With entry-level house listings still hovering near all-time lows, prices across the Twin Cities metro broke another record last month.
But relief is on the way: More houses are hitting the market, competition is softening ever so slightly and price gains are moderating.
During August there were 7,814 new house listings across the metro, a 7.6-percent increase over last year and the biggest gain in at least three years, according to a monthly sales report from the Minneapolis Area Association of Realtors.
At the same time, there were 5,663 pending sales, a 2.9-percent decline from last year.
Though the median price of all closings during the month rose 6.3 percent to $268,000, — a record for August — prices aren't climbing as fast and sellers are settling for a smaller percentage of their asking price.
"Our market reports confirm what most agents already sense," said Kath Hammerseng, MAAR president and a sales agent with Edina Realty. "The market is starting to shift toward balance."
For now, first-time buyers are starved for listings as the housing market throughout the Twin Cities remains deeply stratified. The deepest shortage of listings are those priced at less than $300,000, while upper-bracket houses are much more plentiful. That means sellers of the most affordable listings are still getting close to, or more than, their asking price, while those selling the most expensive listings are offering the biggest discounts.
Hammerseng said the price reductions being offered this fall could simply be a symptom of overly optimistic sellers who priced their houses too high this spring.
Despite an uptick in new listings, inventory remains below year-ago levels. At the end of the month there were 12,243 listings on the market, 7.8 percent fewer than last year, but that's the smallest decline in listings in three years.
Though that's a notable shift, there's still a shortage of listings. On average, houses are selling in just 40 days, about a week faster than last year. And at the current sales pace there are only enough listings to last 2.5 months.
With house prices on the rise, houses that are in a price range that's affordable to typical first-time buyers are only becoming more scarce and that's putting the brakes on the number of sales across the metro. Last month, closings were flat compared with last year, and so far this year closings are down 4.5 percent compared with 2017.
"Inventory constraints are definitely playing a role," said Hammerseng. "Buyers have fewer choices and seem to be rejecting the notion that they must choose."
That's not the case for move-up buyers. The more buyers are willing to spend, the more options they will have. For example, if you were shopping for a $190,000 to $250,000 house last month, you would have encountered a 1.6-month supply of listings. If you were in the market for a house worth $1 million or more, you would have found nearly a year's supply of options. The $500,000 to $1 million price range was the only price bracket that had a healthy balance between buyers and sellers.
Buyers aren't get much help from homebuilders, especially when it comes to new homes that are affordable to first-timers and empty nesters.
On Wednesday, the U.S. Census Bureau reported that housing construction lags the first half of the year and has been stuck at the slowest pace since the 1980s. Since the Great Recession, rental housing has led the construction recovery.
The lack of new for-sale housing is one of the reasons house prices in the Twin Cities and beyond keep climbing.
The metro is one of 21 regions across the country where house prices have more than recovered from the housing bust, according to a recent analysis by Zillow.com. The median house price in the Twin Cities is now 8.6 percent higher than it was after a pre-recession peak of $240,700. During the Great Recession the median sale price of houses in the Twin Cities fell to just $166,300.
"Sellers are still enjoying a strong market," said Todd Urbanski, MAAR's president-elect. "But luckily the momentum is shifting, and buyers could see more inventory."