Heading into the winter housing market recap: So far, this fall has been quite pleasant as we approach December. We've definitely spent more time outdoors as a family, trying to savor the fresh air before we're confined indoors more often due to the cooler temperatures. However, the impending cooler weather and the onset of holiday activities have arrived! Over the past month, there has been a slowdown in buyer and seller activity, leading to longer days on the market. The real estate market mirrors our last blog report, with buyers being more selective due to higher interest rates. Sellers still manage to approach asking prices if the home is well-priced, in good condition, and situated in a sought-after location. Recently, we've observed more price drops, making this winter season less competitive for buyers still hoping to find a "deal." The market presents numerous complexities, and while we can't predict its future, analyzing historical trends offers some insight. Some economists suggest that the Federal Reserve may lower rates to the 6% range by spring 2024. Nonetheless, predicting market shifts remains uncertain. Regardless, it's likely that the 6% range will become more common moving forward.

Take a look at the most recent data report from MNR below.

(Nov. 15, 2023) – According to new data from Minnesota Realtors®, sales continued to soften in October even as listings rose slightly. Home prices increased modestly, further hindering overall affordability.

Market Activity
During the month of October, sellers listed 3.2% more homes than last year, marking the first YOY increase in new listings since May 2022. This listing increase could represent a shift from the 12.8% overall year-to-date decrease in 2023 compared to 2022. Or it could reflect the fact that we’ve been in a high-interest rate environment for a full year now—rates reached the 7% mark in October 2022. Sales were down just 3.7% compared to a 15.7% decline on a year-to-date basis. That combination of activity meant inventory levels were relatively flat compared to last October. Statewide, there were just 0.4% fewer homes for sale that buyers could write offers on. Would-be sellers are reluctant to list due to the “lock-in effect” where homeowners are clinging to their attractive mortgage rates and monthly payments. Most sellers must turn around and be buyers, and buyers are feeling the triple punch of low inventory, rising prices, and higher rates.

To the surprise of many—depending on region—prices continue rising, despite declining buyer and seller activity. When supply levels rise but demand falls, that usually results in softening prices. However, both buyer and seller activity are lower, so the relative balance hasn’t changed as much as some expected. And that’s meant prices, market times, and negotiations remain mostly in the seller’s favor. For example, the statewide median price was up 3.1% to $330,000; market times were mostly flat (36 to 37 days); and sellers accepted offers at 97.5% of their asking price, on average. “After mortgage rates hit a 20-year high they’ve fortunately come down a bit, offering some reprieve to uneasy buyers,” said Emily Green, President of Minnesota Realtors®. “That said, every region is different but sellers who are willing to list might be pleasantly surprised.”

Regional Dynamics

Market activity always varies across areas, price points, and property types. The Mankato, Willmar, and Alexandria regions saw the largest gains in listing activity, while sales rose the most in the Fergus Falls, Rochester, and Willmar regions. The most balanced markets were Bemidji and Detroit Lakes, while the most undersupplied markets were St. Cloud, the Twin Cities, and Rochester. Homes took the longest to sell in the Hibbing/Virginia and Mankato regions.

Insights and Anecdotes
Agents across the state report that activity is slower compared to the last few years and buyers are more selective. Some listings are still in multiple offer situations and sell for over asking price. Luxury market activity remains fairly strong. Cash sales have also risen, indicating a desire to avoid higher interest rates. At just 2.6 months of supply, we’re still in a seller’s market, just not to the same degree as the last several years. Typically, 4-6 months of supply are needed to have a balanced, neutral market.

Minnesota Economy
Interest rates and the business cycle can impact the housing market in the short- or mid-term, but the key to a healthy, sustainable market—in addition to much needed supply—is steady job growth with well-paying jobs. The state’s unemployment rate remains at 3.1%, which is below the national average. The labor shortage continues to weigh on employers. Minnesota is fortunate to have a diverse economy spanning health care, finance and insurance, manufacturing, retail, professional services as well as government, arts, and entertainment. A powerful economic driver, real estate accounts for $69.5 billion or 15.6% of the gross state product according to NAR. But the rising cost of living is impacting Minnesotans in every area of the state, including their ability to achieve homeownership.

Twin Cities Metro Overview
Metro home prices rose at a slower 2.4% pace. The metro area also saw a larger sales decline. Sellers accepted around 98.4% of their list price after 37 days on market in the metro compared to 97.5% in 37 days statewide. At 2.3 and 2.6 months of supply in the metro and state respectively, the supply shortage is still affecting every region. Inventory levels contracted more in the metro than the state, partly reflecting a small bump in listings statewide. Even though incomes are higher in the metro, higher home prices and payments still hinder too many would-be buyers. Whether a cabin off the North Shore, a downtown condo, townhome or suburban single-family home, a farmstead or one of our many beautiful small towns, Minnesota offers something for everyone.

As always, we are here if you ever have any questions or just want to chat about the right time that works for you to make the next move!

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