Rising mortgage rates and higher home prices are putting the brakes on homebuilding in the Twin Cities metro.
Builders were issued 344 single-family permits this month, 28% fewer than last August, according to data compiled by the Keystone Report for Housing First Minnesota.
The pace of apartment construction is on the verge of slowing after several months of double-digit annual gains. During August, developers were issued enough permits to build 428 units, about half as many as in July and only 2% more than last year.
Those declines are a continuation of trends that started earlier this year when mortgage rates started rising, though multifamily developers have been barreling ahead with much greater intensity than homebuilders.
"High interest rates and rising home prices continue to force many home buyers to press pause on their plans to purchase a new home," said James Julkowski, board chair of Housing First Minnesota.
On Thursday, Freddie Mac said the 30-year fixed-rate mortgage (FRM) averaged 5.55%, according to its weekly rate survey. That was up from the previous week when it averaged 5.13% and nearly twice as high as a year ago at the same time.
New home sales across the country have slowed dramatically in recent months.
On Tuesday, the U.S. Department of Commerce said that new home sales nationwide fell 12.6% in July to a 511,000-unit pace. That drop was larger than expected, but not unexpected given steep declines in homebuilder confidence as consumers grapple with waning affordability.
In the Twin Cities metro, pending sales of newly built homes declined 17% compared with an 11% decline in sales of existing homes during July, according to the Minneapolis Area Realtors. The median price of those new home sales during the month was $476,000, nearly $140,000 more than the price of an existing home.
As affordability wanes and home sales slow, buyers have more choices. At the end of July, there were 2,211 newly built houses for sale in the Twin Cities, 51% more than last year at the same time.
"A bright spot, as the market comes down from the competitive high we saw for the past two years with the historically low inventory of homes for sale, is that many home buyers will find opportunities in this market," Julkowski said.
For the month, Minneapolis was issued the most permitted units at 302, followed by Lakeville with 94 units and Otsego with 43 units.