Twin Cities homebuilding gained ground in 2024 despite high mortgage rates

Higher mortgage rates had a disparate impact on housing construction in the Twin Cities metro during 2024, causing apartment construction to wither while homebuilding gained ground.

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Last year, cities issued builders and developers 6,281 single-family permits, a 14% increase from last year, according to a year-end report from Housing First Minnesota, the state’s largest trade group for builders. At the same time, there were only 2,330 multi-family units — mostly rental apartments — permitted, 55% fewer than the previous year.

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“Interest rates had a big impact on homebuilding in 2024,” said Art Pratt, 2024 board chair of Housing First Minnesota. “The affordability issue is a real problem.”

After falling to an all-time low of 2.65% in early 2021 and remaining unusually low for the next couple years, rates went on a roller coaster ride last year, ending just below 7%. While that’s slightly lower than the historical average from the past five decades, those higher rates came at a time when construction costs — and home prices — remained near all-time highs.

On Thursday, the average 30-year fixed-rate mortgage rose slightly from earlier in the month to 6.93%, according to a weekly Freddie Mac survey.

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Homebuilders have so far managed to keep constructing despite higher rates, but homebuilding isn’t happening at the same pace as just two years earlier. Still, a lack of willing sellers has forced many would-be buyers to build a new home rather than a buy an existing one, so builders are focused on increasing their inventory of move-in-ready houses.

At the end of November, there were only previously owned single-family houses on the market to last a little more than two months compared with a nearly six-month supply of newly built single-family houses, according to the Minneapolis Area Realtors (MAR). A balanced market between buyers and sellers occurs when there is a four- to five-month supply of inventory.

Pratt, a longtime custom homebuilder in the metro, said rate volatility has made some buyers nervous about placing an order for a house that won’t be ready for several months, during which rates could rise. In response, builders are stockpiling.