The storyline on the Minneapolis housing market has been locked in place for years, now: strong sales, short supply, rising prices.
“I feel like a broken record,” said Cotty Lowry, president of the Minneapolis Area Association of Realtors, or MAAR. “It’s always the same story: Nothing to sell and multiple offers.”
While there are no strong signals that shoppers are ready to give up, there are some indications the intense competition spurred by this tight housing market — particularly for first-time homebuyers — is starting to wear.
“There’s no question about that,” Cotty said. “It’s psychologically exhausting to keep trying.”
As of August, the median sales price in Minneapolis was up 12.1 percent from a year earlier, to $250,000, the Minneapolis Area Association of Realtors reported. Minneapolis homes spent just 40 days on the market on average, an 11.1 percent decline from August 2016, and the market had just 1.9 months of supply, down 13.6 percent from a year earlier.
The greater Twin Cities market registered an all-time record earlier this year when the metro area’s median home sale price hit $257,000 in June. Home prices in the 13-county metropolitan area have risen for 66 straight months, or five-and-a-half years, according to MAAR.
“Inventory is still tight, sales still strong, which of course means rising prices,” said David Arbit, MAAR’s director of research, economics and policy.
Decline in sales
Recent declines in home sales indicate the tight supply may be discouraging some potential homebuyers. Metro area closings are up for the year, but the market posted declines of 1.2 percent in July and 1.4 percent in August.
That’s not enough data to declare a pattern, Arbit said, but several more months could signify a shift in the housing market. Interest rates on the average 30-year fixed mortgage are still under 4 percent, the economy remains strong and rents aren’t dropping, so the decline in closings could point to another factor.
Shoppers just aren’t finding what they want.
“It seems to be we’re just not able to find what we’re looking for in this really tight environment,” Arbit said.
That leaves first-time homebuyers stuck between a rock and a hard place — a tight housing market and climbing rents.
A report from the University of St. Thomas Shenehon Real Estate Center indicated metro-area home prices are rising faster than income growth, a trend that, if it continues, could push homeownership out of reach for some potential buyers. But rents are rising, too — at a rate of 4.8 percent in 2016 — squeezing that same group of potential buyers even more tightly.
Pace picks up
Realtor Michael Hartung of Exit Realty Metro said competition for homes is particularly strong in Southwest and Northeast, two coveted Minneapolis markets.
“Most listings are getting multiple offers on them,” Hartung said, adding that “sellers definitely like having this advantage.”
In August, sellers on average got more than asking price in six of the 11 Minneapolis regions tracked by MAAR: Camden, Longfellow, Nokomis, Northeast, Phillips and Powderhorn. Homes in Southwest went for 98.1 percent of listing price, and homes in the Calhoun-Isles area went for 95.8 percent of listing price.
First-time homebuyers are typically shopping in the most competitive sections of the market, which means they have to be prepared to act quickly.
“Our strategy is to go in with our highest and best offer with our first offer, not to negotiate for a better price up front,” Hartung said.
Across the metro, homes priced between $190,001 and $250,000 are moving the fastest, spending an average 44 days on the market as of August, according to MAAR. By comparison, homes priced $350,001–$500,000 are on the market an average of 76 days, and homes over $1 million spend an average of 195 days on the market.
Inventory was dropping across the board, MAAR reported in September. There were fewer than two months of supply for homes priced at $250,000 or less. Experts consider a market to be balanced when there is around six months of supply, and as of August that balanced market only existed for homes selling in the range of $500,001–$1 million.
Lowry said he held two open houses in August, one for a $1.1-million home on Lake of the Isles and another for a $649,000 home near Minnehaha Creek. Both attracted dozens of visitors, but no buyers.
Outside of the first-time homebuyer market, the key to a quick sale is accurate pricing, Lowry said. While MAAR reports a year’s supply at the $1 million and up level, Lowry said he sold one such home in just 10 days this year because the price was right.
Expanding the search
That kind of timeline — or faster — is the norm at the lower end of the market. Tre Adams, a first-year agent in Lowry’s office, said the pressure is encouraging some first-time homebuyers to look outside the hottest neighborhoods and explore North Minneapolis.
“Houses are going fast because it’s affordable,” Adams said.
Hartung said he’s also talking to more buyers who are interested in North Minneapolis neighborhoods, which are just a five- to 10-minute drive from downtown and remain relatively affordable.
“Really, that’s the next big thing for Minneapolis,” he said.