Homebuilding in the Twin Cities during November fell by half as higher mortgage rates and rising prices erode affordability, Housing First Minnesota reported Tuesday.
During the month builders were issued 399 permits, down 54% from a year ago, to build 692 units. Of those permits, 389 were to build single-family houses, 37% fewer than last year at the same time.
Builders were also issued enough permits to build 303 multi-family units, mostly market-rate rentals. That was 65% lower than last year.
"Homebuyers are still reeling from the sharp increase in mortgage rates earlier this year," James Julkowski, Housing First Minnesota's 2022 board chair, said in a statement.
"First-time homebuyers and even move-up homebuyers have been pushed to the sidelines of our housing market slowing down construction of new homes," he said.
Homebuilding in the Twin Cities always slows during the winter, but the annual declines have been steep and persistent. Single-family permits have been declining double digits for the past several months.
Demand for new houses is highly dependent on mortgage rates and existing home sales, which have steadily declined as rates doubled since the beginning of the year.
The 30-year, fixed rate averaged 6.58% as of last Thursday, according to a weekly survey by Freddie Mac. That was down slightly from the previous couple of weeks, but more than twice as much as a year ago.
Rate increases have been doubly challenging for entry-level new homebuyers who are most likely to have only a minimal down payment and little wiggle room in their monthly budget.
Amy Hendel, principal at Wayzata-based Hendel Homes, said the firm has yet to see a slow down. As a high-end, luxury custom builder, her clients are often able to pay cash, have a large down payment or enough income to cover the extra expense of higher rates.
"It doesn't seem to affect them as much," she said. "But for those tied to loans and interest rates, there definitely is a decline in customer interest."
That's not the case for many production homebuilders who cater to more budget-conscious buyers. Because many builders aren't selling homes as quickly as they're building them, many are stocking inventories with houses that are ready for occupancy.
That's a stark contrast to earlier this year when many builders couldn't keep up with demand and were limiting sales.
At the end of October, for example, David Weekley Homes had several completed homes for sale in a handful of subdivisions across the metro. In Dayton, the company had five move-in ready homes priced from about $600,000.
In Burnsville's the Reserve at Twin Lakes, the company had more than 10 quick move-in and ready-soon homes available with prices starting at about $400,000. And at Orono Crossings, the company had four townhomes priced from about $425,000.
The least expensive homes offered by the company were in a subdivision in Anoka where seven houses were priced at $370,000 and up.
Across the metro, listings for newly built houses increased while pending sales of new single-family homes fell 16% in October, according to Minneapolis Area Realtors.
During the month, there were 1,954 newly built single-family homes for sale throughout the metro, 35% more than last year. Existing single-family homes declined less than a full percentage point.
Though homebuilding has slowed dramatically during the last half of the year, builders are on pace to have their busiest year in nearly a decade. So far, 15,645 houses, apartments and multi-family housing have been permitted, besting last year by more than 2,000 units.