A shortage of entry-level houses is putting a chill on the housing market in the Twin Cities.
During September there were 5,311 closings, 7.3 percent fewer than last year and 19 percent fewer than the previous month. Pending sales, an indication of future closings, were also down. During the month buyers signed 4,751 purchase agreements, 1.7 percent fewer than last year.
"There's no other way to say it: sentiment out there may be starting to change," said Cotty Lowry, president of the Minneapolis Area Association of Realtors (MAAR).
The cool-down follows a sizzling summer and is being driven by a shortage of houses affordable to first-time buyers. The metro saw a record number of home sales during June, and an increase in prices reflected that demand. Since, sales have slipped as sellers hunker down for winter, leaving would-be buyers with few options.
During the month there were only 6,472 new listings, 5.2 percent fewer than last year, creating an imbalance between buyers and sellers in some parts of the metro. At the end of September, for example, there were only 12,502 properties for sale — 16.7 percent fewer than last year.
That stall is part of a normal seasonal slowdown, but it's a sign of a deep imbalance between buyers and sellers at the lowest end of the price spectrum.
For houses priced at less than $250,000 there was a 30-percent decline in listings and a 16.5 percent decline in sales, while sales of houses in the next three price ranges increased.
Still, several metrics show underlying strength in the market. Houses are selling quickly as buyers pay a premium, pushing up prices.
The median sales price of all closings last month was $246,900, 7.3 percent higher than last year. On average, houses sold in 50 days, 12.3 percent faster than last year. And those sellers received on average 98.1 percent of their original list price, 0.6 percent more than September 2016. And with buyers outnumbering sellers in some areas, there's a deepening shortage of listings. At the current sales pace there were only listings to last 2.5 months.Generally, a market is considered balanced between buyers and sellers when there's a five- to six-month supply of listings.
Brooke Wolford with BRIX Real Estate, said that despite the decline in sales last month, competition for listings is still fierce and many buyers are still being outbid in multiple-offer situations.
That's especially true for inexpensive houses that are priced properly and in move-in condition.
"I have buyers who have lost numerous battles in multiple offers," she said. "And these people still need homes.
Upper-bracket buyers are confronting less competition because they have more options, and that means a greater chance for a modest price reduction. Wolford said that's especially true for listings prices at more than $700,000, which are far more abundant than those priced at less than $250,000.
She said that while buyers are clearly frustrated by a lack of options, many still remember the housing crash and aren't willing to overpay.
"They're still traumatized by the housing crash," she said. "Everybody wants to get a deal.
All of this is happening despite the best buying conditions in a generation.
The unemployment rate in the Twin Cities metro is below the national average, wages are rising and mortgage interest rates are within a percentage point of all-time lows.
The average 30-year fixed mortgage rate recently slipped from 4.3 percent to 3.8 percent recently — the long-term average is about 8 percent.
Lowry said that the recent decline in sales could have a silver lining in that it might help take some of the froth off the market.
"That's not a bad thing, since it allows incomes a chance to catch up and takes the intensity down a notch," he said.