By nearly every measure, 2013 was a banner year for the Twin Cities housing market with sales rising to the highest level since 2005, and prices hitting a five-year high.
Buyers closed on almost 54,000 deals — an 8.8 percent increase over last year, according to year-end data from the Regional Multiple Listing Service. With fewer bargain-priced foreclosures in the mix and the number of homes for sale at an 11-year low, the median price of those sales jumped 14.4 percent to $192,000.
“The market exceeded my expectations,” said Michael Hunstad, president of the St. Paul Area Association of Realtors. “From the beginning of the year we knew it was going to be good, and it just kept rolling.”
Driven by a steady economic recovery, 2013 started strong. Annual sales increased at a double-digit pace during the first half of the year but slowed during the fall and winter. A spike in mortgage interest rates pushed some buyers to the sidelines, while turmoil over the government shutdown put a dent in consumer confidence, causing sales to dip slightly in November and December.
Sale prices, however, never retreated. With listings in short supply, competition was fierce in some areas, and bidding wars helped sellers fetch more than they were asking. A decline in distressed sales and an increase in more expensive transactions helped give the median a statistical boost. Only 26 percent of all closings last year in the Twin Cities metro were foreclosures or short sales, compared with 40 percent in 2012 and 50 percent the year before.
Rising home prices are helping drive more listings because fewer Twin Cities homeowners are underwater on their mortgages. New listings last year increased nearly 10 percent compared with 2012, marking the first gain in seven years.
“The increase in seller activity was hugely important,” said Emily Green, president of the Minneapolis Area Association of Realtors. “As prices rise, we’ll hopefully see more inventory.”
By most metrics the Twin Cities has paralleled, or outperformed, most metro areas nationwide. According to an S&P Case-Shiller Home Price Index, prices in the Twin Cities as of October — the latest data available — were up 11.3 percent compared with 13.6 percent nationally. There were several months when prices in the Twin Cities exceeded the national average.
And generally, Minnesota homeowners are doing better when it comes to paying their mortgage. By November, CoreLogic, a national real estate research company, said that the number of Minnesotans who were seriously delinquent on their mortgage fell to just 2.7 percent — about half the national average.
Throughout the Twin Cities, sales were up in nearly every corner of the metro last year, but there were broad variations in the strength of those gains. Buyers were particularly aggressive in and around Minneapolis where several cities and neighborhoods saw demand accelerate and prices return to pre-boom levels.
In the East Calhoun neighborhood in southwest Minneapolis, for example, a shortage of listings and deep demand for houses close to parks and popular shopping helped drive a 35 percent increase in the median price. But in several communities on the fringes of the metro, especially those with a glut of new houses built during the boom, prices gains were more muted.
Experts agree that while the recovery is expected to continue into 2014, it won’t match the pace of 2013. Higher home prices and fewer foreclosures will reduce demand from investors and first-time buyers. And mortgage rates are expected to rise slightly, closing the year at 5.4 percent, according to Lawrence Yun, chief economist for the National Association of Realtors.
Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business, says that a slowdown in price gains will ultimately be good for the market. He predicts that prices will rise 4 to 6 percent on an annual basis this year.
“We’re moving into more of a stable, healthier market,” he said. “This rate of growth is healthy and sustainable as the metro area housing market continues to recover.”