Real Estate Guide
It’s the toughest market in at least a decade for first-time homebuyers shopping in Minneapolis.
The supply of homes in the Twin Cities metropolitan area hit a record low in January, according to the Shenehon Center for Real Estate at the University of St. Thomas. In Minneapolis, experts say the market is tightest for homes in the range of $150,000–$300,000 — exactly where many first-time buyers are looking.
“I’ve got data that goes back 10 years, and I’ve never seen the market look quite like this in terms of the short supply,” said Herb Tousley, director of real estate programs at the University of St. Thomas. “That’s the big thing about this market that seems to be different, is that the number of homes for sale is just at historically low levels and has been for the last couple of years.”
Lauren Novak, a real estate executive with Re/Max Results in Edina, said there’s “a learning curve for buyers who are getting into the market.” This spring, desirable homes were selling within 24 or 48 hours of being listed, Novak said, which meant buyers had to act fast and understand that, with so many homes attracting multiple offers, sellers have a lot of leverage.
Minneapolis is considered a very affordable housing market compared to other metropolitan areas. But data compiled by the University of St. Thomas showed home prices rising faster than incomes, a sign that the imbalance in supply and demand is making it harder for some to achieve homeownership.
The house hunt
Anna Martin, a Kingfield renter who is just starting her home search, said she’s noticed the effect of creeping housing prices since she began perusing the listings late last summer. Martin, 31, a project manager for Capella University, plans to focus her house hunt on the Longfellow neighborhood where a friend recently purchased a home.
“I just feel like earlier in my search there were more houses coming to me that were in my price range but still had a lot of what I’m looking for,” Martin said.
She’s not the only one who’s noticed.
“My buyers have commented, too, that the houses have started to feel a little less good at the prices that they’re focusing on,” Novak said. “It’s not anything drastic, but they’re not getting better.”
Still, well-prepared shoppers are finding success. The key for Joanna Olson was doing her research in advance, so when the right home came up she was ready to act.
In April, the 31-year-old communications manager for Bicycle Alliance of Minnesota was looking forward to closing on a home in the Standish neighborhood, her first, which she plans to share with her partner, Ben, who also works for a nonprofit. Going in, Olson expected the search to take a few months, but couple spent exactly one Saturday morning in March looking at homes with their real estate agent.
“The house we put an offer on was the third one we saw that day,” Olson said. “We went to Chipotle at the end and my partner and I were going, well, that house isn’t going to be there tomorrow, probably, so if we want it we should probably put an offer on it.
“So we just did.”
Olson offered asking price, which was just under $170,000 for a recently renovated 800 square feet, two bedrooms and one bathroom. When she found out there was another offer on the house, she sweetened the deal by offering to pay closing costs.
“In the grand scheme of things, we found a place we like, so what’s a couple grand?” Olson said.
She found the right combination of amenities — proximity to parks, easy access to bike trails and transit — and cost. Her mortgage payment won’t be much more than rent on her apartment in Northeast.
“We got really lucky,” Olson said.
Novak said buyers offering to pay closing costs is more common in market where sellers are seeing not just one or two but multiple offers on their homes.
“If you’re in a competition, you just have to know somebody else is, at a minimum, going to pay the true full price without asking for any concessions,” she said.
While some houses were still selling right out of the gate this spring, Novak said, some savvy sellers were responding to the market and adopting a new strategy. They wait to view offers, inviting multiple bids that drive up the sale price.
“They have the leverage to do that,” she said.
Novak said it’s hard for some of her clients to get around the “mental block” of making a bid above asking price. But she said it can be the right move if, after careful consideration, the home seems to be as good or better than many of the homes on the market in the same area for a similar price.
“It has to be justified,” she said. “If the data doesn’t support that and it doesn’t stack up well against competition, then you don’t necessarily want to be making an emotional decision and offering over asking price just because you want this house.”
Tousley said the extremely tight housing supply is at least partly due to the lingering effects of the Great Recession and the crash in housing values that accompanied it.
While the median home price has largely recovered since the recession, there are still a number of homeowners who have either negative equity or near-negative equity in their homes. Tousley said those in the latter category might want to move to a more expensive home, but can’t afford to without more time to pay on their mortgages and a continued rise in home prices.
“A lot of these people are still sitting on the sidelines waiting until their equity positions get better, and at that point you’re likely to see more homes coming onto the market,” he said.
It’s not just that the supply of homes is tight, he added. Low interest rates are enticing more buyers into the market.
“I think the demand, because interest rates are still relatively low and people’s perceptions are for the rest of this year they’re going to stay low, people are still looking at that as an opportunity to buy,” Tousley said.
Rising home prices should bring more sellers into the market, potentially easing the shortage for starter homes through the summer and fall. But Tousley predicted the market would remain tight at least through the end of 2016.