Homebuilders in the Twin Cities seem to have a firm New Year's resolution: Proceed with caution.
During the earliest weeks of the year, builders are in conservative mode as they wait for more clues about what the spring market may hold.
So far, price gains have moderated and homebuilding is proceeding at a much slower pace than last year.
Builders in January were issued enough permits to build 328 single-family homes, a 46% decline from last year at the same time, according to a monthly metro report from Housing First Minnesota.
Apartment construction was also down. Builders were issued enough permits to build 418 units, a 53% drop from this time last year.
"Homebuilders continue to see the market pause as homebuyers re-evaluate what they can afford with the current mortgage rates," John Quinlivan, a homebuilder and board chair of Housing First Minnesota, said in a statement. "The demand for new housing is still there, it's a matter of when rates will bring homebuyers back into the market."
Demand for housing in the metro remains strong, but buyers are still adjusting to mortgage rates that have doubled during the past year, creating affordability issues for many.
On Thursday, the average 30-year fixed-rate mortgage averaged 6.13%, according to Freddie Mac's weekly mortgage rate sampler. That was down slightly from the previous week but nearby double last year at that the same time.
Higher rates have already caused a slowdown in home sales, putting a lid on price gains. Last year at this time, home prices were increasing double digits but have since slowed. On Tuesday, the S&P CoreLogic Case-Shiller Index showed that price increases across the nation have cooled.
In the Twin Cities, prices during November increased just 4.8% over the previous year compared with a 7.7% increase nationwide, according to the report.
"Potential homebuyers remain sensitive to changes in mortgage rates, but ample demand remains, fueled by first-time homebuyers," Sam Khater, Freddie Mac's chief economist, said in a press release.
For the month, Maple Grove was the busiest city with 187 new units. Burnsville was next with 106 planned units, followed by St. Michael with 71.