As the adage goes, “What goes up must come down,” and it appears the Minnesota Twin Cities housing market is no exception to this rule. After several consecutive years of scorching pace and seemingly limitless growth, the Twin Cities housing market is beginning to cool off, offering a much-needed breather to prospective buyers who have been battling skyrocketing prices and fierce competition.
During the past five years, Minneapolis–St. Paul was riding an unprecedented wave of growth. Buyers, spurred by historically low-interest rates and a trend of urban migration, flooded the market, triggering bidding wars that catapulted prices into the stratosphere. But, as we venture into the third quarter of 2023, we’re seeing early indications of a slowdown, shifting the market dynamics from what was largely a seller’s market towards a more balanced terrain.
Market Dynamics: Cooling Yet Healthy
According to the Minneapolis Area Realtors Association, the median sales price, which soared by an astonishing 10% in 2022, has seen an incremental increase of just 1.5% through July 2023. Though this isn’t a drop in prices, the deceleration suggests that the market is moving toward normalization. This price stabilization is good news for buyers who were previously priced out of the market.
Moreover, the inventory level, which had been lagging due to the onslaught of demand, is starting to rebound. Sellers who had been hesitant to list their properties amidst the uncertainty of the pandemic are feeling more confident, contributing to an increase in supply. While we are still far from the 6-month supply that characterizes a balanced market, the gap is gradually narrowing.
Interest Rates and Affordable Housing
Low-interest rates have been a key driver in the previous boom. As we know, the Federal Reserve started hiking rates in 2023 in an attempt to combat inflation. This move has seen mortgage rates creep up from their record lows, which, to some extent, is impacting affordability and reducing the pool of potential buyers.
However, despite the increase, interest rates remain at historically manageable levels. Coupled with the slowing price appreciation, buyers may find that homeownership is inching back within their reach.
The Effect on Different Housing Segments
The high-end market, which was the first to heat up, seems to be the first to cool off. Luxury properties are staying longer on the market, and price cuts, which were virtually non-existent during the past years, are becoming more common.
On the other hand, the entry-level market remains competitive but less frenzied. With prices stabilizing and a slight increase in inventory, first-time buyers may find more opportunities than they have seen in recent years.
Outlook for the Future
It’s crucial to note that a cooling market is not synonymous with a crash. The underlying fundamentals of the Twin Cities housing market – a strong economy, low unemployment, and a desirable quality of life – remain robust.
The shift we’re seeing is a natural market adjustment following an extraordinarily hot period. As we move forward, we expect to see a more balanced market, with moderate price growth and a healthier level of inventory. For prospective buyers who have been sidelined, this could be the window of opportunity they’ve been waiting for.
In conclusion, while the Minnesota Twin Cities housing market is showing signs of cooling off after several hectic years, it remains a dynamic and promising landscape. Those armed with accurate information and a well-planned strategy will be well-positioned to navigate the shifting tides of this vibrant real estate market.