February 2018 Twin Cities Housing Market Review
Not a Market for the Fainthearted
Looking at the housing market in the Twin Cities for February we are going to be focusing on four factors; an ever-shrinking supply of inventory, declining home sales, a consistently upward trend of median sales prices, and rising interest rates. The market activity we are seeing here pretty much reflects what is happening across the nation.
While we might not expect prices to climb when sales fall, this downward trend is more a result of seriously limited inventory levels coupled with strong demand. There are simply too many buyers chasing too few homes and for a nervous buyer, this may be situation impossible.
The Market in the Twin Cities is Starving for Listings
New listings declined 8% over February of last year while inventory levels dropped 23% putting the supply of homes at 1.5 months. At the same time, the median sales price of homes in the Twin Cities metro rose 12.7% to $250,000. This rise in prices is partly a reflection of bidding wars on desirable properties where supply is so limited.
The same theme of the last 2 years continues with a vengeance: ready, willing, well-qualified buyers who desperately want to become homeowners being thwarted because there just not enough listings to go around.
What Rising Interest Rates Mean for Twin Cities Housing
We have long talked about an impending increase in mortgage rates. Well, higher rates have arrived. The 30-year fixed sits at its highest point in four years, 4.5 percent. The higher rates coupled with the rising price of homes have begun to make an impact on affordability. Some buyers at the lower price ranges have found it necessary to drop out of the market until they can save a higher down payment or wait for a fixer-upper to come along that may work for them. Buyers at higher price points are faced with the option of either coming up with a higher down payment, accepting a higher monthly payment, or lowering their expectations and settling for a less of a home.
A quick look tells us that all the numbers are down this month except for prices, which are still increasing by double digits percentage wise.
- new listings down -8.0%
- pending sales down -12.1%
- closed sale down -6.0%
- days on the market until sale was 69, down -15.9%
- inventory of homes for sale down -23.0%
- month’s supply of inventory down -21.1%
- median sale price up 12.7% to $250,000
- percent of original list price received up 1.6%
When we look at the 12 month rolling data from March 2017 through February 2018, we see that constrained inventory levels are affecting sales in a negative way.
- pending sales down -8.2%
- Closed sales down -4.5%
- overall median sales price up 11.5%
- price range with the strongest sales was the $1,000,001 price range, up 21.6%
- the property type with the strongest sales was townhomes
- the quickest selling price range was 150,001 to $250,000 at 40 days
Townhome construction in the Twin Cities is hot, representing the largest increase for February. Multi-family new construction, in general, was up a whopping 42% over this time last year with 548 permitted units. Construction of single-family homes was only up slightly with 341 permits pulled as compared to 332 in February of 2017.
This increase in townhomes will provide more options for both entry-level Millennial buyers and Boomers who are retiring and want to downsize. This may be the incentive that some older homeowners need to make their move. Area builders are working hard to meet the demands of the housing market but lack of workers is still a challenge they face. The labor shortage is the largest obstacle they see moving forward into the year. Where is the new construction? Lakeville leads with 30 permits. Plymouth came in second with 26, followed by Woodbury with 21, Savage with 20, and Otsego and Minneapolis with 18 permits issued each. If you really want to get into the weeds on new construction in the Twin Cities, check out this post on Housing First Minnesota. It contains some very comprehensive data.
Twin Cities Housing Outlook Heading into Spring
Demand remains strong in spite of a disappearing supply of homes to buy, while interest rates and median sales prices continue to rise making housing less affordable. We knew eventually such few homes would lead to a decline in sales and we knew interest rates would go up at some point. Both situations have now become a reality as we head into the prime home buying season. While I am optimistic this is going to be another good year for the real estate market, my optimism is slightly shadowed by factors out of our control. These are the questions begging answers. Will previously reluctant sellers see this as the right time to make a move while the odds are still favoring them greatly? Will Millennials maintain their burning desire to become homeowners at almost any cost? Will consumer confidence in the economy remain strong? As I pointed out in my report last month, there are lots of moving parts like the effects of looming tariffs, the stock market and the job market to consider and I’m watching them all closing. Unfortunately, I don’t have a Crystal ball. However, as a prognosticator this is what I see: buyers remaining determined and doing what they feel they have to do to score a home. The norm will be quick offers at asking price or above, bidding wars, waiving of contingencies, foregoing inspections in some cases, and if at all possible, larger down payments. It’s going to be a wild ride so put on your seatbelt and let’s go buy that home! The data used in this report was for the entire Twin Cities Metro. Stats for the individual cities within the region may tell a different story. If you are interested in looking deeper the reports are available to the public on the Minneapolis Association of Realtors website.