Mortgage rates rose to a 23-year high this week, and new home sales are slowing, but Twin Cities homebuilders are still digging foundations. Lots of them.
Home builders in the metro pulled 656 single-family permits this month, 80% more than last year and the most for any September in nearly 20 years, according to a monthly report from Housing First Minnesota.
"In the face of rising mortgage rates and shrinking existing home supply, homebuilding in the Twin Cities continues to stand strong," said John Quinlivan, board chair of Housing First Minnesota, in a statement.
Last week, the 30-year fixed-rate mortgage averaged 7.31%, the highest since 2000, according to a weekly survey from Freddie Mac. That's up slightly from the previous week, when it averaged 7.19%. A year ago, the 30-year average was a full percentage point lower.
Rates are now near historical averages, but with the memory of record lows still fresh, many buyers are still adjusting to higher payments, putting many on the sidelines.
"Unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory," said Sam Khater, Freddie Mac's chief economist, in a statement about the 20-plus-year high. "These headwinds are causing both buyers and sellers to hold out for better circumstances."
On Tuesday, the Commerce Department said new home sales nationwide fell 8.7% to a seasonally adjusted annual rate of 675,000 units from July to August. Compared with last year, sales were up 5.8%.
Home sales are also down locally. There was a 6.2% annual decline in sales of metro-area new homes listed through the Regional Multiple Listing Service during August, according to the Minneapolis Area Realtors (MAR). That's compared with a more than 25% decline in previously owned homes.
Though sales are sagging, builders are trying to rebuild their inventories of unsold homes in an attempt to attract buyers who can't find a previously owned home that suits their needs.
"Builders are working diligently to meet the needs of homebuyers in Minnesota by offering something the existing housing market cannot provide," Quinlivan said.
As homeowners with record low mortgage rates hunker down for the long term, house listings in the Twin Cities continue their free fall. So far this year, there's been a 17% decline in home listings, according to MAR.
Apartment developers, however, are also struggling with higher interest rates and more restrictive underwriting requirements, triggering a decline in multi-family construction.
During September, cities issued enough permits to build 820 multifamily units (mostly market-rate rentals), a 33% decline from last year, according to Housing First.
The busiest cities in the metro for homebuilding so far this year have been Minneapolis, which has seen 1,021 new units, mostly rentals. Rosemount, which saw 779 new units, was the second-most active.