David Kleine

BUYER AND SELLER ACTIVITY HIGHER THAN 2023 DESPITE AFFORDABILITY HEADWINDS

Buyers overcame triple punch of higher rates, rising prices and tight inventory for slight gain on the year

Minneapolis–Saint Paul, Minnesota (January 28, 2025) – Home sales increased in 2024, according to new annual reports issued by Minnesota Realtors® (MNR), Minneapolis Area REALTORS® (MAR) and the St. Paul Area Association of REALTORS® (SPAAR). It’s been a challenging few years for aspiring home buyers. Hindered by a thorny trifecta of rising prices, higher mortgage rates and a shortage of homes, it’s no secret today’s home buyers are feeling the squeeze. That’s what makes an increase in sales stand out given the impediments. Despite the headwinds, buyers were persistent and hopeful for future refinancing opportunities. Home sales rose 1.1% statewide and 1.8% in the Twin Cities metro, both compared to 2023. But that slight gain was off of a low baseline. While it’s impossible to say with certainty, 2023 could be the bottom for sales this cycle.

Seller activity also rose, as sellers had an easier time moving up than first-time buyers had moving in. Despite activity gains, sellers still felt the “lock-in” effect in that they were reluctant to relinquish their favorable mortgage rates and trade up for a higher rate on a pricier home. Diplomas, diamonds, diapers, divorce and death are common reasons sellers simply couldn’t wait any longer. New listings were up 6.4% statewide and 8.2% in the metro. Most sellers are also buyers, but second time or move-up buyers had the luxury of bringing the equity from their last property. Speaking of luxury, sales of homes priced over $1M in the metro rose 12.3% to their highest level on record—roughly four times the 2005 level. Luxury buyers aren’t rate-sensitive like first-time buyers, and so the luxury segment has continued to outperform despite the higher rate environment. Sales under $300,000 fell 8.5%. About 17.5% of metro sales were purchased in cash and not financed––the highest level since 2013. And that figure is about double for homes over $1M.

There were some key differences between market segments. For example, in the Twin Cities:

• Sales under $300K were down 8.5% while sales over $1M rose 12.3%
• Single family sales rose 3.7% but condo sales fell 7.1% and townhome sales declined 2.4%
• Previously owned sales were up 1.9% however new construction sales decreased 0.4%
• Two-bedroom home sales fell 3.6% while four or more bedroom home sales rose 5.6%
• Non-waterfront sales rose 2.0% and private waterfront sales rose 4.1%
• Sales were down 3.4% in Minneapolis and declined 0.3% in St. Paul

Prices also rose but so did market times. The median sales price was up 3.9% to $345,000 statewide and rose 3.3% to $380,000 in the metro. Mortgage rates are too high for prices to rise significantly, but supply is too tight for prices to fall. There’s less activity overall but the balance between buyer and seller activity (i.e. supply and demand) remains tight. Since 2020, home prices are up 25.5% statewide and 24.6% for the metro. Days on market rose 10.5% to 42 days statewide and increased 12.5% to 45 days in the metro. Although sellers needed to exercise more patience, due to three consecutive years of longer market times, homes continued to sell as quickly—or even faster—than in 2019 across both the state and metro areas. “Sellers did have to be more patient, but not overly so, as they were still in a relatively favorable position. Buyers who wrote strong, clean offers right out of the gate tended to be successful,” said Jennifer Livingston, President of SPAAR.

Inventory levels were technically lower as of year-end but were actually higher than 2023 for much of the year. The number of homes for sale statewide fell 0.3% to 11,476 and fell 3.4% to 6,712 for the metro. Even with the inventory increases in 2022 and 2023, there are still fewer homes for sale now than in 2019 for both the state and metro. “Motivated buyers did see more choices during much of the year, but were more cautious and selective during their search,” said Patti Jo Fitzpatrick, President of MNR. “Believe it or not, some sellers still received multiple offers on attractive and well-priced listings,” she added. In order to achieve a balanced market where neither side has the upper hand, we’d need to more than double our inventory of homes for sale. Finishing the year with just 2.1 months of supply statewide and 1.8 months in the metro—both down from 2023 but back up to 2018 and 2019 levels—highlights the ongoing supply shortage despite declines in demand. A balanced market should have around five to six months of supply. That leads to historically average price growth, market times and negotiations, instead of sellers holding the reigns as they have lately.

Sellers received 97.9% of their list price statewide and 98.7% in the metro, both down slightly from last year. In this slightly less competitive market, sellers were willing to accept a bit less of their asking price. Higher rates have meant less activity lately, but the supply shortage meant sellers still received appealing offers in a reasonable time frame. In the Twin Cities, single family home sellers accepted offers at 99.0% of their list price while condo sellers accepted 96.1% of their list price. Three-bedroom homes between 1,500 and 2,000 square feet tended to perform the best here. Homes under $500,000 fetched 98.8% of their asking price while the figure was 96.7% for homes over $1M.

Housing affordability has certainly suffered recently. In some ways, payments matter more than prices to home buyers. And that monthly mortgage payment has risen by about $1,000 per month since 2020. Although prices have been up about 25.0% since then, monthly payments rose roughly 72.0% over the same period. Assuming 10% down, the typical payment on the median priced home in Minnesota rose from $1,450 in 2020 to $2,500 in 2024. Even downsizers purchasing a less expensive home could easily see higher payments. That has stretched budgets and partly reflects rising prices but is mostly driven by higher mortgage rates. According to Freddie Mac, the average 30-year mortgage rate in 2024 was 6.7%, down a hair from 6.8% in 2023. But the range was more like 6.1% to 7.1% throughout the year and monthly sales activity echoed that, suggesting buyers are still quite rate sensitive. “Buyers not only saw rates vary throughout the year but also noticed that inventory growth as well,” said Frank D’Angelo, President of MAR. “If rates continue to cool down toward the low sixes or even high fives, I think that would really get buyers off the bench. But we still don’t have enough homes for sale.” Even a 6.0% rate would be a welcome reprieve for frustrated buyers. Though inflation has cooled notably, the Federal Reserve has signaled a slower pace for rate cuts.

“Real estate is cyclical and can change quickly. Patience, persistence, and creativity around terms and financing options as well as managing expectations are keys to a successful transaction,” said Patti Jo Fitzpatrick, MNR President. “There is a lot of pent-up demand to list and buy that’s been held back. If rates come down too quickly, that could lead to another overheated market where multiple offers are the norm and buyers are taking on more risk. Whatever the case, it’s critical to work with a Realtor® to navigate today’s complex market.”

In the near term, rates matter. But in the long term, it’s really the economy and labor market that determine the health and sustainability of the housing market. Attracting and maintaining enough stable, well-paying jobs is essential to sustaining the monthly payments on, upkeep of and demand for residential property. We’re pretty fortunate here in Minnesota. Our incomes, homeownership rates, educational attainment, Fortune 500 companies, life expectancy, voter turnout and bicycle ridership are above average while our home prices and unemployment rate are below average. At about 4.0% per the Bureau of Labor Statistics, wage growth in Minnesota is currently outpacing inflation (CPI up 2.7%) and keeping up with home prices (up 3.9%). Even so, dedicating a larger share of a household budget toward housing also means less discretionary spending elsewhere in the economy, which is a crucial contributor to economic and job growth. Housing affects the economy and the economy affects housing. There are growing challenges around taxes, regulation and rising insurance costs. Affordable childcare, the racial homeownership gap, rural broadband and an ongoing labor shortage are also prickly obstacles. Despite these challenges, Minnesota is well positioned for continued success moving forward.

2024 by the Numbers | Compared to 2023

2024 Charted | Comparing the last three years
All information is according to the Minnesota, Minneapolis and St. Paul REALTOR® associations and based on data from NorthstarMLS. We serve agents across the state and Twin Cities metro area as well as western Wisconsin. For other year-end residential real estate information and for stand-alone December 2024 data, please visit www.mnrealtor.com, www.mplsrealtor.com and www.spaar.com.

From The Skinny Blog.

Metro home prices hit record high despite higher rates and more inventory

• Signed purchase agreements fell 10.8%; new listings down 5.8%
• The median sales price increased 1.8% to $390,000
• Market times rose 9.7% to 34 days; inventory up 10.6% to 8,905

(Jul. 16, 2024) – According to new data from Minneapolis Area REALTORS® and the Saint Paul Area Association of REALTORS®, listings rose slightly compared to last year while sales softened. Inventory levels and prices were up.

Sellers, Buyers and Housing Supply
It’s official. Half of 2024 is in the books. That makes it a good time to zoom out and check on some year-to-date figures. So far this year, there have been 10.6% more new listings and 1.8% more pending sales metro-wide compared to the same period last year. That means seller activity has risen more than five times the pace of buyer activity on a year-to-date basis. Put another way, there was more supply coming online relative to demand—a trend confirmed by eight consecutive months of inventory growth. For June, the number of homes for sale was up 10.6% to 8,905 active listings. That’s the number of listings on which buyers can write offers. While buyers may be feeling less pressure with 850 additional homes to choose from, there are still only 2.4 months of supply, indicating a seller’s market; a balanced market is 4-6 months of inventory.

While this year has seen growth in both listings and sales compared to 2023, there seems to have been a cool-down in activity in May and June as signed purchase agreements dipped. At around 7.0%, mortgage rates in May and June of this year hovered higher than last year. And buyers are still feeling the triple punch of rising prices, low inventory and higher interest rates. There is a good amount of pent-up buyer and seller activity waiting in the wings for an improved affordability picture.

But all situations are unique. For example, move-up buyers with built up equity from their first home can roll that equity into their next property, while most first-time buyers don’t have that luxury. Additionally, market inventory and high interest rates lead to a decrease in overall activity, especially when it comes to more affordable homes as those buyers are the most rate sensitive.

Prices, Market Times and Negotiations
Listings in some areas are still getting multiple offers and selling for over list price. In fact, overall, sellers accepted offers at 100.1% of their list price on average. While perhaps surprisingly strong, that was down from last year. And those offers came in after an average of 34 days on market, which was up from last year. Single family homes specifically are selling after 31 days but condos are taking 56 days. “This is still a somewhat fragmented market where activity truly varies from price point to price point and area to area,” said Jamar Hardy, President of Minneapolis Area REALTORS®. “While we’re encouraged by more supply, the lack of affordability caused by higher mortgage rates and rising prices are still significant hurdles.”

The median home price was up 1.8% to $390,000. That was the smallest gain since December. The single-family median price rose to $425,000, while condos fell to just under $200,000 and townhomes dipped to $310,000. New home prices are just over $500,000 while existing home prices are $380,000. Low inventory and the mix of product selling—i.e. more luxury and new construction—are partly what’s keeping prices so firm. “We are observing that the limited inventory is still affecting prices and activity for more affordable properties,” said Amy Peterson, President of the Saint Paul Area Association of REALTORS®. “Partnering with a qualified and experienced professional will help consumers navigate the intricacies of this market.”

Location & Property Type
Market activity always varies by area, price point and property type. New home sales outperformed existing home sales while condo sales fell by over twice as much as single family. Sales over $500,000 performed better than sales under $500,000. Cities such as Mahtomedi, Hudson and North Oaks saw among the largest sales gains while Delano, Annandale and Elko New Market all had notably weaker demand. For cities with at least five sales, the highest priced areas were Deephaven, Shorewood, Tonka Bay and North Oaks while the most affordable areas were Hopkins, St. Paul Park and Spring Lake Park.

May 2024 Housing Takeaways (compared to a year ago)

• Sellers listed 6,358 properties on the market, a 5.8% decrease from last June
• Buyers signed 4,469 purchase agreements, down 10.8% (4,540 closed sales, down 16.3%)
• Inventory levels increased 10.6% to 8,905 units
• Month’s Supply of Inventory rose 14.3% to 2.4 months (4-6 months is balanced)
• The Median Sales Price was up 1.8% to $390,000
• Days on Market rose 9.7% to 34 days, on average (median of 15 days, up 25.0%)
• Changes in Pending Sales activity varied by market segment and price point
  • Single family sales fell 8.5%; condo sales were down 21.1%; townhouse sales decreased 17.2%
  • Traditional sales were down 10.5%; foreclosure sales declined 34.2% to 25; short sales rose 25.0% to 5
  • Previously owned sales decreased 11.6%; new construction sales were up 0.2%
  • Sales under $500,000 declined 13.2%; sales over $500,000 decreased 2.5%

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From The Skinny Blog.