Homebuyers are starved for options, and builders are eager to deliver.
Last month builders throughout the Twin Cities metro pulled 573 single-family permits, 47% more than last year at the same time, according to a monthly report from Housing First Minnesota.
After sporadic lulls, apartment developers are also picking up the pace, pulling enough permits to build 407 units, 34% more than the same time last year last year.
"Conditions in the existing market are leaving motivated buyers frustrated," John Quinlivan, 2023 board chair of Housing First Minnesota, said in a statement.
Despite a late-season construction rally, 2023 is on pace to be the slowest in at least five years. So far this year, builders are on track to build 10,023 houses and apartments compared with 15,645 last year.
Minneapolis took the top spot with 327 permitted units, mostly market-rate rentals, followed by Woodbury with 69 units and St. Louis Park with 60 units.
The November gains were spurred in part by a host of incentives and concessions aimed at attracting home buyers at a time when higher mortgage rates have put many buyers on the sidelines.
Those deals include what's called a mortgage-rate buy down, which offers buyers either a temporary or permanent rate discount aimed at giving them more buying power.
"As interest rates begin to descend, builders want to have homes ready for those buyers who have been waiting for their right time to buy," Quinlivan said.
Builders have steadily increased their supply of move-in ready homes, hoping to capture buyers who are frustrated by the lack of pre-owned homes. In the Twin Cities, house listings have trailed last year, causing moderate price increases despite higher borrowing costs.
During the third quarter, 31% of all single-family homes for sale in the U.S. were new construction, according to Redfin, an online real estate brokerage. That's the highest share of any third quarter on record.
That figure is nearly exactly on par with the share of all houses in the Twin Cities metro that are newly built, according to an October report from the Minneapolis Area Realtors.
At the current sales pace, there are enough new houses for sale to last six months, more than triple the supply of previously owed homes.
Mortgage rates are their highest level in more than two decades, but are still hovering near historic averages. In recent weeks, however, home buyers in the Twin Cities have gotten a bit of relief. During the last week of November, the average 30-year fixed-rate mortgage fell slightly to 7.22%. Rates are still more than a full percentage point higher than last year, but they've declined for the fifth straight week.
"The current trajectory of rates is an encouraging development for potential homebuyers, with purchase application activity recently rising to the same level as mid-September when rates were similar to today's levels," said Sam Khater, Freddie Mac's chief economist, in a statement. "The modest uptick in demand over the last month signals that there will likely be more competition in a market that remains starved for inventory."