Election jitters normally put a lid on home buying. Not this year. Record low mortgage rates and a flurry of buyers on the hunt for home offices and more space helped boost homebuilding on the eve of the presidential election.
Homebuilders in the Twin Cities had their busiest October in 15 years, according to a monthly report from Housing First Minnesota. Apartment construction, however, was down by nearly half.
During October, builders were issued 712 single-family permits, 28% more than last year and the most single-family permits since October 2005.
"It's been solid," said Gary White, president of the Minneapolis division of M/I Homes.
Despite a particularly challenging April, he said the company is reporting more sales and closings so far this year than last year. M/I, headquartered in Columbus, Ohio, has built 22 communities across the Minneapolis/St. Paul metro area over the past several years. White said his company and others continue to struggle with material shortages and supply-chain and delivery issues.
"Employees and trades are working harder than ever to accomplish the same results as before the pandemic," he said.
The company has been increasing production to both satisfy increasing sales and to build inventory. "There's high demand and limited supply," he said.
In the Twin Cities metro, sales of new houses during September, the most recent month sales data are available, increased nearly 23% over last year, according to the Minneapolis Area Realtors.
However, the bidding wars that have been common with existing homes aren't happening, White said, even though the supply of new houses for sale has been down compared with last year.
During September, 1,500 new single-family houses were for sale through the Regional Multiple Listing Service, 30% fewer than last year.
White and other builders said demand for single-family houses is being driven by a shortage of existing houses that are affordable to millennials buying their first home. There's also been strong demand for suburban houses that appeal to buyers who are considering a future that includes more time working from home. The number of houses on the market have fallen dramatically in Twin Cities suburbs in recent months.
"The combination of more time spent at home and low interest rates has many deciding now is the time to buy a new home to fit their new lifestyle," said Gary Kraemer, president of Housing First Minnesota, and a Twin Cities builder. "We expect the drive for new homes to continue as the resale housing market simply does not have enough inventory to meet the demand from home buyers."
The data are compiled for Housing First Minnesota by the Keystone Report, which counted 756 permits to build a total of 1,387 units during four comparable weeks in October. A single permit can be used to build more than one unit.
White said that while traffic at sales centers and open houses is down compared with last year, those who are shopping are more serious.
"There are not as many casual shoppers," he said. "Buyers who come to our sales centers are converting at a higher rate than in the past."
Those buyers include a greater share of renters and millennials who are taking advantage of low rates to buy houses that are more conducive to work from home, he said. Those buyers are driving sales of townhouses, which tend to be less expensive than free-standing homes, but building those more affordable houses is challenging given the rising cost of land, labor and materials.
"They're looking for office space in their house, and they're looking for larger houses," he said. "There's a higher sense of urgency today than certainly a year ago," said White.
This year was on track to be a near-record for Twin Cities apartment developers, but they have been hitting the brakes in recent months. Multifamily typically represents at least half of all planned units across the metro, but since July that figure has remained below 50%.
During October developers were issued enough permits to build 675 units, mostly market-rate rental apartments. That was 43% fewer than last year. Much of that decline is happening in Minneapolis.
Rental-vacancy rates in Minneapolis, St. Paul and a handful of inner-ring suburbs have increased significantly in recent months in part because employment growth has been stifled by the pandemic and young professionals who normally might rent their own apartment are moving in with their parents or roommates.
The situation in the Twin Cities mirrors national construction trends. On Monday the U.S. Census Bureau said that total construction spending nationwide increased 0.3% from August to September, marking the fourth straight monthly gain. Most of that gain came from increases in the residential sector. At the same time, commercial spending, which includes hotels, retail and institutional building, however, was down significantly.