People who don’t already own a house in the Twin Cities are having a tough time breaking into the market, with the number of listings in the typical entry-level price range falling far short of demand.
Last month, the number of houses priced at less than $250,000 was down about 35 percent compared with a year earlier, the biggest decline of any price range. Houses that most first-time buyers can afford are drawing heavy interest, and are selling quickly.
A house in Brooklyn Park had 36 showings and three offers within 48 hours of hitting the market. A house in Coon Rapids had 21 showings and sold within a day. Another one in the same suburb went on the market at 2 p.m. and by 5 p.m. had multiple offers and sold for more than the asking price.
“It’s fierce out there,” said Chris Prescott, a Redfin agent who had one of the listings in Coon Rapids.
Though by nearly every measure the housing market is healthy again, a dearth of entry-level house listings has become the missing link in the housing recovery.
Listings at the upper end of the market are becoming more plentiful, particularly in the $1 million-plus range. But spring sales are suffering from a shortage of starter houses, which people are keeping off the market out of worry that they’ll have trouble finding a place to move if their house sells.
“Sellers are afraid to list without a place to go,” said Susan Melbye, a sales agent with Edina Realty. “The scramble is on to find a place.”
Her clients Bonnie and James Blekestad spent the past several months searching for a north suburban home with three bedrooms on one level for less than $250,000.
It was a nerve-racking experience. Dozens of houses sold before they had a chance to tour them, and many had multiple offers. Only by making an offer within a couple of hours of seeing a house for the first time did they finally prevail in a bidding war.
“We were aggressive,” James Blekestad said.
The imbalance between entry-level buyers and the sellers of homes that are affordable to them is a consequence of both the Great Recession and a convergence of market forces.
Though the number of people who owe more on their mortgage than their house is worth has returned to a near-normal level, nearly a third of Twin Cities homeowners still don’t have enough equity to sell their house and cover the upfront costs on their next one.
According to a report issued last week by Zillow.com, only about 10.5 percent of Minnesota homeowners owed more than their house was worth, but 30 percent of all homeowners still don’t have enough equity to make a 20 percent down payment and cover commissions and closing costs.
And because lower-income, first-time homeowners were among those hit hardest by the foreclosure crisis, there’s a disproportionate number of entry-level houses that are still trapped in an equity bubble.
At the same time, thousands of houses that investors bought during the foreclosure crisis have become rentals, further reducing the pool of possible listings. Homebuilders have been focused on building upper-bracket houses and have built very few suburban houses that are affordable to working-class families.
“We’re stuck in a kind of equilibrium where no one wants to move because no one wants to be a buyer,” said Skylar Olsen, an economist with Zillow, likening the situation to a game of musical chairs.
Prescott, the Redfin broker, said the situation is even more challenging than it might appear. Though houses that are in good condition and priced competitively are selling quickly, that doesn’t mean there’s a buyer for every property.
There’s still a considerable number of properties that are overpriced, in bad condition or unsalable for some other reason. Some have previously been on the market, but get relisted and counted among the new listings that hit the market every month.
The situation is frustrating to both buyers and agents, who say there’s a growing pool of buyers eager to settle down and take advantage of near-record low mortgage rates.
While millennials, people who are now 18 to 34, are marrying and settling down later than their parents, the vast majority value homeownership far more than their parents and grandparents did, according to the latest U.S. Housing Confidence Index from Zillow.
It’s a higher percentage than any other generation, suggesting that there’s a huge, untapped pool of would-be buyers who never even call an agent because they go online and are frustrated by the lack of options, said Olsen.
Their motivation is both social and economic. This demographic, likely saddled with student loan debt and still approaching peak earning years, sees homeownership as a smart financial decision. With rents on the rise, house prices below peak and mortgage rates near record lows, the average buyer needs to own a house only 1.9 years to make homeownership a smarter financial decision than renting, said Olsen.
Like many prospective sellers today, the Blekestads were reluctant to list their starter house in Brooklyn Park before they found one they wanted to buy. So when they found the house in Coon Rapids they thought was right for them, they made their offer contingent upon the sale of the house they bought in 2011.
Fortunately, the $175,900 house got 36 showings and three offers within hours of it hitting the market.
“We wanted to move and were ready to move,” said James. “So we said, ‘why wait? Let’s just do it.’ ”