More building and remodeling are on way

Record-low mortgage rates and rising home sales mean better times ahead for the area's contractors.

That's according to two new reports that show that both home construction and remodeling activities are on the rise in the Twin Cities and nationwide.

MetroStudy said local housing starts were up 3.8 percent compared with last year, and the Joint Center for Housing Studies of Harvard University reported that remodeling activity across the nation is expected to increase almost 6 percent this year.

"I'm very optimistic," said Scot Waggoner, owner and CEO of W.B. Builders. "People were uncertain for such a long time, but now they're fed up with it. They have the money and they're going to do their project."

Waggoner said his company is so confident about the market that it has bought a piece of land and are planning to build a house that will be available for purchase.

"We're looking forward to getting that in the ground and getting it sold," he said.

Indeed, while new home construction is still near record lows, business in picking up. Ryan Jones of the Twin Cities office of MetroStudy said this week there were 3,276 new housing starts in the Twin Cities during the first quarter, putting the supply of new houses in the Twin Cities at 7.1 months. The market is considered healthy, or in balance, when there's a six- to seven-month supply.

MetroStudy tracks housing construction throughout the country by driving through developments and counting vacant lots, houses under construction and houses for sale. It's a different approach than the one taken by the Builders Association of the Twin Cities, which contracts with the Keystone Report to collect building permit applications from various cities.

A "start" signals construction of a home and comes after the permit is pulled. During March, home builders had plans to build 639 new units, a 164 percent increase compared with last year, according to the Keystone Report. More than half of those units were apartments.

Jones said new household formation and an improving economy will help boost prospects for the Twin Cities, which he said has become one of the healthiest construction markets in the country. Still, new home sales need to pick up to keep pace with construction.

"While new home activity is still hovering at painfully low levels," Jones said. "The market is poised for more consistent expansion in 2012."

Homeowners have shown they are more willing to tackle home improvement projects. In fact, the Joint Center for Housing Studies of Harvard University said this week that annual remodeling activity is expected to increase 5.9 percent by the end of the year. That sector of the industry is getting a boost from stronger home sales and low mortgage interest rates, which are enabling homeowners to borrow money to do fix-up projects around the house.

For the past several years, homeowners have been reluctant to put more money into their houses because values were falling, and for the most part it's still difficult because qualifying for a loan is so much more difficult than it use to be. But that's slowly changing as homeowners gain confidence that prices have stopped falling, and they try to advantage of record-low rates.

The increase comes after two years of historic lows for the industry.

"Hopefully, we're finally moving beyond simple volatility in the home improvement spending numbers to a period of sustained growth," said Eric Belsky managing director of the Joint Center.

Freddie Mac said this week that the average rate on a 30-year fixed-rate mortgage was 3.9 percent with the 15-year at 3.13 percent. The average 5-year adjustable rate mortgage hit a new all-time low of 2.78 percent.

"People are getting equity out of their houses and are putting it back in with a brand-new bathroom or basement," Waggoner said. "And they can do that with no money out of pocket."

Jim Buchta • 612-673-7376