After a blockbuster early spring, the COVID-19 pandemic is hitting home for Twin Cities builders.
During May, cities issued 411 permits to build 761 houses and apartments, according to data compiled by the Keystone Report for Housing First Minnesota. That included 396 single-family houses, and 365 multifamily units, mostly market-rate apartments. That was a 25% decline in houses and a 72% decline in apartments.
"We are now seeing some delayed effect of COVID-19 on the new-home market," said Gary Kraemer, president of Housing First Minnesota, in a statement.
This year was on track to be one of the best in several years for housing construction in part because of a shortage of existing for-sale houses. In some parts of the Twin Cities buyers were outpacing sellers, forcing many buyers to consider new construction. But when a stay-at-home order implemented in March and house showings and open houses dwindled, house shopping declined dramatically.
And now homebuilders seem to be hitting the pause button, as well, despite recent declines in mortgage interest rates. This week Freddie Mac said the average 30-year fixed-rate mortgage fell to 3.15%. That's the third record low for rates, which have helped boost buying power at a time when house prices keep rising.
The median price of all closed home sales during April broke $300,000 for the first time ever in the Twin Cities, according to Minneapolis Area Realtors.
"Despite the dip in May starts, many builders are still reporting strong interest from buyers," said Kraemer. "Interest rates remain low and our members have measured expectations for 2020."
The decline in permit issuance in the Twin Cities during May came despite reports of sales gains and high buyer traffic. Last week, the U.S. Census Bureau said new home sales across the country rose 0.6% during April, an unexpected increase given the sudden and profound economic downturn.
Because of the decline in apartment permits last month, suburbs dominated the busiest communities for permit issuance last month. Though Minneapolis has been the most active market this year, it fell to the fourth position on the list of most permitted units during the month behind Maple Grove with 159 units, Plymouth (148 units) and Lakeville (45 units).
Homebuilders in Minnesota have been lobbying for less-restrictive zoning rules that would enable them to build higher-density housing in areas where that's not permitted in large part to boost construction of less-expensive housing.
"Lower new housing starts will only exacerbate the state's housing inventory problem," said David Siegel, executive director of Housing First Minnesota. "Although this decline in starts was expected, it underscores the importance of zoning reform and other regulatory relief."