The following article was first reported in Finance & Commerce on November 15, 2023.
For the first time since May 2022, the Minnesota housing market has seen an increase in year-over-year listings with 3.2% more homes listed last month than in October 2022, according to a new report from the Minnesota Realtors.
The report attributes the increased-but-still low number of listings to the “lock-in effect,” which happens when homeowners/would-be sellers want to keep their low mortgage rates.
Essentially, sellers do not want to become buyers themselves because of how high interest rates are.
But the housing market, according to the report, remained a sellers’ market, with sales declining. A decline in sales typically means a decline in prices, according to the report. However, as both seller activity and buyer activity are down, prices have not fallen. The statewide median price increased 3.1% (around $10,000) from last year, and selling prices have been on average 97.5% of asking prices.
Emily Green, president of the Minnesota Realtors, said the market numbers show a strong demand for more housing and the need for greater housing supply.
“In a normal market where you have a lot of buyers backing out of the market, you’d see prices softening,” she said. “We don’t see that.”
What Green said she feels the market needs is for builders to start new projects and for sellers to understand that there is a “good market” with a “lots of buyers who would like to buy that house if it’s a good house.”
As for new starts, Green said she knows builders are affected if they think about the sale at the end of a project.
“If they think the market is going to be soft, they’re not going to start their process of building,” Green said.
Minneapolis Area Realtors and the St. Paul Area Association of Realtors also put out a report on the Twin Cities regional market. While new listings throughout the state were up, new listings in the Twin Cities declined 1.1% in October, although the report notes that this is the lowest decline since May 2022.
Pending sales and closings in the Twin Cities were down near 5% and 8% respectively, while statewide pending and closing sales were down 3.7% and 7.1% respectively.
Both reports make note of more buyers utilizing cash purchases to avoid high interest rates, with the Twin Cities report saying that cash sales were at the highest levels since 2014.
Green said she thinks people are also utilizing cash because they suspect rates will soften next year, when they may opt to refinance. She said she doesn’t believe that most cash transactions are people who plan to live in the home, because she mostly sees investors using short-term loans if they purchase a home.
The Twin Cities report concurs with the Minnesota Realtors report that it is a sellers’ market. Median prices in the metro area rose 2.4% to $365,000. These kinds of conditions are sidelining buyers, said Brianne Lawrence, the president of SPAAR.
“Buyers are feeling the triple punch of low inventory, rising prices and higher rates,” said Lawrence. “That’s kept a good chunk of buyers sidelined and reflect a real shift from the last few years.”