The first three months of the year were pretty bad for new homebuilders, new homebuyers and frankly just about everyone across the Twin Cities. The brutal winter took its toll on all of us. The “polar vortex” couldn’t have come at a worse time, as momentum was building and confidence was improving. While the region’s woes can’t be tied to just cold weather, stress from higher land and home prices and a wavering “recovery” in the economy impacted home sales more than expected.

According to Metrostudy’s quarterly survey, 1,114 new homes were started in the first-quarter, down 18.5% from 4Q13, and unchanged from 1Q13. The drop-off in activity is normal through the 1st quarter as new home builds are generally either pulled forward into 4th quarter or pushed ahead to 2nd quarter. We estimate that this winter’s brutal conditions impacted starts numbers by approximately 10%. The rate of annual new home starts for single-family and townhome units across the Twin Cities area is 5,980 new units. This is an increase of 16.2% compared to 2013 and the highest annual starts pace since 2008.

“Shifts in product size, style and needs have re-defined the new home market across the Twin Cities marking a return to a more balanced marketplace,” says Ryan Jones, regional director of Metrostudy’s Twin Cities market. “Single- family homes continue to account for the majority of new home activity throughout the metro area, representing over 80% of all starts. However, townhomes and attached product should start grabbing market share, as location and prices remain challenging for single family development.”

Lot supplies still remain tightest in the $300,000 to $350,000 price segment as first-time and move-up buyers take advantage of low prices, strong inventory and low rates. Almost 50% of all new homes started over the last 12 months were priced between $250,000 and $400,000, representing the largest percentage of starts in that segment since Metrostudy began tracking the market.

Although Metrostudy is forecasting a much stronger 2nd and 3rd quarter, year over year could represent only a modest increase from 2013. While the numbers might not be as robust as we would like, the new home market is very healthy and builders should be focusing on balanced communities, with greater product offerings to meet demand across all buyer segments. The first-time and first-time move-up buyer stands to gain the largest percentage of market share assuming builders are able to deliver product that meet demand. New lot deliveries will increase precipitously in 2014 and 2015 as builders and developers adjust to the new market conditions.

“The new home market is continuing to show consistent growth with annual increases in new home demand occurring in each of the last two years,” said Jones. “However, there appears to be a little adjustment compared to the growth we experienced in 2013, and while several factors are likely to blame, 2014 could see more modest sales pace. Lingering impacts of the weak economy, flat wages and affordability concerns will constrain buyers. Additionally, continued labor, materials and lot shortages will put pressure on new home builders’ already tight bottom lines - pushing new home prices up at time when confidence is shaky.”

As we thankfully head into spring with warmer weather, brighter skies and improved confidence, an uptick in sales is anticipated. Builders are gearing up with new communities and new products which should keep pace at or above last year. Strong fundamentals across the Twin Cities area will likely continue helping drive new construction.

For information contact: Ryan Jones at 952.426.0754


About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.

Learn more about markets featured in this article: Minneapolis-St. Paul, MN.