Slim pickings put a lid on home sales in the Twin Cities metro last month, the Minneapolis Area Association of Realtors said Wednesday.
In February, 3,969 home buyers signed purchase agreements, just a half-percent gain from a year ago. Closings were flat and the median price of those closings jumped 7.6 percent to $223,000.
The situation is creating significant competition among buyers, mostly first-time buyers who are shopping for a house in Minneapolis and St. Paul neighborhoods and in inner-ring suburbs where listings have been scarce and there's been virtually no new construction because of a scarcity of developable land.
Cotty Lowry, president of the Realtors group, said that sales activity was off to a healthy start for 2017, but he added, "We need more sellers."
There were 5,418 new listings in February, 7.5 percent fewer than a year ago. At the end of February, there were only 8,820 listings on the market, a 25 percent decline and the lowest level in 14 years.
In many communities sellers are receiving nearly, or more than, their asking price, and houses are selling in less than a month.
"Diminishing gains on the demand side could already reflect the dramatic supply shortages that today's home buyers are experiencing," Lowry said. "It's critical to aim for balance — where neither buyers nor sellers have a clear advantage."
On average, houses sold in 82 days, 14.6 percent faster than last year. And at the current sales pace, there are enough houses on the market to last only 1.8 months, according to the association's latest data. That was the second lowest figure on record for any month since January 2003. A five- to six-month supply is considered balanced.
Home sales across the country are on the rise, according to the National Association of Realtors, which reported recently that home sales during January had increased 4 percent compared with last year to a seasonally adjusted annual rate of approximately 5.69 million homes, up 3.3 percent from December.
Many buyers are getting into the market earlier than normal this year in order to beat higher mortgage rates and rising apartment rents. Interest rates have risen slightly in recent months. The Mortgage Bankers Association's weekly mortgage survey released Wednesday showed that the average 30-year interest rate for an FHA-backed mortgage rose to 4.29 percent — the highest since January 2014.
Apartments rents are on the rise, as well, creating a situation for some in which the gap between the cost of owning and renting is narrowing. Former renters are coming into the market at a tough time to be a first-time buyer.
Rentals cut supply for sale
A new report from the Shenehon Center for Real Estate at the University of St. Thomas' Opus College of Business puts some of the blame for the tight inventory situation on a dramatic increase in the number of Twin Cities homes that were bought out of foreclosure by institutional investors and are being held for rent, meaning that fewer are available to purchase.
Citing data from the Metropolitan Council, Herb Tousley, director of real estate programs at St. Thomas, said in 2000 there were 12,000 single-family homes being rented in suburban neighborhoods. By 2013, that figure had increased to more than 28,000 and of the 93 cities tracked by the group, all but 32 saw their single-family rentals grow by at least 100 percent between 2000 and 2013.
Minneapolis had 10,278 single-family rentals in 2013, up from 5,864 in 2000, contributing to a significant decline in the number of houses for sale that are priced between $150,000 and $350,000.
Tousley said that houses purchased by institutional investors are entry-level houses that are likely to be held long term as rentals, effectively taking them off the market.
"The institutional ownership of large numbers of homes as single-family rentals is a relatively new development in the housing market, and it is one more factor that is contributing to the chronically low number of homes available for sale," he said in a statement. "The concern is that if this continues over a long period of time, where median sale prices are increasing faster than wages and income, it will begin to create affordability issues especially if interest rates begin to rise."