After a floundering start to the summer homebuying season, record-low mortgage rates helped make July one of the best in several years for homebuilders in the Twin Cities metro.
Last month builders were issued 604 permits to build 1,139 houses and apartments, according to Housing First Minnesota, a trade group for the residential construction industry. That included 580 permits for single-family houses, 13% more than last year.
"It doesn't make sense with all the bad news about the economy retracting," said Tom Wiener of Cardinal Realty and Homes in Oakdale. "I'm thinking part of it has to be the cheap money."
Builders and the sales agents who represent them say buyers are getting a late start this year because of COVID-related restrictions on house showings and open houses. More importantly, they say, record low mortgage rates are giving buyers an extra incentive to buy now and to spend more than they might otherwise.
On Thursday Freddie Mac said the 30-year fixed-rate mortgage averaged 2.99%, down slightly from the previous week and nearly a full percentage point lower than a year ago. Mortgage rates fell to new lows earlier in July as investors worried about the long-term health of the economy sought safe haven in long-term bonds. Mortgage rates tend to follow yields on those long-term bonds.
The increase in permit issuance last month is a reversal of a two-month decline in permits activity that started when the government shutdown said most construction activity and real estate activities were an essential service. Nonetheless, in mid-March Housing First said that it was canceling and/or curtailing its biggest spring marketing events of the year.
After several months of volatility, apartment construction also increased last month when 24 permits to build 559 units were issued, nearly 38% more than last year. Those units, mostly market-rate rentals, represented about half of all planned housing construction last month.
The biggest multifamily projects permitted last month were in Minneapolis, where Stevens Construction plans to build 112 units and Yellow Tree Development will build 86 units, and in St. Louis Park, where Cedar Partners is building 79 units and Doran Construction is doing 95 units.
Despite economic uncertainties including record unemployment, the housing market in the Twin Cities is in the midst of an unprecedented shortage of homes for sale and that's forcing some buyers to build.
A week ago the U.S. Commerce Department said that new-home sales nationwide during June (the latest national data available) increased 13.8% from May and 6.9% above the same period a year ago.
"There's been strong buyer interest," said Amy Fritz, sales director for the Royal Club development in Lake Elmo, which has 291 single-family and villa-style homes around a new golf course. The single-family houses start about $900,000 and sales have been strong, she said.
On Friday, Fritz was readying a model home for the opening day of the Midwest Home Luxury Home Tour.
She said that after sales declines in May and June, buyers showed more serious interest last month. She said recent declines in mortgage rates have definitely been a motivator, even for upper-bracket buyers.
Wiener agrees. He said he's working with two customers who are considering houses in the $700,000 to $900,000 range, and that other segments of the home improvement business are also doing well. A friend who sells swimming pools has a back log of orders until next August. Wiener's remodeling business is also on track to have its best year.
"Where's all that money coming from? It just blows me away," he said. "You'd think people would try to save up for the worst-case scenarios."