This could be the slowest spring in a decade for home builders in the Twin Cities, as higher mortgage payments force buyers to the sidelines.
During March, metro-area builders pulled 335 permits to build 406 houses and apartments, according to a monthly report from Housing First Minnesota. That included 324 single-family houses, 44% less than last year and the fewest for any March since 2012.
"There is a little angst out there about interest rates," said Art Pratt of Vadnais Heights-based Pratt Homes. "People are waiting a little to see what's happening with rates, but there's been a lot of traffic and lot of activity and a lot of interest."
Apartment construction decreased even more dramatically, permitting just 82 multi-family units, a 90% decline compared to last year.
Permit totals can vary greatly from month to month, especially those for large apartment buildings that can take years to build. During February, for example, cities permitted 929 multi-family units.
The annual decline in single-family permits, however, has been persistent. That despite builders being mostly optimistic that recent declines in mortgage rates and an increase in new home sales across the country will help relieve pressure on those with a backlog of unsold homes.
Mortgage rates doubled late last year but have declined slightly throughout the past three weeks. On Thursday, finance company Freddie Mac said the 30-year fixed-rate mortgage (FRM) averaged 6.32%, according to its weekly rate survey. A year ago, the 30-year FRM averaged 4.67%.
"People are anticipating that interest rates are going to come down, and they're trying to wrap their heads around when it's going to be a good time buy," said Pratt, who builds 18 to 20 houses a year, most priced from $800,000 to $1.3 million.
Nationwide, home sales have improved, rising in February for the third consecutive month, a sign the market might be stabilizing.
In the Twin Cities, home sales slowed during the last half of 2022, leaving builders with far more houses to sell than the year prior. During February, there were 2,389 new homes listed for sale through the Regional Multiple Listing Service, 33% more than last year at the same time, according to the Minneapolis Area Realtors (MAR).
More than 2,000 of those listed from $350,000 to $1 million, and nearly 500 were townhouses.
The glut of listings has some builders offering discounts on new houses and mortgage rate reductions in an effort to help boost sales. That's not the case for Pratt and other luxury home builders.
As of February, sales of newly built houses priced at more than $1 million were up nearly 9% compared to last year, according to MAR. Sales of less-expensive new houses were down — an indication higher rates are having a bigger impact on people with tighter budgets.
Pratt said so far this year, home sales have been on par with last year and foot traffic during the Parade of Homes Spring Preview has been especially robust.
"It's probably double the traffic that we saw last year," he said. "And that's far exceeded our expectations."