Twin Cities single-family construction holds up in March

Homebuilders in the Twin Cities kept the construction spigot open during March amid growing concerns about the COVID-19 pandemic.

Twin Cities-area builders pulled 409 single-family permits in March, 21% more than last year, according to data compiled by the Keystone Report for Housing First Minnesota, a trade group that represents builders and developers. Total permits, including multifamily projects, were up more than 16%. Total units, meanwhile, were off nearly 24% from March 2019, reflecting a nearly 50% decline in multifamily units, mostly rental apartments.

"There is a serious shortage of single-family homes in the Twin Cities," said Gary Kraemer, president of Housing First Minnesota. "Builders clearly saw this pent-up demand as home buyers were very active to start the year."

He said that while he expects to see a slowdown in construction activity in the coming months, a shortage of entry-level housing across the metro and low mortgage rates are driving sales of new houses when demand for most other consumer goods is falling. On Thursday, Freddie Mac said the average 30-year fixed-rate mortgage was 3.33% for the week ending March 9. That was unchanged from the week before, but nearly a percentage point lower than a year ago.

Much to the relief of the industry, housing construction and most affiliated trades were among the few industries largely deemed an essential service when Minnesota Gov. Tim Walz called for a statewide stay-at-home order on March 26, enabling housing construction to continue apace. But with the Minnesota Association of Realtors calling for a statewide ban on open houses and consumers hunkering down physically and financially, home sales have been slowing a time when they normally increase.

On Wednesday, the Mortgage Bankers Association said that mortgage applications for home purchases during the week ending April 3 had fallen 12% from the previous week and 33% compared with last year.

More than a week before the executive order, Housing First Minnesota suspended its biggest marketing event of the year, the Parade of Homes Spring Preview, and canceled its Remodelers Showcase.

"We're pleased the governor declared residential construction a critical sector as it has become even more evident during this time how important safe, quality housing is for our communities," said David Siegel, executive director of Housing First Minnesota.

Despite the drop in total units last month, construction activity is on pace to be the strongest in several years with more than 3,400 units permitted during the first three months of the year, outpacing the same period last year by nearly 1,000 houses and apartments.

Kraemer said builders and their subcontractors have had to quickly implement to social distancing guidelines on job sites, slowing construction on some sites, and they are preparing for a raft of shutdown-related challenges that could stall construction this summer during what's typically prime time for homebuilding.

In March, Lakeville issued the most permits, 52, followed by Cottage Grove with 28 permits and Woodbury with 24.

Kraemer, who is also president of Edina-based John Kraemer & Sons Inc. Custom Building & Renovations, said economic concerns are at top of mind, but his projects are still moving forward and production builders are still reporting strong sales.

He has yet to have any project cancellations, and supply shortages have yet to materialize, he said. He said many customers who are ordering houses now expect the crisis to be over by the time those houses are completed later this year. Still, he said, it will be months before the real impact of the pandemic on the construction industry is known.

"Housing to some degree is like a flywheel,' " he said. "It takes some time to slow that flywheel down."

Jim Buchta • 612-673-7376