Homebuilders in the Twin Cities had a bang-up July.
Single-family permits were up nearly 40%, posting the first annual increase for any month since the beginning of last year, according to Housing First Minnesota, a trade group that represents builders in the Twin Cities metro.
Builders pulled 446 single-family homes permits during July, a 38% increase from last year. Multifamily construction, however, continued decreasing, falling 38% to just 605 units.
A decline in listings for previously owned homes, which apartment construction is contracting as vacancy rates across the metro reach equilibrium, partly drove the gains in single-family construction.
"The dynamics in our housing market are shifting," said John Quinlivan, 2023 board chair of Housing First Minnesota. "The existing market just can't keep up with Minnesotans looking to buy homes. Minnesota's homebuilders are problem solvers and are offering home buyers incentives to help them overcome the impacts of higher interest rates."
July was the first time since January 2022 that single-family permits were up compared to the same month of the previous year, putting homebuilders on pace with 2017 and 2018.
Though home sales across the metro are down compared to a year ago, house listings are also on the decline as homeowners with record low mortgage rates stay put rather than sell and trade up to a higher rate. Higher rates have also dramatically eroded buying power.
On Thursday, Freddie Mac said rates had inched up compared with the previous week. The average 30-year fixed-rate mortgage (FRM) was 6.81% compared with 5.3% last year, according to Freddie's weekly mortgage rate survey.
Those who can still afford to buy but can't find what they want are often finding more options when visiting their local homebuilder. At the end of June, the number of previously owned houses was down 21% while listings for new ones increased 9%, according to the Minneapolis Area Realtors (MAR).
The lack of house listings is especially acute for houses that are affordable to first-time buyers and downsizing baby boomers, so builders are quickly trying to beef up their inventories of more affordable houses. Sales of townhouses, which tend to be more affordable, were up more than 6% during June, according to MAR sales data.
The median sale price of new townhouses was about $140,000 less than single-family homes, which increased to a median $495,000, compared with $380,000 for a previously owned single-family home.
While homebuilding is ramping up, apartment construction is slowing. For several months, multifamily construction has been down compared with last year. That slowdown comes after several years of robust building, causing the average vacancy rate in many parts of the metro to finally reach a healthy balance between supply and demand.
"Our current housing market has left many first-time home buyers and move-up buyers completely priced out of the market," said James Vagle, CEO of Housing First Minnesota, in a statement. "As the housing market in Minnesota shows signs of recovery, it is now more crucial than ever to allow the industry to build affordable starter homes and bring down the cost of housing."
