Dreary weather contributed to decline in permits for new homes, apartment buildings

It has been a dreary few weeks for Twin Cities homebuilders.

Frigid weather put a damper on housing construction last month, and the builders are entering the busiest construction season of the year with a shortage of buildable lots in the most desirable locations.

During February, builders were issued enough permits to build 330 single-family houses — 100 fewer than the previous month and a 3 percent decline from last year, according to a monthly report from Housing First Minnesota.

"We're optimistic that the spring thaw and Spring Parade of Homes will bring with it an uptick in home buyer activity," said John Rask, president of Housing First Minnesota, a trade group that represents Twin Cities homebuilders.

Those declines follow a particularly strong January for Twin Cities builders, which pulled more permits than they had in a decade.

Rask, who is also vice president of land for M/I Homes, said M/I sales were steady through January — similar to last January. Toward the end of the month, there was a noticeable uptick in buyer traffic, "which has been very encouraging," he said.

The rate of single-family permits issued during the first months of the year are considered a reliable indicator of the spring homebuilding season, which officially kicks off with the Parade of Homes Spring Preview. This year, the preview was Saturday with the event running through the end of the month.

Though there's a dearth of already built entry-level houses, as well as the least-expensive move-up options, for sale in the Twin Cities, builders haven't been able to capitalize on the shortage largely because the cost of land, labor and materials has made new houses more expensive. The median-sale price of a newly built house in the Twin Cities at the end of January was almost $400,000, about $150,000 more than a previously owned home.

David Siegel, executive director of Housing First Minnesota, blames the slowdown on the unusually rough weather during February.

"Depending on what kind of weather we have in March and how long road restrictions are in place, we could see a slowdown in activity through the next few months," he said in a statement.

New home buyers have been out in force. Pending sales of new homes — an indication of future closings — were up 6 percent last year compared with a 4 percent decline in previously owned homes, according to a monthly sales report from Minneapolis Area Realtors.

Maintaining that sales momentum this year is going to be difficult given an impending shortage of buildable lots in the inner-ring suburbs where buyers are most interested in living.

Danielle Leach, Midwest regional director for Metrostudy, said the deepening disconnect portends tough times ahead for builders who are trying to cater to entry-level and move-up buyers.

Rental apartment construction also was down for the month. During February, builders were issued enough permits to build 730 multifamily units, a 23 percent decline over last year.

Multifamily permits, which typically represent mostly upscale rental housing, tend to be far more volatile from month to month than single-family houses.

Only two big apartment projects were permitted last month, a 200-unit mid-rise apartment building in the Uptown neighborhood of Minneapolis and an 85-unit apartment building near the University of Minnesota.