Permit values for new homes under construction in the Spokane area have been on the rise this year, a good indication that the upscale residential market has started to rebound, some industry observers say.

The average construction value for single-family home permits issued in unincorporated Spokane County and the cities of Spokane and Spokane Valley in the first five months of 2012 was $279,469, up from $201,190 in the year-earlier period.

George Paras, a principal in Paras Homes LLC, of Spokane, says 2011 appears to have been the bottom of the cycle for demand for midpriced to upper-end homes, and he's seeing an increase this year in sales in the $200,000-to-$400,000 segment of the new-home market.

"There's pent-up demand from people who want to make lifestyle changes and are now ready to move ahead," he says. "We were busy the last two years talking to people, but many weren't ready to make the commitment. This year, the return ratio is higher."

The biggest rise in average new-home value is in unincorporated Spokane County. The county has issued 147 building permits for single-family homes in the first five months of the year, up from 136 in the same period last year.

The average construction value was $310,900, a whopping 40 percent increase compared with the average permit value issued in the year-earlier period.

The city of Spokane has issued 67 building permits in the first five months of the year, down one permit from the same period in 2011. The average permit value through May 2012 was $261,940 up 29 percent from the year-earlier period.

Spokane Valley saw a drop in the number of new homes under construction with 31 permits issued in the first five months of the year, compared with 48 in the year-earlier period. The average permit value, though, was $168,375, up 19 percent from a year earlier.

John Johnson, a manager at Victory Homes, of Post Falls, says construction values have been climbing upward because houses under construction are larger on average than last year.

"It's not because their selling for more dollars per square foot," he says.

Victory Homes, which entered the Spokane-area market in 2010, is expecting a growth year in certain segments of the market, Johnson says.

"This year will be somewhat better than last year and the year before," he says. "Of course, we would like to build more houses."

The improvement, though, is mainly in the move-up market, Johnson says.

"In the past, we built at all (price) levels," he says. "Now, we're concentrating on $200,000 to $250,000 homes."

Johnson suggests the entry-level market isn't showing the same improvement because of tightened credit and financing constraints.

"There's a problem now with that segment," he says. "The entry-level market should never go away."

Joel White, executive officer of the Spokane Home Builders Association, says the entry-level market hasn't disappeared, but buyers looking for homes in the $130,000-to-$150,000 range, and who can get financing, also have a lot to choose from in the existing-home market.

"Houses are available in the community that they can buy for much less than that," White says.

There's not as much inventory, however, in the new custom-home segment of the market, in which pent-up demand has been building over the last few years, he says.

"We've known for a long time that people want to move up, but they've been wary of the economy," White says. "They've wanted to move on to the next bigger house, but were waiting because of job uncertainty. Now, they're willing to move forward."

First, though, many prospective buyers have to sell their homes before they can move into an upgrade home, he says.

"The resale market is starting to improve, so more people are able to sell existing homes," White says. "Once the economy truly shows it's recovering, we'll see even more growth."

Paras says some factors influencing buying decisions for the move-up market include mortgage rates that have remained historically low and an increase in overall home sales, meaning more move-up buyers have been able to sell the homes they want to vacate.

At the same time, overall inventory is down, which is helping to stabilize sales prices, he says.

The Spokane Association of Realtors reports that 1,591 homes were sold in the first five months of the year through its Multiple Listing Service, up 13.6 percent from a year earlier. The increase in sales is accompanied by a decrease in inventory. The number of MLS active listings as of June 1, for example, was 2,720, down 8.6 percent from a year earlier.

While new-home construction values are on the rise, overall residential real estate prices, which had been falling over the last few years, have only recently begun to stabilize. The median sales price for all homes sold through the MLS through the first five months of the year was $153,000, a slight gain over the year-earlier period.

Paras predicts continued improvement in the new-home market.

"This is going to be a better year," he says. "It's the best of the last four years."

Paras says he expects to build 30 homes this year, up from 24 in each of the last three years.

Prior to the housing crash, the company had built 70 homes a year.

"It's still down, but it's moving back up," he says of the market.