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Minneapolis Fed Construction Survey – Final Results and Collateral Material

Good morning Construction Survey Partners –

We’re released general survey results into the wild, and I wanted to follow up with all partners to deliver a variety of data products for your organizations, at least some of which I hope you will share with your members.

  • May 6 webinar discussing results (30 minutes) — https://www.minneapolisfed.org/events/2022/regional-economic-conditions-construction-sector-activity-may
  • A summary PPT of survey results.
    • I also offer a lot of time-series results here that are not in the spreadsheet.
  • A spreadsheet of survey results, by question, and including comments (always many, and very interesting)

A couple of notes on the survey results:

  • The large majority of survey respondents were in Minnesota, so I am not doing any state breakouts
  • I offer some sectoral breakdowns in the PPT, but do not provide the data in the spreadsheet in an effort to keep that shorter as well.
  • I can provide special cuts of the data on request
  • I am also available to talk to your members and/or board of directors to discuss survey results and other “economic conditions” matters

Next survey: On our new bi-annual survey schedule, right now I am planning on the Fall survey in early November (tentatively Nov 7-14). I’ll be in touch when we get closer to that survey.

Thank you again for your commitment to this survey. I hope it provides the value you need to continue.

Ron Wirtz
Regional Outreach Director

FEDERAL RESERVE BANK OF MINNEAPOLIS
Pursuing an economy that works for all of us

W 612-204-5262     M  612-430-4917
@RonWirtz I minneapolisfed.org I LinkedIn I Twitter

  • May 13, 2022 by Renee Ellerman in Uncategorized

WCCO Radio Interview with Grace Keliher: Construction Labor Shortages and Supply Chain Issues Mean Delays for Homebuilders

https://www.audacy.com/wccoradio/news/local/labor-shortage-supply-chain-issues-mean-delays-for-builders

“I don’t want to say if you’re breathing you get a job but my folks across the state are seeing huge challenges”

Construction labor shortages and supply chain issues are creating delays for eager homebuilders across the state. Many sites are sitting empty, or half finished, with materials waiting for contractors to find the labor to finish building the homes.

Grace Keliher is Executive Vice President of the Builders Association of Minnesota and says the pandemic is highlighting systemic issues when it comes to construction and worker shortages. Mirroring what has been dubbed the “Great Resignation” across the U.S., Keliher says they just need people to work on these jobs, and not enough people are taking up skilled labor positions.

“I don’t want to say if you’re breathing you get a job, but my folks across the state are seeing huge challenges,” she told WCCO’s Mark Freie. “And a lot of folks are just retiring.”

Keliher also says outdated child labor laws in Minnesota are keeping 16 and 17 year-olds out of construction sites, and that won’t help to mitigate the need for workers in the future.

“Can’t use an air hammer, can’t do anything that might be at all dangerous there,” explains Keliher. “So those opportunities to see what the work is like, to talk to people in the business, to learn more in this field for construction, doesn’t happen. You’re going to have to use a hammer on that house. There’s concerns about how you put up scaffolding and who puts up the roof and that endangering a child. Where kids got their hands on experience, doesn’t happen in Minnesota until they get to college.”

Keliher says Minnesota needs to rethink its approach and offer real world experience to students in K-12 to attract more workers to trade jobs directly out of high school.

Meanwhile, April was the best-on-record for home builders in the Twin Cities with surge of activity after what was a slow start to 2022.

Multifamily construction in the metro area was way up from last April according to Housing First Minnesota. There were 750 permits pulled for new single-family homes for the month, a 12% increase over April of last year. Permits were pulled for 2,859 multifamily units, more than a 1,000% increase from last April.

“We continue to have a shortage of homes for sale in our region, which is why even with the supply chain constraints, labor shortage, and climbing mortgage rates, we continue to see growth in new home production,” said James Julkowski, who is the president of Housing First Minnesota.

Clearly the need for housing is there with home prices and rents skyrocketing across the region. Median sales prices for homes in Minneapolis have risen nearly 8% year-over-year and a lack of inventory is one of the main issues. Over the past five years home values in Minneapolis have increased by more than 46%.

Despite the Federal Reserve raising interest rates, and with a promise to continue to raise them from historic lows, the housing market just hasn’t slowed down and that is driving the need for more housing across the region. Something the builders are struggling to keep up with.

(WCCO Radio)

 

 

 

 

 

 

  • May 3, 2022 by Renee Ellerman in Uncategorized

Why Home Prices in the Twin Cities Keep Going Up

The rise in housing prices is nothing new, though prices weren’t rising quite this steeply until the pandemic hit.

Anybody who knows anybody house hunting in the Twin Cities right now has probably heard the horror stories: in the current real estate market, some people are putting offers on houses far and above the sellers’ asking price — and getting beat by people making even higher offers.

In recent years, low interest rates and high demand for a limited number of houses currently on the market has driven home prices up and up and up — and up, and up — even through a pandemic recession.

Even with mortgage interest rates rising — and expected to rise more soon — home price increases show no signs of slowing down, yet.

Why prices are up

The rise in housing prices is nothing new, though prices weren’t rising quite this steeply until the pandemic hit. If you go back to about 2012, the market started to show a steady recovery from the price plummet of the Great Recession.

“The market rebuilt strong all the way through, up until the COVID pandemic,” said Chris Galler, the CEO of Minnesota Realtors. Then, the market picked up — for a few major reasons on both the demand and supply side of the equation.

Zillow Home Value Index by month for the Twin Cities, 2000-present
Zillow’s Home Value Index is designed to be a seasonally-adjusted measure of a typical home’s value in a market, reflecting homes in the 35th to 65th percentile range.
graph of Twin Cities home prices

On the demand side, things went a little nuts during the pandemic. Many office workers were suddenly using their homes as offices. The kids were home from school, too, which caused many to re-think their living situations and what they wanted out of a home.

Between government stimulus checks and staying home, household savings increased, allowing some people to save up for down payments. At the same time, low mortgage interest rates — under 3 percent for a 30-year fixed-rate mortgage at times during the pandemic — made it cheaper to borrow money.

30-Year fixed rate mortgage interest rate, averaged by year, 1971-2021
30-year fixed mortgage rates

Source: Federal Reserve Bank of St. Louis

And on top of all that are generational dynamics. Many millennials — people in mid-late-20s to early 40s — are the biggest generation since baby boomers — are in a prime home buying age group, which means a lot of people are in the market. At the same time, baby boomers are living longer and staying in their houses longer than past generations had, restricting the supply of units on the market.

The supply-side issues have roots in the Great Recession, when the construction of homes ground to a halt after the bottom fell out of the real estate market. In Minnesota as elsewhere, the number of homes built lagged behind growth in the population.

“Supply is lagging demand at tremendous levels,” said Libby Starling, director of the Federal Reserve Bank of Minneapolis’ Community Development and Engagement Department, who estimates that the seven-county Twin Cities metro’s housing stock is short 80,000 housing units relative to what’s needed to keep pace with population growth.  “What we’re seeing is the pressure of demand when there’s simply not enough supply to meet it.”

While home construction has picked up, it’s not making up for the lost years. Additionally, the rising cost of building materials means new homes are less affordable than they might be otherwise.

Put the demand and supply issues together and you have a lot of competition for a limited housing stock. Realtors often consider the market to have good inventory levels if there are six months worth of homes for sale, meaning it would take about six months to sell all the houses on the market. Inventory has been a lot lower than that lately, dropping from 0.9 months last February to 0.7 months this February in the Twin Cities, according to Minnesota Realtors.

Low inventory and high demand has prompted realtors to try to entice sellers into the market. In high-demand neighborhoods, some realtors knock on doors or drop off flyers that encourage homeowners to sell their houses or specify the types of homes their clients are looking for, including their budget.

“We’re having to actually go and pursue things through all different avenues to find things for [buyers],” said Tracy Baglio, who has been a realtor in the Twin Cities for decades and is the former president of the St. Paul Area Association of Realtors.

It’s in this environment that houses are selling quickly. Stories of multiple over-asking offers within the first day on the market are common. And in the Twin Cities, sellers, on average, are getting 100.9  percent of the list price for their homes compared to 100.2 percent a year ago, according to Minnesota Realtors.

All the supply and demand mismatch has created an especially tough homebuying environment for people looking to buy in the lower end of the market, Starling said.

Starling said some analysis suggests that with tight inventory in the middle of the market, households that can afford $400,000 or $500,000 homes are instead placing high bids on homes under that budget, beating out lower bids. Investors, too, are able to put attractive offers on homes, driving up prices.

“[That’s having the subsequent effect on affordability for lower income households, for whom these are the only options,” Starling said.

Another bubble?

Given fast-rising home values, Starling said it’s valid to ask whether this is another housing bubble, like the one that preceded the Great Recession. But the situation today is different in many ways that make it unlikely housing prices will see a major recession like they did at that time.

Leading up to the 2008 recession, people could borrow a lot of money to buy a house, without putting much — if anything — down, Galler said. This caused prices to rise as people paid large sums for homes. Lenders were also less scrutinizing of credit scores, which led some people to get in way over their heads, Galler said. When the Great Recession hit and home values dropped, many people were underwater on their mortgages, owing more than their houses were worth. Ultimately, there was a rash of foreclosures.

Today, Galler said, is different. Lending standards are stricter. Lots of houses are being bought with 20 percent or more down.

At a basic level, the fundamentals are pretty different now compared to then, Starling said, and without some huge factor — like the shutdown of a major Twin Cities employer that moves thousands and thousands of jobs out of the state, it’s not likely.

“I think the fundamentals are very much that we need more housing to keep up with household growth in our region,” she said. “Household growth is slowing but still we have a lot of housing needs to catch up on.”

Slowdown ahead?

While housing prices don’t seem likely to drop rapidly like they did when the 2008 bubble burst, there are some signs that the rapid growth in prices may start to slow down.

During the pandemic, there were a lot of factors injecting money into the economy: government stimulus payments, an increase in savings as people stayed home and low interest rates helped money flow, contributing to faster-than-usual inflation.

Mortgage interest rates began to tick up in early 2021. In mid-March, the Federal Reserve raised interest rates, and has signaled they will rise further – an effort to slow down inflation — in the future.

Even with interest rates rising steadily over last year and the recent rate hike — weekly 30-year fixed-rate mortgage interest rates averaged  4.7 percent in the last week, a jump from less than 4 percent in March — the housing market hasn’t shown signs of slowing down yet.

The effect of the recent rate hike, mid-March, likely hasn’t been seen in the market yet, said Andrew Babula, director of the real estate program at the University of St. Thomas Opus College of Business. Many people closing on houses now were locked into rates before the hike.

Behavior around housing doesn’t change as quickly as it does around, say, grocery store or gasoline purchases, Galler said. If you look at the trajectory of interest rates over time, they still remain very low.

“People say, well, once we hit the high interest rates people won’t buy homes,” Galler said. “They will. They did during the ’80s, when we had 15, 16, 17, 18 percent interest rates.”

Now, with interest rates expected to rise further, some people may be trying to buy quickly before they rise more.

But the effect of the rate hikes are likely to show up eventually, Babula said.

“The expectation is that is going to slow things down,” he said. Given that supply and demand issues remain, the rate will likely have some dampening effect on price increases but not stop them entirely.

“Prices will probably not continue to increase at the rate … they have been, but they’ll either remain pretty steady or slowly go up,” he said.

Still a good time to buy?

Given all the factors at play — rising prices and rising interest rates, a lot of buyers may be asking themselves whether now is a good time to buy a house.

That depends more on the homebuyer’s situation than it does on market factors, Galler said.

If people feel secure in their job, like the neighborhood they’re buying in, can afford the mortgage payment and plan to stay for at least five to seven years, those are good reasons to buy a house, Galler said.

“Price appreciation has been significant because of low inventory the last few years and very, very low interest rates. But it probably will go back to a more normalized marketplace and that’s where that five to seven years really comes in,” he said.

Baglio said the fact that investors — who buy based on numbers and not emotions — are buying is an indication the market is strong.

Her biggest advice for prospective buyers in this market is to have patience in this competitive market.

“Just have patience for the right thing,” she said.

(MinnPost/ Twin Cities Business)

  • April 14, 2022 by Renee Ellerman in Uncategorized

Survey USA: Minnesotans Want Budget Surplus Back

There are all kinds of plans, ideas, and proposals for what to do with Minnesota’s $9.25 billion budget surplus, from spending on education or paid family leave to giving much of the surplus back to taxpayers.

In our latest KSTP/SurveyUSA poll, it’s clear that most Minnesotans want much of the surplus back one way or another.

According to the survey, 68% of respondents say they agree with a plan proposed by Gov. Tim Walz to send direct payments of $500 to single taxpayers and $1,000 to married tax filers. Only 18% disagree, and 14% are not sure.

Those results did not surprise Carleton College political analyst Steven Schier. “When you say here’s $500, do you want it? What do you think most people will say? Yes!,” Schier said with a laugh.

Survey respondents also favor a state Senate Republican plan to cut income taxes for nearly every Minnesotan who earns a taxable income by reducing the state’s first tax bracket rate. The plan receives 53% support, with just 24% opposed.

But the most popular idea would be a combination of the two plans.

The survey shows 73% favor both direct payments and cutting income taxes, and just 16% oppose such an idea that no one has formally proposed.

“Tax cuts are popular,” Schier says. “They’re not as popular as the $500 check because a tax cut is a bit imprecise. Who’s it for? How much? How does it help me.” Combining the direct payments the governor calls “Walz check” with tax cuts Republicans want is a popular idea. “It was my money to begin with. It’s $500. I’m getting it back. Yes. Please. Now,” Schier told 5 EYEWITNESS NEWS.

Another popular proposal is eliminating taxes on all Social Security income. In our survey, 81% support the idea, with just 7% opposed. However, both Gov. Walz and DFL members of the state House opposed that idea from Republicans. Instead, the House has a plan for tax credits for families with young children.

“The House position is a very complex position, and it’s not easy to explain to voters, and that’s a political disadvantage for House Democrats,” Schier says.

And in an election year, that could be key because all sides are looking for a political advantage.

SurveyUSA interviewed a representative cross-section of 650 Minnesota adults online 04/06/22 through 04/11/22, using sample provided by Lucid Holdings LLC of New Orleans. Of the adults, 556 were registered to vote and were asked the questions which follow. The pool of adult survey respondents was weighted to US Census targets for gender, age, race, education, and home ownership.

SurveyUSA-poll-results-04.12.22

(KSTP)

  • April 13, 2022 by Renee Ellerman in Uncategorized

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