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Published May 08 2010

Building permits on the rise, but average value down

Building permits for single-family homes are up so far this year in Fargo, but the average permit value is down, which could signify the city is catching on to a national trend of smaller, more efficient homes, the city’s top planner said.

Then again, a lot of it probably has to do with the tax credit for first-time homebuyers that just expired, says Terry Becker, president of the Home Builders Association of Fargo-Moorhead.

Whatever the reason, the average value of single-family detached home permits issued in Fargo from Jan. 1 to April 30 was $141,486, the lowest average for that time period since at least 2005. The next lowest average was $151,596 in 2007.

City Planning Director Jim Gilmour said the lower values, which generally equate to less square footage, may mean the city’s blast of big-lot development is tapering off.

Fargo still has a sizable inventory of large lots in existing developments, and three of the four new subdivisions being platted this summer in Fargo have plentiful small lots, he said.

In a recent report, the American Planning Association said demand for more compact residential development is growing as a result of demographic trends toward smaller household sizes and more diverse housing needs, along with shifting preferences for in-town, walkable neighborhoods.

Large-lot development appears to have peaked while demand for small-lot development is expected to rise, the report said.

“We may be seeing kind of the beginning of that trend,” Gilmour said.

Of the 59 permits Fargo issued for single-family detached homes through April 30 of this year, 23 had values of $100,000 or less. Only three were for more than $250,000.

In Moorhead, the average value of 37 permits in the same category and period was $178,872, although it drops to $154,675 when excluding a $1.05 million home on 48th Avenue Southwest. Four other permits had values of $250,000 or more.

West Fargo had the highest average permit value in the category among the three cities, at $182,280 based on 41 permits issued through April 30.

In Fargo, J & L Construction is building 14 of the 23 homes with permit values of less than $100,000.

Ron Rheault, the company’s marketing manager, said there’s always a strong demand for homes in the $130,000 range, which is roughly the end price when the lot price and other costs are added.

The smaller homes are attractive to first-time homebuyers and young professionals with small families as well as the growing number of empty-nested baby boomers looking to downsize to a home with more efficiency and less maintenance, he said.

“It fits the whole gamut of the market,” said Rheault, who’s also a Realtor with Town & Country Realty.

Demand for the lower-end homes spiked with the government’s offer of tax credits for first-time homebuyers and certain repeat buyers, he said. Last week was hectic, with buyers racing to sign purchase contracts to beat the April 30 deadline, but sales slowed to a normal pace this week, he said.

Rheault predicted the housing market will continue to be busiest in the under-$200,000 range but said he still expects to see houses being built in the $300,000 to $500,000 range.

“You’re still going to see some of that, but not to the percentage that you did,” he said.

Becker said he believes the lower average permit value has a lot to do with the tax credit that just expired.

Becker said there remains a lot of interest in all price ranges, noting his construction firm just sold a nearly $800,000 house during the recent Parade of Homes, which had “overwhelming” turnout.

“It is true, though, that people are downsizing somewhat, but they’re still looking for all the amenities yet, which still kind of drives the price up there a little bit,” he said.

Readers can reach Forum reporter Mike Nowatzki at (701) 241-5528