Twin Cities homebuilders respond to slowing market

Twin Cities builders are adapting to a changing market
Many builders are rethinking their strategies toward aspects like land acquisition and price structuring.

 According to the National Association of Home Builders Housing Market Index, builder sentiment in November fell to the lowest level since 2012, apart from the first two months of the COVID-19 pandemic. 

Throughout the pandemic, builders were seeing fast and furious demand from buyers. But now, overall economic uncertainty and mortgage rate increases have led to a tapering off in buyer activity. 

Builders are anticipating how this new market landscape will impact their business and are already making some changes to mitigate this changing market. According to the latest report from Zonda, 61% of Twin Cities homebuilders surveyed reported that demand in October was “slower than anticipated” and was a point of worry. 

“Interest rates have risen dramatically since the start of the year . . . putting a strain on housing affordability,” said Ali Wolf, Zonda’s chief economist. “Buyers were already starting to get priced out of the market when interest rates moved from 3% to 4%, and every 100-basis-point increase has continued to price millions of Americans out of homeownership.” 

Furthermore, 89% of builders surveyed in the Twin Cities expect a slower pace of housing starts next year, and 44% of those respondents expected housing starts to slow “significantly.” As a result, many builders are rethinking their strategies toward aspects like land acquisition and price structuring. 

From the previous month, more builders indicated they were moving forward on land deals with caution and are bidding less on potential deals. Similarly, 39% of Twin Cities builders surveyed reported lowering their base prices that month. 

However, of those builders who lowered their base prices, only 23% reported an uptick in sales. 

Zonda expects that population and household growth in the Twin Cities will continue its already upward trajectory. As a result, demand for new homes in this market will also increase.