Rising mortgage rates and rising home prices are putting the brakes on housing construction in the Twin Cities subway.
Builders issued 344 single-family permits this month, down 28% from last August, according to data compiled by Housing First Minnesota’s Keystone Report.
The pace of apartment construction is on the verge of slowing down after months of double-digit annual growth. During August, the developer was issued permits sufficient to build 428 units. That’s about half of what he did in July, and he’s only 2% more than last year.
These declines are a continuation of a trend that began earlier this year when mortgage rates began to rise, but multifamily developers are pushing far ahead of home builders.
“High interest rates and rising home prices continue to force many homebuyers to put their plans to buy new homes on hold,” said Housing First Minnesota board chair James Julkowski.
Last Thursday, Freddie Mac said its weekly interest rate survey showed 30-year fixed-rate mortgages (FRMs) averaged 5.55%. That’s up from the previous week, when he averaged 5.13%, while at the same time he was nearly double the height he was a year ago.
New home sales across the country have slowed dramatically in recent months.
On Tuesday, the US Department of Commerce announced that new home sales nationwide fell 12.6% in July, to a pace of 511,000 units. The drop was bigger than expected, but not unexpected given that confidence in homebuilders has plummeted as consumers grapple with lower affordability.
In the Twin Cities Metro, pending sales of new homes were down 17%, while sales of existing homes were down 11% in July, according to Minneapolis Area Realtors. The median new home sales price for the month was $476,000, making him nearly $140,000 more than the price of existing homes.
As affordability drops and home sales slow, buyers have more options. As of the end of July, new home sales in the Twin Cities stood at 2,211 units, a 51% increase over the same period last year.
“With the market declining from the competitive highs seen in the last two years and with historically low inventory of homes for sale, the bright spot is that many homebuyers will find opportunities in this market.” said Julkowski.
Minneapolis was issued the most allowed units that month with 302 units, followed by Lakeville with 94 units and Ossego with 43 units.