New listings decline while demand remains high MINNEAPOLIS (April 21, 2022) — Closed sales fell by just over 8% compared to March of last year, indicating a softening, though still robust housing market. New listings in March were down nearly 6% compared to a year ago with 8,926 properties coming on the market. Statewide inventory shrank by almost 11% to 7,808 homes for sale, which is just one month’s worth of supply. Consumers were not deterred by the tight market. Buyer demand drove the median home sales price in Minnesota up 9.2%to $322,000.On average, sellers were receiving 101.5% percent of their asking price, a 0.8% increase over March of last year.
“The decline in closed sales during March is in line with recent state and national trends and reflects homeowners’ reluctance to sell their homes and become buyers in a hyper-competitive environment where interest rates and home prices are rising,” said Chris Galler, CEO of Minnesota Realtors. “The same dynamic is motivating consumers to compete fiercely for diminishing inventory. This likely will be the trend for the rest of the year. In the bigger picture, it signals a return to more normal market conditions like those preceding the pandemic. Ultimately, we anticipate this will stabilize what has been a historically overheated housing market.”
March year-over-year summary of key market indicators:
Closed sales decreased 8.4% to 5,511
Median sales price increased 9.2% to $322,000
Average sales price increased 8.4% to $368,161
New listings decreased 5.8% to 8,926
Pending sales decreased 12.2% to 7,211
Days on the market decreased 11.9% to 37 days
Homes for sale decreased 10.7% to 7,808
Closed Home Sales Across Minnesota by Region
In March, closed sales declined in 11 regions compared to a year ago, bringing Minnesota’s average number of closed home sales down 8.4% year over year. Two regions reported increases: the Upper MN Valley at 34.5%, and Southeast at 5.1%. The smallest declines were seen in Southwest Central at 2.1%, Central at 2.2%, and South Central at 4.0%. The largest declines were reported in Northwest at 31.8% and West Central at 32.3%. See the chart below for more details comparing closed home sales for March 2022 to March 2021.
The seven-county Twin Cities region comprises Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington counties. The official Minneapolis-St. Paul-Bloomington metropolitan statistical area recognized by the Census Bureau consists of 16 counties, on
which MAR & SPAAR local associations report.
Mortgage insurance protects the lender in the event you default on the loan. In return, the lender agrees to provide a higher mortgage amount to cover the additional down payment needed. Mortgage insurance can be included in your new monthly payment, paid by the lender in return for a higher interest rate, or paid upfront. The rates used to calculate mortgage insurance are based upon debt-to-income ratio, credit, and how much down payment you will need to meet the 80% loan-to-value requirement, or 20% down.
PMI (Private Mortgage Insurance): This insurance can be paid upfront or financed into your mortgage. Once you reach 78% loan-to-value, refinance, or reach the mid-point of your mortgage, this insurance will go away. If you own a multi-family home or investment property, these rules differ, and you may want to talk with your loan officer about those options.
LPMI (Lender-Paid Mortgage Insurance): This option is when the lender pays for your mortgage insurance and in return, you agree to pay a higher interest rate where the premiums are built in.
MIP (Mortgage Insurance Premium): If you’re applying for an FHA mortgage, you pay part upfront and the remainder is financed into your mortgage payment. If you are not able to pay any part upfront, it too can be financed into your mortgage payment. It’s important to note, for FHA loans, MIP would last for the term of the loan if you purchased or refinanced your home on or after June 3, 2013 and you had a down payment of less than 10%.
Bottom line: Remember, in addition to mortgage insurance, there are several ways to purchase a home without a 20% down payment. If you are interested in exploring mortgage insurance as an option, talk with your loan officer to see which types work best for you.
We’re not the first to observe that COVID-19 changed the way we think about our homes. Nonetheless, two years on from the dawn of the pandemic, it’s hard to overstate just how significant this change has been.
In the early days of COVID, when travel restrictions and business closures affected us all, many people started thinking creatively about their outdoor living spaces. Those trends have continued, and as we approach the treasured spring and summer months in Minnesota, there’s renewed interest in creating fun, relaxing outdoor spaces to enjoy with friends and family.
1. The “outdoor room”
If you can overlook the oxymoron, this trend is one that can’t be missed. According to Wayfair’s 2022 Outdoor Trends Report, scores of people are searching for outdoor pergola kits. You’ve likely seen a pergola, even if the term is unfamiliar (see feature image for reference). A pergola kit includes all you need to assemble the structure. Once you have the pergola in place, the bones of your “outdoor room” are set.
Pergolas are great because they provide some shade and potential rain-cover (depending on the kind you buy)—but they also structure an otherwise open outdoor space. And they’re growing in popularity. Just how popular, you ask? According to Wayfair, searches for outdoor pergola kits are up 369% compared to 2021.
2. Dine al fresco—and cook too
Outdoor kitchens are predicted to continue rising in popularity in 2022. When it comes to designing an outdoor kitchen, the options are seemingly endless. Whether you want a simple grill and a sink, or an elaborate grill, mini fridge, sink, stovetop, and cabinets too—you can design the space that fits your desires (and your budget, of course!).
3. Stylish seating
Say goodbye to basic patio furniture. 2022 will bring the comfort of indoor furniture to your backyard, porch, or deck. Pair this with the “outdoor room” or the outdoor kitchen, and your home will be the place everyone wants to come for an evening of food and drinks.
4. Work from home—outside
Even though some companies are returning to the office, many will still have hybrid, or even fully remote, work options available. People are getting creative with makeshift workstations popping up in unexpected places—including outdoors. Some have transformed garden sheds into mini-offices, while others have set up shop on their deck or front porch. Choose what you like, just be sure the Wi-Fi connection is strong enough when you’re out working in the sun!
5. Re-think the front porch
Perhaps you noticed more people sitting out front last year as you walked through your neighborhood. According to Google trends, the number of searches for “front porch” increased by 1.42% in 2021. The front porch can be a great place to enjoy a morning cup of coffee or an early evening glass of wine. Depending on your set up, you could include a few comfortable chairs, a couch, or even a porch swing.
6. Hot tub relaxation
The outdoor hot tub is making a comeback. Another by-product of people spending more time at home, it’s a great addition to the backyard. Whether you want to slow down and enjoy time with family and friends after a long week at work, recover from a workout, or just get some alone time—an outdoor hot tub will do the trick.
7. Expand your home garden
While home gardening has risen steadily in popularity for many years, it’s becoming a key element of outdoor living. Many people are incorporating aspects of their garden into other outdoor living spaces, such as pergolas or front porch sets. Whether you’re a committed vegetable gardener or someone who likes sprucing up your home’s exterior with pretty plants and flowers, the benefits of home gardening are numerous. Further, an environmentally friendly garden is a great way to help pollinators and other species flourish!
8. Up your outdoor technology game
If you’ve ever been to a friend’s house for a backyard movie night, you’ll understand the appeal of an outdoor theater. Outdoor streaming is growing in popularity, and the good thing is that a screen and projector can be relatively inexpensive. Watching a movie under the stars is a great way to unwind with the family, all while enjoying the best of indoor and outdoor at the same time.
9. Hang the lights
Warm, fun lighting is a key part of a good backyard set up. Hanging string lights have become a go-to for many backyard fanatics. Their versatility and affordability make them a great choice.
10. Don’t forget the warmth
There’s nothing quite like sitting around a fire after the sun sets. Both bonfire pits and outdoor fireplaces are a good option for outdoor warmth. Some may even opt for outdoor heat lamps. Whatever you choose, investing in a way to stay warm outdoors will lengthen the outdoor season. And that’s crucial here in Minnesota!
Anybody who knows anybody house hunting in the Twin Cities right now has probably heard the horror stories: in the current real estate market, some people are putting offers on houses far and above the sellers’ asking price — and getting beat by people making even higher offers.
In recent years, low interest rates and high demand for a limited number of houses currently on the market has driven home prices up and up and up — and up, and up — even through a pandemic recession.
Even with mortgage interest rates rising — and expected to rise more soon — home price increases show no signs of slowing down, yet.
Why prices are up?
The rise in housing prices is nothing new, though prices weren’t rising quite this steeply until the pandemic hit. If you go back to about 2012, the market started to show a steady recovery from the price plummet of the Great Recession.
“The market rebuilt strong all the way through, up until the COVID pandemic,” said Chris Galler, the CEO of Minnesota Realtors. Then, the market picked up — for a few major reasons on both the demand and supply side of the equation.
On the demand side, things went a little nuts during the pandemic. Many office workers were suddenly using their homes as offices. The kids were home from school, too, which caused many to re-think their living situations and what they wanted out of a home.
And on top of all that are generational dynamics. Many millennials — people in mid-late-20s to early 40s — are the biggest generation since baby boomers — are in a prime home buying age group, which means a lot of people are in the market. At the same time, baby boomers are living longer and staying in their houses longer than past generations had, restricting the supply of units on the market.
The supply-side issues have roots in the Great Recession, when the construction of homes ground to a halt after the bottom fell out of the real estate market. In Minnesota as elsewhere, the number of homes built lagged behind growth in the population.
“Supply is lagging demand at tremendous levels,” said Libby Starling, director of the Federal Reserve Bank of Minneapolis’ Community Development and Engagement Department, who estimates that the seven-county Twin Cities metro’s housing stock is short 80,000 housing units relative to what’s needed to keep pace with population growth. “What we’re seeing is the pressure of demand when there’s simply not enough supply to meet it.”
While home construction has picked up, it’s not making up for the lost years. Additionally, the rising cost of building materials means new homes are less affordable than they might be otherwise.
***Put the demand and supply issues together and you have a lot of competition for a limited housing stock. Realtors often consider the market to have good inventory levels if there are six months worth of homes for sale, meaning it would take about six months to sell all the houses on the market. Inventory has been a lot lower than that lately, dropping from 0.9 months last February to 0.7 months this February in the Twin Cities,*** according to Minnesota Realtors.
Low inventory and high demand has prompted realtors to try to entice sellers into the market. In high-demand neighborhoods, some realtors knock on doors or drop off flyers that encourage homeowners to sell their houses or specify the types of homes their clients are looking for, including their budget.
“We’re having to actually go and pursue things through all different avenues to find things for [buyers],” said Tracy Baglio, who has been a realtor in the Twin Cities for decades and is the former president of the St. Paul Area Association of Realtors.
It’s in this environment that houses are selling quickly. Stories of multiple over-asking offers within the first day on the market are common. And in the Twin Cities, sellers, on average, are getting 100.9 percent of the list price for their homes compared to 100.2 percent a year ago, according to Minnesota Realtors.
All the supply and demand mismatch has created an especially tough homebuying environment for people looking to buy in the lower end of the market, Starling said.
Starling said some analysis suggests that with tight inventory in the middle of the market, households that can afford $400,000 or $500,000 homes are instead placing high bids on homes under that budget, beating out lower bids. Investors, too, are able to put attractive offers on homes, driving up prices.
“[That’s having the subsequent effect on affordability for lower income households, for whom these are the only options,” Starling said.
Another bubble?
Given fast-rising home values, Starling said it’s valid to ask whether this is another housing bubble, like the one that preceded the Great Recession. But the situation today is different in many ways that make it unlikely housing prices will see a major recession like they did at that time.
Chris Galler
Leading up to the 2008 recession, people could borrow a lot of money to buy a house, without putting much — if anything — down, Galler said. This caused prices to rise as people paid large sums for homes. Lenders were also less scrutinizing of credit scores, which led some people to get in way over their heads, Galler said. When the Great Recession hit and home values dropped, many people were underwater on their mortgages, owing more than their houses were worth. Ultimately, there was a rash of foreclosures.
Today, Galler said, is different. Lending standards are stricter. Lots of houses are being bought with 20 percent or more down.
At a basic level, the fundamentals are pretty different now compared to then, Starling said, and without some huge factor — like the shutdown of a major Twin Cities employer that moves thousands and thousands of jobs out of the state, it’s not likely.
“I think the fundamentals are very much that we need more housing to keep up with household growth in our region,” she said. “Household growth is slowing but still we have a lot of housing needs to catch up on.”
Slowdown ahead?
While housing prices don’t seem likely to drop rapidly like they did when the 2008 bubble burst, there are some signs that the rapid growth in prices may start to slow down.
During the pandemic, there were a lot of factors injecting money into the economy: government stimulus payments, an increase in savings as people stayed home and low interest rates helped money flow, contributing to faster-than-usual inflation.
Mortgage interest rates began to tick up in early 2021. In mid-March, the Federal Reserve raised interest rates, and has signaled they will rise further – an effort to slow down inflation — in the future.
Even with interest rates rising steadily over last year and the recent rate hike — weekly 30-year fixed-rate mortgage interest rates averaged 4.7 percent in the last week, a jump from less than 4 percent in March — the housing market hasn’t shown signs of slowing down yet.
The effect of the recent rate hike, mid-March, likely hasn’t been seen in the market yet, said Andrew Babula, director of the real estate program at the University of St. Thomas Opus College of Business. Many people closing on houses now were locked into rates before the hike.
Behavior around housing doesn’t change as quickly as it does around, say, grocery store or gasoline purchases, Galler said. If you look at the trajectory of interest rates over time, they still remain very low.
“People say, well, once we hit the high interest rates people won’t buy homes,” Galler said. “They will. They did during the ’80s, when we had 15, 16, 17, 18 percent interest rates.”
Now, with interest rates expected to rise further, some people may be trying to buy quickly before they rise more.
But the effect of the rate hikes are likely to show up eventually, Babula said.
“The expectation is that is going to slow things down,” he said. Given that supply and demand issues remain, the rate will likely have some dampening effect on price increases but not stop them entirely.
“Prices will probably not continue to increase at the rate … they have been, but they’ll either remain pretty steady or slowly go up,” he said.
Still a good time to buy?
Given all the factors at play — rising prices and rising interest rates, a lot of buyers may be asking themselves whether now is a good time to buy a house.
That depends more on the homebuyer’s situation than it does on market factors, Galler said.
If people feel secure in their job, like the neighborhood they’re buying in, can afford the mortgage payment and plan to stay for at least five to seven years, those are good reasons to buy a house, Galler said.
“Price appreciation has been significant because of low inventory the last few years and very, very low interest rates. But it probably will go back to a more normalized marketplace and that’s where that five to seven years really comes in,” he said.
Baglio said the fact that investors — who buy based on numbers and not emotions — are buying is an indication the market is strong.
Her biggest advice for prospective buyers in this market is to have patience in this competitive market.
“Just have patience for the right thing,” she said.
Supersize those tiles—go longer and wider. The look is gaining popularity throughout the home.
Long and linear backsplash tile is offering a modern twist in kitchens, according to the home remodeling website Houzz, which recently listed the trend as one to watch in 2022.
For example, a popular go-to has become white ceramic 4-by-12-inch tile. “The rectangle shape lends a timeless feel while its elongated form gives it a fresh, updated appearance,” Houzz designers note in their 2022 style report. “On Houzz, we see backsplashes with a subtle wavy or crackle glaze finish will add texture, or a herringbone pattern to give even more spin on the design.”
Photo credit: Asha Maía Design
Tiles are getting bigger in the flooring as well. Extra-large tiles can make spaces appear larger, particularly if chosen in lighter colors. Also, larger tiles mean fewer grout lines—less to clean.
But regardless of size, one flooring trend heading out of style: Square tiles, notes FlooringInc.com in its 2022 flooring trends report.(link is external) Instead, tile shapes are moving more toward a wood-look plank. The bathroom is the exception where large format tile remains trendy, they note.
In the main living spaces, longer, wider planks are being favored in making floors appear larger and more open and are becoming a “classic staple,” FlooringInc.com notes. On the other hand, short, thin planks are starting to look outdated.
Beyond elongated tiles, watch for more uniquely shaped tile to also enter more flooring choices in 2022. Bold geometric shapes—like in hexagon tiles—are offering a vintage, classic style that is being used in a more contemporary way. FlooringInc.com expects hexagon tiles to show up in more interiors, particularly in colors like whites, blacks, and grays.
