Can Minnesota lumberyards sustain the Pulte Homes megadevelopment?

There's an extent to which New Brighton, Minn. represents the national homebuilding industry at large. Under the guise of a statewide housing recovery that's lurching forward in fits and starts, the community is due for a major expansion that is likely to place demand ahead of supply. The good news, for now at least, seems to be that local lumberyards will have no problem accommodating Pulte Homes' megasized development project, but the prospect of increased business isn't drawing a tremendous of enthusiasm.

On June 11, Pulte Homes received approval to build 86 single-family homes and 34 townhomes within 27 acres west of Old Highway 8, the Sun Focus reports. With an average sales price of $385,000 for single-family homes and $170,000 for townhomes, the project (valued at $33.6 million) will put approximately $1.3 million into the city's hands in exchange for the land, in addition to an annual tax revenue of $336,000.

Daniel Fesler, president of Lampert Yards, said the lumberyard would take the business but would not expect to turn a major profit. 

"We don't go after production builders in a big way - you can't make any money on them," he said in an email interview. "They just give you volume and they over-demand. Because track builders work on high volume/low price, you can't really benefit from their projects."

Overall, this isn't the biggest development project in Pulte's arsenal. According to spokeswoman Valerie Dolenga, the homebuilder's developments range in size from 10-unit neighborhoods to 5,000-unit master-planned communities. Pulte works with both national and local trade partners.

"Quite frankly, our lumber partners can handle the increased request for lumber," said Dolenga in an email.

This runs slightly contrary to a recent report by the National Association of Home Builders, which found that homebuilders and lumber dealers were experiencing significant lumber shortages that falls short of rising demand.

"While a nascent housing recovery is underway, as reflected by the modest increase in sales by dealers, it's clear that the ongoing material shortages and price increases being reported by dealers continue to be a cause for concern as we move into the latter half of 2013," said Michael O'Brien, National Lumber and Building Materials Dealer Association president and CEO.

According to Fesler, Minnesota was the first to enter the housing downturn in 2005, but the state initiated a steady recovery last year that has been slightly hampered by bad spring weather and recent storm damage.

"The economy in Minnesota is rising; existing house prices are seeing appreciation again," he said. "Days on market for resale is shrinking; good houses are selling quickly, sometimes with multiple offers. [There are] more housing starts last year than the previous two to three years, [and] projects have increased in number and size."

At the very least, the project, which is slated to run from 2014 to 2018, will be a boon to Pulte. Yahoo! Finance reports that PulteGroup, Inc. (PHM) was upgraded to a Zacks Rank #1 (Strong Buy) on Jul. 2 on the heels of a major share price surge.