August 2018 Twin Cities Housing Snapshot
The Minneapolis-St Paul Housing Market Overview
As we look at the end of the summer real estate season, things have not changed very much. We see new listings up 7.6 percent over August of last year, which is a bright spot. However, for first-time home buyers, the story is still one of the limited housing choices facing continued strong demand. The situation when we look at listings under $300,000 is still critical regarding supply. The higher we go up the price tiers, the more balance we see. Properties priced from $500,000 up to $1,000,000, offer a more balanced market in which buyers have more options compared to the over $1,000,000, strata, which is a buyers market.
Looking deeper into the data gives us some reason to be optimistic but cautiously so. Even though we saw an increase in new listings, inventory levels fell 8 percent from last year. Pending sales were down 2.9 percent and closed sales ticked slightly upward at 0.2 percent over the same time last year. Home values continue to move upward to the tune of 6.3 percent while spending less time on the market. Buyers at the lower price range are making full price offers or engage in bidding wars to close a deal.
New Construction in the Metro
Although we are experiencing increases in new construction over last year, it is an ongoing struggle to keep up with demand. Single-family home permits were up 3 percent over August of 2017 but up only 2 percent over the year. Multi-family housing saw an 80 percent increase this past month as well Total permits issued were 680 for a total of 1,355 units of housing. We saw a 5.6 percent increase in newly built homes for sale in August and based on the increased number of permits issued we should expect that number to rise.
We still need more housing, especially at the lower price points. Tom Wiener, president of Housing First Minnesota, said “It’s been a decent summer for Twin Cities homebuilders. While we’ve seen steady growth, the market needs a stronger rise in new home construction to help balance the housing market.” Unfortunately, labor shortages coupled with tariffs imposed on lumber by the Trump administration are driving up the cost of new construction. The National Association of Homebuilders estimates that tariffs by themselves have added approximately $9000 to the price of a new single-family home.
Lots of stuff to talk about on the economic front – some good and some not so good. Let’s start with the positive news. The Twin Cities unemployment rate fall to 2.9 percent. It has not been this low since 1999. In the second quarter, the GDP was at 4.1 percent. Those are the most robust numbers since 2014.
Wages are finally rising, but I wouldn’t be popping the cork off that bottle of bubbly just yet. Earnings increased 2.6 percent over the last 12 months. Real wage growth was up 0.1 percent in August, as reported by the Department of Labor. While you may be thinking, this can’t be because tax cuts, stock market growth, full employment, in a nutshell, rising costs are wiping out any increases in wages, and then some.
That is the perfect segway into the bah humbug news segment of the program. Wage increases are not enough to keep up with rapidly rising housing costs. Home prices in the Twin Cities were up 6.3 percent. Not only that but, interest rates continue their upward mobility. As of today, the 30-year mortgage interest rate is 4.875 percent. The Fed meets this month on the 25/26 and is expected to raise the short-term fed funds rate by a quarter-percent to a range between 2% and 2.25%. That’s the highest level since April 2008. It is not always a given that the mortgage rate will follow so we will have to wait and see on that one.
Joe’s Crystal Ball
The due to rising interest rates and limited inventory, we should not be surprised to see a slowdown in the real estate market as we move through the fall. This is still a good time to buy a home. However, I believe the market is stable, and talk of housing bubbles bursting is hyperbole. The economy is strong, at least for now. We are at full employment and still creating jobs, and consumers are still confident. We need to keep watching the interest rates and the Fed. No one should show surprise if they hit 5 percent for a mortgage loan by the end of the year. As the trade war intensifies, we also need to watch how that affects the economy regarding consumer prices and jobs.
Twin Cities Market data for August 2018 compared to August 2017
- new listings up +7.6%
- pending sales down -2.9%
- closed sales up +0.2%
- days on the market until closing was 40, down -16.7%
- inventory of homes for sale down -7.8%
- month’s supply of inventory down -3.8%
- median sale price up 6.3% to $268,000
- original list price received up 0.7%
- the price range that saw the highest sales gain was the $350,001 to $500,000 up 12.3%
- property type with the largest price gain was townhomes up +9.2%
- new construction had the most robust sales up +8.5%
- the quickest selling price range was $150,001 to $190,000
Rolling 12 months from September 2017 through August 2018
- new listings down -2.9%
- pending sales down -4.5%
- closed sales down -4.5%
- overall median sales price up +7.7%
As always, thanks for reading.