The new construction market had a good year in Minnesota in 2024 according to this article, likely driven by moderately lower mortgage rates. Builders have been proactive in clearing old inventory and now have completed spec homes available for buyers ready to act. The first indication of recovery will be an increase in existing home inventory and sales. As noted, new home sales prices currently average $140,000 higher than those of existing homes. This significant price gap is especially impactful in the lower-priced, first-time homebuyer segment. Any meaningful growth in this segment will need to come from the existing home market due to affordability challenges.
We’re also seeing continued success among fix-and-flip builders, who purchase existing homes that are not market-ready due to deferred maintenance or outdated features. These builders repair or modestly update the homes to appeal to first-time buyers, often selling them quickly. This strategy meets demand halfway – offering homes that are still relatively affordable while delivering some of the appeal of a newly constructed home. This highlights the fact that if new construction were more affordable, sales would likely be strong. The key to achieving that affordability lies in lower mortgage rates.
Source: Buchta, J. (January 13, 2025). Despite high mortgage rates, metro homebuilding gained ground in ’24. Star Tribune.
