBURY

218 OTSEGO

203 PLYMOUTH

203

COTTAGE GROVE

Cabin fever a symptom of staying at home With travel plans put on hold, people working remotely and more time spent at home, more and more families are looking for a getaway up north. According to the Greater Lakes Association of REALTORS® (GLAR), which represents the Brainerd Lakes, Cross Lake, and Crosby lakes area, closed sales are up 7-16% over the last 12 months. “Everything seems to be moving. Waterfront, acreage, city living,” said Dolly Matten, executive director at GLAR. “If it’s priced right, multiple offers are occurring.” With an increase in interest comes an increase in prices. According to GLAR’s latest market report, the median sales price in the lakes area was up 14% to $225,000 in

August, with some areas seeing a nearly 40% increase in year-to-date median sales prices. The increase in buyers looking for cabins up north is something Matten says they haven’t seen before. “Never. The demand is higher than it’s ever been in history,” said Matten. The global pandemic’s role in the surge in cabin sales is clear to Matten who says whether or not a property has access to internet is often a deal breaker in many sales. Since March when the COVID-19 outbreak hit Minnesota, month’s supply of inventory went from being down 10% compared to 2019, to down 52% in August compared to 2019.

GREATER LAKES AREA SUPPLY OF INVENTORY SOURCE: GLAR

5.8 MONTHS

5.5 MONTHS

2.6 MONTHS

-18.3%

-5.2%

-52.7%

2018

2019

2020

GREATER LAKES AREA HISTORICAL MEDIAN SALES PRICE BY MONTH SOURCE: GLAR

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| 11

MARKET REPORT

Builder confidence hits all-time high The last time builder confidence was this high, the movie Titanic could be seen in theaters and Apple was a struggling tech company. According to the National Association of Home Builders (NAHB), the Wells Fargo Housing Market Index (HMI) rose to an all-time high of 83 in September. This is the highest level recorded in the survey’s 35-year history, beating the previous builder confidence record set in December 1998. “Lumber prices are now up more than 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home,” said

NAHB Chief Economist Robert Dietz. “That said, the suburban shift for homebuilding is keeping builders busy, supported on the demand side by low interest rates. In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.” The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective

buyers as “high to very high,” “average” or “low to very low.” The HMI gauging current sales conditions rose four points to 88, the component measuring sales expectations in the next six months increased six points to 84, and the measure charting traffic of prospective buyers posted a nine-point gain to 73. Looking at the threemonth moving averages for regional HMI scores, the Northeast increased 11 points to 76, the Midwest increased nine points to 72, the South rose eight points to 79 and the West increased seven points to 85.

The NAHB/Wells Fargo Housing Market Index (HMI) rose to an all-time high of 83 in September.

NAHB/WELLS FARGO HOUSING MARKET INDEX (HMI) SOURCE: NAHB

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Homeowners look to refresh their space following more time at home As Minnesotans move into the eighth month of COVID-19, they are continuing to spend more time at home than ever before. With additional time at home, comes more time to rethink the space they are in. “After the shutdown, there was a period of time of adjusting for everyone. For many, people are at home more and are expecting more out of our home. From using it for their office, school, gym, entertainment and more meals at home, people are spending more time at home and need their home to handle those needs,” said Barak Steenlage, co-owner of Anchor Builders. “So, whether it is wanting to do a project the homeowners have been thinking about for a while or trying to address a new need, I’ve seen a large increase of requests for remodels, additions and new homes.” Remodelers report that many clients are requesting home office space, kitchen remodels, playrooms, living room expansions, garages and home gyms. Meg Jaeger, owner of Mega Remodel, said that she’s meeting with many clients who have considered remodeling for years and say that now that they’re working from home and seeing the dysfunctional spaces on a daily basis, they can’t wait any longer. “Expanding main living areas and better space planning in main-floor living areas have been popular. With families spending more time in the ‘core’ of the home, even spacious homes are feeling crowded,” said Jaeger. Since traveling is no longer at the top of

most people’s to-do lists, families also seem to be reallocating those funds toward home improvement projects.

“With families spending more time in the ‘core’ of the home, even spacious homes are feeling crowded.” Meg Jaeger

OWNER | MEGA REMODEL

“I have had many clients tell me that they have a generous travel account due to some long-term family plans, and since they won’t be able to travel overseas or take a major trip, they are going to use those funds to tackle a project that has been long overdue,” said Jaeger. “I have also heard from many clients that they are using an existing equity line or refinancing their mortgage with such low interest rates. There are so many ways to reallocate funds in order to complete a remodel project, whether it is long-awaited or just surfaced due to new lifestyles during the pandemic.” With housing inventory at an all-time low, remodeling the space you already have feels like the most economical option for many, but cost is also a concern when it comes to remodeling.

Kitchen remodeling project from Mega Remodel.

“While people are eager to complete these projects, they are also surprised by the cost. Lumber prices have been steadily increasing and labor is in high demand, so things are just more expensive these days,” said James Julkowski, owner of Julkowski, Inc. Other remodelers are also reporting delays on the supply side for materials such as appliances, decking, doors, millwork and hardware.

Lumber prices increased 14.9% in August, marking the largest four-month gain since such data was first recorded in 1949. Unfortunately, those costs are passed down to the clients. The supply chain is expected to correct itself, but in the meantime, demand remains strong and remodelers remain busy.

Home tours adapt to help homebuyers find homes during COVID-19 Following a spring home tour season that was cut short, the Twin Cities premier home tour, the Parade of Homes, was able to adapt and thrive this fall. With inventory at record lows and homebuyer demand at record highs, interest in newly built homes is soaring. “The Parade of Homes has a long history of helping area families find homes, builders, remodelers, resources and inspiration for homes since 1949,” said David Siegel, executive director of Housing First Minnesota. “Builders and attendees were happy to get a little taste of normality during a year that has been anything but.”

“Builders and attendees were happy to get a little taste of normality during a year that has been anything but.” David Siegel

EXECUTIVE DIRECTOR | HOUSING FIRST MINNESOTA

Occupancy was limited per home and masks and distancing were required inside each home. Many builders also participated in the tour with virtual options for buyers that were interested in shopping for homes and connecting with builders from the comfort of their own homes.

The Parade of Homes featured 355 new homes this fall.

HOUSING INDUSTRY NEWS

| 13

INDUSTRY GIVES BACK

Housing First Minnesota Foundation hands over the keys to North St. Paul Housing for Heroes project The Housing First Minnesota Foundation completed its 56th community build project and fourth Housing for Heroes home for veterans in September. The North St. Paul home was spearheaded by build partner Lennar and constructed by 49 trade partners. Sen. Charles Wiger, Rep. Leon Lillie and Rep. Anne Neu attended the dedication ceremony on Sept. 24. Keys were handed over to the Minnesota Assistance Council for Veterans (MACV) who will provide transitional housing services to homeless veterans in need to rebuild their lives. The new four-bedroom home is located off of Margaret Street and 12th Avenue, across the street from Veterans Park. This home will provide veterans a safe place to call home for years to come. “We started this build project late May, and I’m

blown away by Lennar’s commitment and the trade partners’ dedication to complete this project within 100 days during a pandemic,” said Donnie Brown, director of the Housing First Minnesota Foundation. “It’s simply incredible.” “It has been our honor to work on these Housing for Heroes projects with Housing First Minnesota Foundation,” said Bill Burgess, division president of Lennar Minnesota. “We’re fortunate to be able to use our resources and skills to give back to our veterans who have sacrificed so much.” The St. Paul Area Association of REALTORS® Charitable Foundation, City of North St. Paul, Richard M. Schulze Family Foundation, Bank of America, Felhaber Larson, Stewart Title and many trade partners helped support this project.

“We started this build project late May, and I’m blown away by Lennar’s commitment and the trade partners’ dedication to complete this project within 100 days during a pandemic.” Donnie Brown

DIRECTOR | HOUSING FIRST MINNESOTA FOUNDATION

The North St. Paul Housing for Heroes home will provide transitional housing services to veterans in need.

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HOUSING INDUSTRY NEWS

W W W . T I L E S H O P . C O M

IN THE DIRT

A quick recap of housing news and development updates

SOURCE: SPACECRAFTING PHOTOGRAPHY

SOURCE: CITY OF SARTELL

SOURCE: MN HOUSING FINANCE AGENCY

Pulte Homes announces new Chaska development

City of Sartell changes zoning map

CARES Act money distributed as housing assistance

Pulte Homes of Minnesota announced that a second Minnesota community for seniors age 55 and older will be built north of downtown Chaska. The development will feature 265 homes with prices ranging from the upper $200,000s to the upper $300,000s.

Following a year’s worth of discussion between the development community and residents, the city of Sartell updated their zoning for residential and business zones throughout the city. With the changes, the city expects fewer Planned Unit Development agreements to be used.

Earlier this year, Gov. Walz dedicated $100 million of CARES Act funds to be used for housing assistance throughout the state. As of late September, the Minnesota Housing Finance Agency has spent at least $10 million of the allocation. There have been more than 4,500 completed applications with thousands more that have started the process.

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