The 2017 Twin Cities Real Estate Market Gets a Thumbs Up
2017 Twin Cities Real Estate Market Outlook
The 2016 Housing Market reached an all-time high nationally with a housing stock value $29.6 trillion, regaining all it lost in the last recession. When we look at the numbers for the Twin Cities, they tell the story of a market that strongly favored sellers with fewer and fewer homes for sale spending less time on the market and selling for higher prices. In spite of inventory levels being down 26.3%, we saw the year close out with pending sales up 4.7%, closed sales up 6.7%, with an overall medium sales price up 5.5% to $232,000. The single family market segment earned the highest gains in price topping out at $251,000 up 5.7%.
For buyers lucky and quick enough to close a deal for a home, their journey had a happy ending. For others it was a tale of frustration and disappointment, especially as the year closed with interest rates spiking up from 3.375% to 4.5% Still, buyers remain undeterred and with interest rates that have leveled off at about 4.125% many begin the new year with the hope they will be moving into their own home by spring. For sellers the past year can be likened to one continuous ode to joy with days on market in decline and, median sale price rising and percentage of asking price received topping 97.5%.
With sellers in the Twin Cities still playing hard-to-get, the big question is will the threat of rising interest rates inspire them to finally make their move? If we do see an increase in listings will the market achieve balance or at least move us in that direction?
Predictions for Twin Cities Real Estate 2017
Now here is where I go out on the limb with my expectations for next year. One factor that looms over the market is with a new administration taking over this month, how is it going to affect the real estate in 2017. Right now there is a great deal of confusion, mixed speculation and uncertainty about the effect this will have on the economy, interest rates, and lending regulations.
Interest rates are still favorable currently just over 4% but not the bargain they were last year. It is believed the Fed will go up 3 more times in the coming months but even given that I do not anticipate rates to hit 5%. However, even a modest rate hike will force some buyers to be left out. The bright spot that might offset some of the increase in rates is that those who are getting FHA mortgages will be rewarded with a reduction of a quarter percent in mortgage insurance which should save the average borrower about $500 per year but we do not currently know if the incoming Secretary of HUD will keep this policy in effect or rescind it.
Additionally, rents fell 9 percent in the Twin Cities from November to December according to ADOBO. While it is still less expensive to buy a 3 bedroom home in the Twin Cities metro versus renting according to Realty Trac, if incomes do not rise as fast as median home prices in the coming year, and if rents continue to fall that situation could change and although we have several new apartment projects breaking ground this year in Minneapolis and the suburbs, they will be in the luxury category which will not take the heat of rental costs for more moderate end of the market.
Twin Cities Home Prices
Home prices are also expected to level off and I think it highly unlikely home values will see the increase in 2017 that we witnessed the past couple of years given the rise in rates. According to realtor.com economist Jonathon Smoke, 2017 will signify “a continued trend toward moderation with the foreclosure years finally behind us. Second, we’re now in record price territory nationally, so that is starting to have its own moderating effect.”
Given these market conditions nationally, the question for the Twin Cities that could be pivotal is how will the market end up balancing itself? Will more Twin Cities sellers see this as the absolute tail end of a market that favors them and with home values moderating finally make their move? I feel fairly certain that with each hike in the mortgage interest rate we will see less qualified buyers this year.
The other wild card is will more affordable rents become the trend, and how much insecurity will millennials feel about the change in government’s effect on jobs and the economy? Will this bring the balance to the market between supply and demand for housing in 2017? I don’t believe it will in the first few months. When we look at the first week of the new year and compare that to last year, we find new listings down 15.1%, inventory down 25.5% and pending sales 21.1% lower than the beginning week of 2016.
My 2017 Twin Cities Market Predictions in a Snapshot:
- Interest rates will rise as the year progresses and force some first time home buyers out of the market
- The effect of rising rates will be off-set by continued pressure on rents to rise especially for those with moderate incomes
- Property values will increase but not at the rate we have seen over the past 2 years. I estimate about 3.5%
- Inventory will continue to be tight in the 190,001 to 250,000 price range but will open up more in the higher price ranges as empty nesters continue to downsize and move-up sellers make their move to become buyers while interest rates remain attractive.
- Overall I expect 2017 to be another good year for the market, though it will move a little slower in terms of rising prices and inventory levels and may become more balanced by the second half of the year.
Bring it on 2017 because I am ready! Feeling very positive and optimistic and looking forward to good things happening this year for the Minnesota Property Group and the Twin Cities Real Estate market.
As always, you know where to find me.