Twin Cities homebuilding decline slowed in May

Homebuilding in the Twin Cities was down last month, but not nearly as sharply as earlier this year.

That's according to a monthly report from Housing First Minnesota, which tracks building permits throughout the metro. It showed builders pulled enough permits to build 487 single-family homes, 13% fewer than last year.

That decline follows several months of much larger year-over-year declines. Since the beginning of the year, single-family permits have been down by at least 40% compared with the same months last year.

"After a slow spring, homebuilders are ready to build the homes that the Twin Cities desperately needs," said John Quinlivan, a Twin Cities builder and board chair of Housing First Minnesota. "Rising mortgage rates continue to be a hurdle for homebuyers.

He and other builders said the lack of existing homes is forcing some buyers to consider a newly built home. During April, just 5,170 new listings hit the market — nearly 30% fewer than last year at the same time — according to the Minneapolis Area Realtors. At the current sales pace, there were only listings to last a month and a half, far below the four to six months needed for the market to be evenly balanced between buyers and sellers.

While the supply of existing homes was down 19%, there was a 31% increase in the number of new homes available to buyers.

Multifamily construction continued posting significant and persistent declines. During the month, builders gained enough permits to build 514 units, a 66% decline from May 2022.

Multifamily permits, most of which are for market-rate rental buildings, tend to be volatile from month to month because a single project can have several hundred units.

Across the metro, the average apartment vacancy rate was 5.2% at the end of March, according to a first-quarter report from Marquette Advisors. That includes new buildings still in the initial leasing phase. With about 9,400 new units expected to finish construction in 2023, the group expects a significant upward adjustment in vacancy, likely exceeding 6.5% by the end of the year.

"Minnesotans want to own homes, but the current existing market is failing to meet them where they are," James Vagle, CEO of Housing First Minnesota, said in a statement. "Minnesota's homebuilders are ready to fill that gap and provide safe and durable homes for our state."