The Twin Cities Housing Market January 2018 Review

January Twin Cities Housing Inventory Sinks Lower

We are now several years into a housing market where buyer demand is strong and inventory of homes for sale is limited and ever shrinking. This buying mania has been fueled largely by a strong economy with low unemployment, a robust stock market, and historically low mortgage interest rates. In addition, the high cost of renting has made owning a home the best option in the Twin Cities, as well as a wise financial decision. It was the strong incentive many first time home buyers needed to get off the fence and pursue the American dream of homeownership.  And chase that dream they did!

Buying vs Renting Pros and Cons

We just capped off a record-breaking year for real estate. The story for 2017 was powerful across the nation. In the Twin Cities, the median sales price reached an all-time high. Closed sales broke a twelve-year record high even with inventory levels at a 15 year low. There were lots of reasons for sellers to celebrate. Homes for sale spent less time on the market with full price offers the norm. The market was rocking and tenacious buyers were the rocket fuel that propelled it.

As we look at the first month of the brand new year, January is about supply or I should say, the lack of it. This is the third consecutive month of a decline in new listings leading to lower numbers in both closed and pending sales. When we make a comparison to January of last year, we find an inventory of homes for sale down over a quarter and inventory levels at 1.3 months. When you consider a balanced market is 5-6 months of homes for sale, you can see how strongly this market favors sellers. The competition is fierce with desirable homes often bringing in offers above asking price. Buyers today are considering themselves lucky if they avoid a bidding war.

Interest Rates

The long-predicted rise in interest rates arrived. The 30-year mortgage interest rate sits at 4.5%, the highest it has been in 4 years. What happened to cause this upward trend this early in the year when experts predicted that would be the end of year rate?  Large deficits brought on by the tax cut bill and the two-year budget and higher yields on 10 year Treasury notes.Additionally, Federal Reserve chairman Jerome Powell testified February 27th before the House Financial Services Committee in Washington and said, “My personal outlook for the economy has strengthened since December,” Be ready for a rate increase when the Fed meets next month and likely three more by December of this year if the economy keeps percolating and creating jobs. My best guess is looking for interest rates to top off at 5% by the end of the year if not even sooner. 

Twin Cities Market Snapshot

  • new listings down -7.8%
  • pending sales down -4.2%
  • closed sale down -4.4%
  • days on the market until sale was 69, down -13.8%
  • inventory of homes for sale down -27.8%
  • month’s supply of inventory down -27.8%      
  • median sale price up 9.6% to $243,750
  • percent of original list price received up 1.0%

When we look at the 12 month rolling data from February 2017 through January 2018, we see that even though inventories of homes continued to shrink month after month, sales still increased.  

  • pending sales down -0.1%
  • overall median sales price up 6.9%
  • price range with the strongest  sales was the $1,000,001 price range, up 25.9%
  • the property type with the strongest sales was townhomes up 5.3%
  • new construction outperformed previously owned properties up 16.9%
  • the quickest selling price range was 150,001 to $250,000 at 41 days

New Construction

The new home market made some solid gains over 2017. Though January is getting the year off to a slower start, it’s too early to read it as a trend for the entire year. Last month the 13 county metro issued 424 building permits for new housing. The breakout of that figure is 402 for single-family homes, down 6%, and 517 multifamily units down 22% from January last year.

Search for new homes here.

Where are the new homes being built? Woodbury issued 37 permits, Lakeville 32 permits, Lake Elmo 19 permits, Victoria 19 permits, Plymouth 18 permits, and Prior Lake 18 permits. If you want to get into the weeds on new construction in the Twin Cities metro a good source is this article from Finance & Commerce. 

The Story in the January Numbers for Twin Cities Housing

The big questions buyers and sellers are asking about housing is will the market remain strong in 2018 and will home values continue their upward climb? The simple answer is yes to both but not as robustly as last year. There’s a great deal going on right now in financial markets and government that affect housing. The moving parts include interest rates, the stock market, inflation, the deficit, the new tax laws, job creation and wages.

While consumer confidence in the economy is still positive, there are concerns. We have witnessed volatility in the stock market and as the government borrows more with deficit spending, treasury notes and bonds will continue to look very appealing to investors. Adding more money via tax cuts to an economy that is already considered to be at or close to full employment is bound to result in inflation. Both of these will cause interest rates to rise as the Fed has already indicated and we have already seen happen as we begin the year.

That leads me to believe the slowdown in sales is certainly a reflection of less and fewer homes available to purchase. Also, higher interest rates are sidelining buyers who may no longer be able to purchase the type of home they want and are regrouping. Also, many buyers have dealt with the insufficient inventory levels for months in their pursuit of a home purchase and they may now be more cautious and discriminate about what they will and will not buy.  

  • My prediction - expect inventory to remain constrained, expect interest rates to continue to rise, and expect housing values to rise as well but not as fast or as high percentge wise as last year.  
  • My advice – if you are planning to buy or sell a home this year do it sooner rather than later if at all possible. It’s not going to get easier moving into the latter half of the year.

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. 

You might also enjoy:

2017 Favorites From Our Twin Cities Home Blog

Is 2018 The Year of the Home?

New Construction vs. Existing Home - The Pros and Cons



#1 By Golden Valley Realtor at 3/6/2018 -1:33 PM

Wow! That was one thorough analysis. Thanks for putting out such thorough content and for being so diligent with your Twin Cities Real Estate statistics.

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