Even in a seller’s market, putting a home up for sale isn’t always so easy.
Scott Mueller learned this when he put his former three-bedroom, 1,700-square-foot home on the market in the summer of 2018.
“We were expecting that we would have multiple offers within a matter of days,” Mueller, a member of the Kingfield Neighborhood Association, said. “So we were in full panic mode when it took two and a half weeks.”
Although he showed his home at least 14 times, Mueller ended up receiving only one offer. He wasn’t necessarily disappointed with the final price — it sold for $356,000 — but by how long it took to sell.
“We knew that there were houses of similar size on the market for a lot more money,” he said.
In Minneapolis, the inventory of homes on the market is enough for about 2.2 months of sales, according to David Arbit, director of research at the Minneapolis Association of Realtors. In a balanced market this would look more like five or six months. It’s part of a larger trend of strong demand and short supply of houses in the Twin Cities that’s caused home prices to inflate for roughly the last five years.
But Arbit said that trend is “just, just starting to change.”
“It’s still a seller’s market,” Arbit said. “But it’s becoming a less robust seller’s market.”
A ‘very expensive market’
The median sales price for homes sold in Minneapolis for the 12 months between July 2018 and July 2019 hit $275,000, according to the Minneapolis Area Association of Realtors.
That same measure for the nine neighborhoods that MAAR defines as Southwest — Linden Hills, East Harriet, Kingfield, Fulton, Lynnhurst, Tangletown, Armatage, Kenny and Windom — hit a whopping $400,000. For nine more neighborhoods near Uptown and Bde Maka Ska, the median hit nearly $350,000. Only Whittier, where homes for that period sold around a median of $204,000, fell below the city’s median.
Independent realtor Bob Albrecht, who has worked in the Southwest market since the 1980s, doesn’t see this as a surprise. Southwest Minneapolis’ many parks, proximity to the Chain of Lakes and well-maintained housing stock have always made it one of the more desirable areas in the metro, he said.
What has surprised Albrecht is how the level of demand and price for homes in the area has kept rising steadily since 2016.
“As we faced 2017, I went into the year thinking that the demand cannot possibility continue to be this strong, the prices cannot possibly continue to rise as they have been, and yet it was just a wild ride of a year,” he said. “I had that same attitude going into ’18 and going into ’19, and the trend just seems to have continued.”
Like many realtors, Albrecht said he expected a strong market “correction” to slow down the growing demand, but today he isn’t so sure.
“Now I’m just wondering if this trajectory is going to continue for who knows how long, and we just may become a very expensive market, for first-time buyers especially,” he said.
The “correction” may just be weaker than it was in the past. Eleven of the 20 neighborhoods in the Southwest Journal’s coverage area saw slight declines in overall home sales from July 2018 through July 2019 compared with the 12 previous months. The biggest declines during this time came in East Calhoun, where sales fell 13%, and East Isles, where they fell 14%.
But available supply is still low compared with demand, which so far explains why the changes have only been modest, Arbit said.
Many factors are causing the city’s short supply of homes for sale. Though some economists are warning of a coming recession, jobs have been added in the U.S. every month for nearly nine years and unemployment remains around 3%.
All of this would make it seem like a prime time for Southwest Minneapolis homeowners to put their homes on the market, force a bidding war and sell their homes for a large price.
When bidding wars happen, they often favor buyers with disposable income. That’s because banks don’t often give out inflated mortgage loans.
If a home in Kingfield is appraised at $275,000, for example, but it sells for $300,000 after a bidding war between buyers, the bank won’t likely cover the extra $25,000 in the mortgage loan. But if the buyer happens to have $25,000 to spend right away on a down payment, the problem goes away.
“You’ve got to make up that difference or nobody will lend you the money,” Arbit said. “If you have cash, nobody cares. Because the bank doesn’t want to overinvest, otherwise they’re immediately underwater.”
Sellers must prepare
Albrecht emphasized that selling a house doesn’t always end in a bidding war and a big payday.
A low supply of real estate also impacts sellers. They must find a new place to live and are often scared they won’t be able to in the current market, Albrecht said. So would-be sellers, who in previous years would be upgrading to their second homes, are hanging onto their existing homes.
Younger first-time buyers are also better educated about the housing market than before, Albrecht added. Many are looking for a house with specific amenities — no fewer than two bathrooms, for example — and not much maintenance.
Sellers should also know that the first potential buyers to view their property have likely already been looking at homes for a while, Albrecht said. In other words, they may be approaching a home showing with a critical eye.
Homeowners inevitably develop biases against homes they’ve lived in for a while, Albrecht said. So before putting a house up for sale, sellers must “take their blinders off” and do the necessary upgrades to get their homes ready for today’s market.
“You can’t just put a house on the market without preparing and expect buyers to descend on it like the locusts,” he said.
In the nine years he owned his Kingfield house, Mueller replaced the boiler and water heater, which he said were “ancient” when he moved in. When he put the house up for sale, he knew the roof was older but not necessarily ready for replacement yet. In all, he said the home was move-in ready.
But one of the chief factors in why it took a long time to sell, he guessed, was that the home only had one bathroom. The other was the nonstop construction on nearby Interstate 35W.
“Ours was just an uncommon experience,” Mueller said.