Twin Cities Housing Report September 2018
The Minneapolis-St Paul Housing Market
Some say there are indications in the September housing stats that the market might be starting a shift towards balance. New listings increased 5.9 percent compared to September of last year. However, when we look at months supply of inventory that was down 3.4 percent. So what does this mean?
Let’s keep in mind that although we see balance in the market pricing tier for $500,000 and above, inventory levels in all other price segments are not even close to approaching balance which is a five to six month level of homes for sale. If you are one of those hoping to break into the housing market, your choices are limited with desirable properties selling like lightning going through butter.
Probing into the data, we see that median sales prices are still higher than last year by 6.5 percent when we look at month to month and 7.7 percent over last year when we compare the year over year data. Closed sales are down 5.8 percent and pending down 1.8 percent with properties spending 16 percent less time to sell.
Interest rates are bobbing around the 5 percent rate for mortgages which, combined with higher prices of homes may be sidelining some buyers and forcing others to rethink their home buying strategies. These numbers tell me demand is still strong. It’s outweighing supply, and low inventory levels are what is keeping sales figures down over last year. There are also outside economic and political factors to consider, which I will address shortly.
Sales of newly constructed homes were up 9 percent over last year. Median sales price gains were modest at 1.3 percent but still on the upward trend. Inventory of homes for sale was up 10.3 percent and months supply up 1.8 percent. There are more newly constructed homes this year than last but still not a sufficient supply to satisfy the demand for housing.
What is holding back new construction? Same old story from last month still holds. Labor shortages and tariffs on lumber driving up costs. This situation makes it especially difficult at the lower price range where we need the most inventory. The National Association of Homebuilders conducted a study that says tariffs are increasing the cost of a new single-family home by approximately $9000.
Economic Indicators – Good and Not So Good
The good news on being a tad late with our report this month is we get to see the latest on the national economy job numbers. October the first month of the last quarter was strong. The economy added 250,000 new jobs. The national unemployment rate remained at 3.7 percent. The latest figures for Minneapolis are for August, which puts us at 2.5 which is the lowest rate compared to other metros.
Average earnings were up 0.2 percent which is 3.1 percent higher than last year. The economy grew at 3.5 percent. While we finally see modest wage growth, the numbers for this month compared to the previous year can be deceiving due to a downward revision in the September figures. The most important factor to look at is consumer confidence. There is at this time an 18 year high in how Americans view the economy. However, a recent study by Fannie Mae found that 24 percent of Americans feel the time was right to buy a home compared to 54 percent five years ago.
The less than great factors concerning the future outlook of the economy and housing is the stock market. Right now it is falling and all gains that were made over the last year have been wiped out. Investors are nervous about tariffs, and rising interest rates. Right now, the election we will have in a few days is sucking all the oxygen out of the air for many sellers and buyers, waiting on the outcome.
Joe’s Crystal Ball
While we love seeing the good job and economic numbers, these factors will most likely keep the Fed on a steady course to raise interest rates again in December. We don’t like this much. The higher cost of a mortgage, higher home prices, and limited inventory are going to continue to subdue the housing market.
I also see a lot of buyer fatigue and frustration over lack of homes available for sale. So it is going to be a matter of finding a tipping point, where buyers will draw a line and feel the higher costs of homeownership less appealing than renting. At this moment in time, I do not think we have reached that point. I still think the housing market is stable and no bubbles will be bursting any time soon.
While I’m always tracking reputable sources of information, and predictions of experts on what all these individual factors mean about housing, we still see positive gains here in the Twin Cities. I’m again seeing the glass as half full and feel we are working more towards a balanced market than a gloomy future on housing.
Twin Cities Market data for September 2018 compared to September 2017
- new listings up +5.9%
- pending sales down -1.8%
- closed sales down -5.8%
- days on the market until closing was 42, down -16.0%
- inventory of homes for sale down -4.4%
- month’s supply of inventory down -3.8%
- median sale price up 6.1% to $262,000
- original list price received up 0.3%
- the price range that saw the highest sales gain was the $350,001 to $500,000 up 12.6%
- property segment with the most significant price gain was townhomes up +9.9%
- new construction had the most robust sales up +9.0%
- the fastest selling price range was $190,001 to $250,000 at 35 days
Rolling 12 months from October 2017 through September 2018
- new listings down -2.0%
- pending sales down -4.2%
- closed sales down -4.5%
- overall median sales price up +7.7%
As always, thanks for reading.