December Peaks with High Sales, Rising Prices and Sinking Inventory
January 13, 2020
2019 ended on a strong note for the real estate market in December. Closed transactions increased 12%, while pending sales went up 3.2% and prices continued their climb, jumping 7.3%. Although more listings were entered in the MLS, inventory remained tight and housing affordability did not improve markedly over 2018.
The increased sales activity in December was driven by serious buyers taking advantage of low interest rates, steady prices, and mild weather. This further thinned housing inventories, pushing available properties down to 2.0 months statewide, the lowest ever recorded. Closed sales were strongest from April to August; however, the trend shows a decreasing differential between the winter and summer months.
“Part of this change is demographic in nature,” said Chris Galler, CEO of Minnesota Realtors®. “More single women and households without children are in the purchasing pool. They are less concerned about school schedules and more focused on the right house, in the right place, at the right price.”
Annual numbers were solid, but not as positive. Realtors® across the state closed out 2019 with a slight increase in year-to-year closed transactions +0.8%. New listing inventory increased a fraction at +0.5%, and the statewide median price was $254,000, an increase of +5.9%.
The chart below provides a breakdown for transactions across the state in 2019.
The outlook for 2020
Low interest rates and rising incomes are keeping the state’s Affordability Index at 166 – slightly better than 2018. This will help buyers who have patiently waited for an inventory increase.
“We believe interest rates will remain affordable, although increasing some through the busier May to August market,” said Galler. “Rates play a huge role in determining housing affordability.”
Based on current trends, Galler predicts pending and closed transactions will be stronger than 2019 through May and June before slowing as upcoming national elections consume more the public’s attention.
“Because home purchases and sales are closely linked to how people feel about their future, we think the negative tone of the election process will cause some to pause,” Galler explained.” He also expects that prices will continue increasing at a pace above inflation. However, as demand slows in the second half of 2020, he believes statewide increases will be less than 2019, topping out at 4 to 4.5%.
“Inventory will continue to be the biggest obstacle facing Realtors® and their consumers,” Galler observed. “Even with pockets of expansion and growth around the state, it’s not enough inventory to balance out decreases elsewhere. Meanwhile, older sellers will be plagued with the chicken-and-egg problem of wanting to downsize but unable to find an affordable option. These sellers will vacillate between their large empty-nester homes and smaller, more expensive and newer town or cluster homes.”
You can view the December Housing Report here.
About Minnesota Realtors®
Serving more than 21,000 real-estate professionals, Minnesota Realtors® (MNR) unites and empowers Realtors® throughout the state so they can thrive. Dedicated to helping Realtors® build their careers and grow their businesses, MNR provides a wide range of services and resources that include legal services, community education, government affairs, and code of ethics and standards of practice support. Founded in 1919, MNR is a non-profit organization. For more information, visit my.mnrealtor.com.