After years, balance of power in Twin Cities housing market slowly tips toward buyers

More listings and fewer sales are giving a bit of control back to house hunters after more than a decade of sellers being in command.

The Minnesota Star Tribune
August 24, 2024 at 3:44PM
Alyssa Budion and Jordan Maetche made dinner together in the kitchen of their new home in Otsego, Minn. on Wednesday, June 12, 2024. (Jeff Wheeler/The Minnesota Star Tribune)

Jordan Maetche and Alyssa Budion bought a townhouse in Plymouth two years ago — when mortgage rates were at record lows, and sellers called the shots — making their offer quickly and paying the full price of $230,000.

By this spring when they decided to upgrade to a bigger house, momentum in the housing market had begun to shift: Mortgage rates had doubled, and several other homes just like theirs were also for sale.

“It was a bit stressful to be a seller,” Budion said. “But it was a great time to be a buyer.”

For years, low mortgage rates and a scarcity of listings meant home sellers routinely amassed multiple offers for more than their asking price. That’s changing. This summer, in about three-quarters of the metro’s largest cities, higher rates have altered the equation, giving buyers more options — and more time to ponder their purchase — than they’ve had in years, according to a Star Tribune analysis of new data from the Minneapolis Area Realtors.

This is just the beginning of a slow swing. At the current sales pace, there were enough houses for sale across the 16-county metro this summer to last 2½ months — a meaningful increase compared with last year at this time, but only halfway to being evenly balanced between buyers and sellers.

But for prospective buyers, any movement away from the days of offers well above asking price or concessions like waived inspections is welcome news.

“People who want to sell are still selling, but it might take a little longer or take more prep work to get ready for the market,” said Andy Sopher, the agent who worked with Budion and Maetche. “But buyers are not throwing caution to the wind like they did in 2020.”

Location not the biggest factor

With house prices at record highs — a median price of $385,000 in July — the situation has been especially vexing for cash-strapped entry-level buyers, and those looking to downsize. As of July, there were only enough houses priced from $250,001 to $350,000 to last a little more than 1½ months, the shortest in any price range.

Rachel Scarrella, a Twin Cities real estate agent, said a competitively priced, properly staged and move-in ready house will still garner multiple offers, no matter the location. But she said houses affordable to first-time buyers and downsizers are selling especially quickly.

“It’s not geography driving [the market],” she said. “It’s pricing.”

This summer, Scarrella listed a house on East Road in Circle Pines for $239,900. The house wasn’t the kind of picture-perfect, HGTV-ready property that makes buyers swoon — it still had plush carpet, even in the kitchen — but it had a big yard and was affordable to first-timers. She priced it low to attract as many buyers as possible, she said, in hopes of inciting a bidding war.

The strategy worked. In less than two days, she had 17 offers and sold it for $36,100 more than asking.

“It’s not as hyper as it was last year,” she said. “But anything in that price range that’s livable is going to sell in multiple offers.”

Scarrella and other agents said demand for move-up homes has tempered thanks to a glut of first-time buyers who are “rate-locked,” meaning they have low mortgage rates that discourage them from upgrading to a more expensive house and higher rate.

“You have to sell to buy,” she said, “Interest rates are causing people to pause.”

Supply and cost

Houses priced at less than $150,000, which tend to be fixer-uppers, and those priced at more than $500,000, are taking the longest to sell, according to the latest sales data. That’s part of the reason the most balanced market in the metro this summer is also one of the most expensive: Orono.

In the suburb that’s about a 30-minute drive west of Minneapolis, the median sale price was $942,000, and there was nearly a 5½-month supply of listings at the end of July, a more than two-month increase since last year.

“It’s [the upper-bracket market] that’s very hit or miss,” Scarrella said. “But a lot of those people are cash buyers, and the rates don’t affect them.’

Buyers saw the biggest power change from sellers to buyers in Lindstrom, about a 45-minute drive northeast of the Twin Cities. There, the supply of listings increased to last 2½ more months. In 2022, Lindstrom was the second-hottest housing market in the metro, according to the Star Tribune’s annual Hot Housing Index.

Across the metro, listings in virtually every price range have increased significantly so far this year, but the deepest shortage is those priced from $190,000 to $350,000.

For those budget buyers, the market has improved the most in Edina, where there are now enough houses priced at less than $300,000 to last nearly four months. And in St. Louis Park, the supply of starter houses more than doubled while the inventory of move-up houses flattened.

Though Edina is one of the most expensive housing markets in the metro, the city has an especially high share of condos and townhouses, many of them built decades ago. Last year, about 35% of the closings in Edina were condos and townhouses compared with 25% for the broader metro.

Sopher said condos and townhouses, like the one Maetche and Budion sold in Plymouth, have been more challenging to sell because homeowners association fees have increased, making the monthly cost of ownership unattainable for many cash-strapped buyers. And in inner-ring suburbs like Edina, where there’s an abundance of swanky new apartments with resort-style amenities, many people are choosing to rent instead, he said.

For those starter buyers, the supply has fallen the most in Andover, Mound, Circle Pines and several other high-demand suburbs, which also saw a distinct increase in the supply of upper-bracket houses.

In Andover, for example, there’s long been a dire shortage of starter houses for sale, but the situation has only gotten worse. As of July, there were only enough starter houses to last about nine days, about half as many as last year. Meanwhile the supply of move-up houses increased by nearly a month.

Fewer concessions

Still, even in areas where listings are few, the changing dynamics mean many buyers are no longer taking the kinds of risks they did a year ago, including waiving inspections and finance contingencies.

Sopher said when he recently listed his own house — a four-bedroom, split-entry house in Monticello — he made sure it was in perfect condition and completely staged. He also did a pre-sale home inspection to give would-be buyers confidence.

“We reassured buyers that the home was in good shape by providing inspection up front,” he said. “And we didn’t have to negotiate after the offer was accepted.”

The strategy worked. He solicited six offers within three days and sold it for about $15,000 more than the $349,900 list price.

As sellers, Maetche and Budion weren’t so lucky. When they listed their townhouse in Plymouth, they had several showings and even garnered some offers, but they were all too far below their asking price.

“Everybody said, ‘It’s going to sell so fast,’” Budion said. “It couldn’t have been more opposite.”

After several weeks, they finally managed an acceptable offer, but they still ended up selling for a couple thousand less than they were asking.

On the flip side, their new house in Otsego, originally listed for $430,000, dropped in price to $374,990, enabling them to swiftly make an offer. And in addition to the price reduction, they were able to swing a discounted mortgage rate, which saved them several hundred dollars a month.

“It was a roller-coaster ride,” Budion said. “We weren’t mentally prepared for all the obstacles along the way.”

about the writer

Jim Buchta

Reporter

Jim Buchta has covered real estate for the Star Tribune for several years. He also has covered energy, small business, consumer affairs and travel. 

See More

More from Business

card image

California-based Better Place Forests bought 112 acres in Scandia to offer more eco-friendly memorial options, an industry Emergen Research expects to generate $1.2 billion a year by 2030.

Tom Sparks shopped at Arc's Value Village Thrift Store and Donation Center in Bloomington, Minn. on Friday, February 24, 2012. Sparks, who is also a collector, enjoys shopping at thrift stores to stay on a budget and find unique knick knacks like picture frames.