Blogs

(Sept. 15, 2023) – According to new data from Minnesota Realtors®, sales continued to soften in August, but home prices showed their largest year-over-year gain in over 12 months.

Market Activity
Home prices statewide were down slightly in March, April, and May but up in June, July, and August. In fact, August prices rose the most in over 12 months. Home prices are up 5.5% from last August, up 10.6% from August 2021, and up 23.1% from August 2020. During the month, sellers brought 9,124 new listings online—which was just 0.4% fewer than last year. Inventory levels slipped 4.7%. Many would-be sellers are choosing to stay put for now. Most sellers are also buyers, and higher mortgage rates combined with higher prices have truly harmed affordability.

“People used to move every five to seven years either with a life or job change,” said Emily Green, President of Minnesota Realtors®. “But we’re seeing people stay in their homes longer, particularly if they have an attractive mortgage rate. Some call this the ‘lock-in effect’ and it’s preventing needed inventory from hitting the market.” Sellers were still getting offers close to their list price, on average (99.2%) despite an 11.8% decline in sales. Though still occurring, multiple offer situations on listings have become less common compared to the last few years.

Despite the sales slowdown, some properties are selling in a few days or less for well over asking price. Market times were up 6.9% over last year, but that pace remains fairly quick in a historical context. The current environment is, however, forcing buyers to be more selective and cautious about going over asking price. Surprisingly, this market still favors sellers, just not to the same degree as recent years. August months’ supply of inventory was up an even 25%. At 2.5 months of supply, it’s still a seller’s market, just not to the same degree as we saw recently. Typically, 4-6 months of supply are needed to reach a balanced, neutral market. 

Regional Dynamics  

The Alexandria and Detroit Lakes regions saw modest sales growth, perhaps partly due to the draw of “cabin country.” Meanwhile, Rochester showed gains in sales and listings, but prices were flat despite the momentum around the Mayo Clinic expansion. Prices rose the most in the Willmar and Fergus Falls regions. In the northwest region, Bemidji is technically the only balanced market with 5.3 months of supply, but homes took longer to sell in the Hibbing and Mankato regions. Permitting, local regulations, zoning, and development processes can vary widely across regions and so do labor markets for the building trades. 

Minnesota Economy 

The state’s unemployment rate is around 3%, which is roughly average. There are almost twice as many job openings as workers seeking employment, meaning businesses are struggling to find labor. Our diverse economy continues to fuel housing demand, which makes the challenge of providing adequate ownership opportunities that much more critical. Minnesota’s regulatory environment can make it difficult to build new homes. Even so, because many existing homeowners are staying put, builders are finding strong demand for new homes. But high daycare costs and lack of adequate rural broadband pose unique challenges to our great state—as does tax competitiveness. While inflation is cooling, the rising cost of living is impacting Minnesotans in every neighborhood and zip code throughout the state. 

Twin Cities Metro Overview 

Metro home prices rose as well but at a more modest 2.7% pace. Sales were down about 12% in both the metro and state. Homes sold in 32 days in the metro versus 31 days statewide. The metro area is a slightly hotter market with 2.2 months of supply compared to 2.5 for the state. The metro has a similar shortage of homes—particularly affordable ones—to other regions across the state. While incomes are higher in the metro, so are home prices and mortgage payments. Greater Minnesota regions have some similar but also many unique challenges.