With employment numbers often driving housing activity, analysts covering the Minneapolis-St. Paul area believe the state's falling jobless rate is good news for the market. 

A new state monitor report released by BMO Capital Markets Economics says the state's jobless rate fell to 5.6% in April. However, part of that falling number stems from employees dropping out of the labor market altogether.

Still, manufacturing in the state has been a driver in its recovery, according to Todd Senger, senior vice president of commercial banking for M&I, which is a part of BMO Financial Group.

"Every day, we hear from our commercial customers that they are optimistic about the economic picture in Minnesota," said Senger.

Even though manufacturing is still strong in the state, Minnesota's output could eventually be impacted by a recession in Europe and a slowdown in Asia. Overall, export growth is down 2.4% over last year when comparing the first quarter of 2012 to 2011.

A report from the Minneapolis Area Association of Realtors said last week that buyers signed 5,130 purchase agreements, up 27.3% from May a year earlier.

"While there are encouraging signs that housing market fundamentals are gradually improving, home prices and construction activity remain depressed," said Dr. Sherry Cooper, chief economist of BMO Financial Group.

"The months' supply of homes for sale in the Twin Cities has fallen, but the foreclosure rate, while falling, remains well above pre-recession levels. As a result, home prices continue to weaken."