Dip in rates offers some reprieve for buyers but challenges persist

By MNR News posted 12-15-2023 10:11 AM

(Dec. 15, 2023) – According to new data from Minnesota Realtors®, sales activity began to flatten in November while listings increased. Home prices rose as homes sold slightly faster.

Market Activity 
In November, sellers listed 6.7% more homes than last year. This increase partly reflects the changing dynamics brought by the decline in mortgage rates but also includes a low baseline period. Since pending sales are more of a leading indicator, a 0.1% decline suggests demand is stabilizing. Closed sales fell 6.6%, which reflects contracts mostly signed in September and October when rates were higher. And that is compared to a 17.5% decline on a year-to-date basis. Since listings rose, but sales decreased, inventory levels grew slightly. The number of active homes for sale statewide stood at 12,674, 1.8% more than last November. While that may cause optimism for aspiring buyers, those eyeing more inventory come spring 2024 should know that a further rate decrease will likely spur more competition. Even an uptick in the supply of homes probably won’t prevent multiple offer situations from occurring, which could push sales prices over initial asking price again.

Today’s buyers—particularly first-time—are primarily concerned about monthly mortgage payments that work within their budgets. Elevated mortgage rates and higher prices have pushed the monthly payment on the typical home up to about $2,350 statewide (including the metro). The typical median home price is $327,200, up 5.5% from last November. And that same home sold in 39 days versus 40 days last year. As inflation continues to cool, mortgage rates dropped close to 7% in November, and as of today, are below 7% for the first time in months. That’s welcome news, and it’s clear buyers are responding to these changes,” said Emily Green, President of Minnesota Realtors®. “However, other factors like increasing property taxes and home insurance premiums are keeping homeownership out of reach for far too many.

Regional Dynamics  

Market activity continuously varies across areas, price points, and property types. The Grand Rapids, Fergus Falls, and Duluth regions saw the most significant gains in listing activity, while sales rose the most in the Bemidji, Willmar, and St. Cloud 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 picking up after the drop in rates but that buyers remain cautious. Multiple offer situations with listings selling for over asking price still occur in some places. Luxury market activity remains relatively strong. Cash sales have also risen as well-capitalized buyers look to avoid a higher interest rate. At just 2.3 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.

Twin Cities Metro Overview
Metro home prices rose but at less than half the statewide rate. The metro area also posted a more significant dip in sales. Sellers accepted around 97.4% of their list price after 40 days on the market in the metro compared to 96.7% in 39 days statewide. With 2.1 and 2.3 months of supply in the metro and state respectively, the housing shortage affects every corner of the state. Inventory levels shrank in the metro but grew slightly statewide. Affordability challenges continue to strain housing demand across the state.  

All information is according to Minnesota Realtors® based on data from NorthstarMLS and other MN MLSs. Data is deemed reliable, but not guaranteed.  

 To access our full November 2023 Housing Market report, click here.