Homebuilders in the Twin Cities metro had their sleepiest March in four years with single-family and multifamily construction falling sharply.
Single-family construction declined 12 percent, to 339 homes, while multifamily permits fell 24 percent from the same period a year ago, to 623 units, according to the Keystone Report for Housing First Minnesota, a trade group that represents Twin Cities-area builders.
The decline suggests homebuilders are preparing for a slower summer for new-home sales and apartment rentals compared with last year, but some blame the weather and expect sales for the rest of the way in 2019 will be the best in years.
“We are still feeling the lingering effects of a longer-than-usual winter on the housing market,” John Rask, president of Housing First Minnesota, said in a statement. “We have seen home buyers out in numbers during the Spring Parade of Homes, and we expect homebuilding activity to pick up in the coming months.”
For the month, several market-rate apartment buildings helped make Minneapolis and Minnetonka the busiest cities with 504 and 82 planned units respectively, followed by Lakeville with 38 units, mostly single-family homes.
Construction so far this year has slowed compared with the last couple of years. During the first three months of the year enough permits to build 2,462 housing units have been issued, 21 percent fewer than last year and 262 units fewer than 2017.
Despite a rough start to the year, Herb Tousley, director of real estate programs at the University of St. Thomas, expects 2019 to be the busiest in at least a decade for apartment and home construction.
He predicts that by the end of the year there will be 6,200 single-family permits compared with 6,108 in 2018 and a record 7,800 multifamily permits compared with 6,500 last year.
Still, he says there won’t be enough moderately priced single family homes to meet demand. “We need to build homes at a rate closer to what was normal before 2007,” he said in a news release. “We realize that homebuilders are facing headwinds today that are different from what was experienced in the mid-2000s.”
High land costs is one of the biggest obstacles to making that happen, he says. That’s why he’s an advocate of allowing more density and putting more homes on smaller lots. “Increased density reduces land costs and would allow the construction of more homes at reduced costs.”
Mortgage interest rates have been declining in recent weeks, stoking optimism that the lowest rates in a generation will help stimulate home buying.
Last week the average 30-year fixed-rate mortgage dropped 22 basis points, the biggest decline in more than 10 years, according to a weekly Freddie Mac survey that said the 30-year fixed-rate mortgage averaged 4.06 percent with an average 0.5 point for the week ending March 28, 2019. That’s down from the previous week when it averaged 4.28 percent and 4.40 percent a year ago.
Those declines are being driven by jitters among investors who are putting their money into long-term bonds. Mortgage rates tend to follow bond yields.
“The recent drop in mortgage rates will certainly help home buyers this spring,” said David Siegel, executive director of Housing First Minnesota.
“Even with rising wages and lower mortgage rates there are still too many Minnesota families that are being priced out of the housing market.”