Kristin Hodnefield wants to buy a $250,000 house in south Minneapolis. She has been outbid three times in three months. At the beginning of June she offered one seller $30,000 more than the asking price and didn’t get it.
“It’s overwhelming,” she said. “There’s so few houses at my price point and if they are under $250,000 they’re almost guaranteed to need a ton of work.”
Buyers outnumbered sellers in parts of the metro last month, and June isn’t looking any better. House listings in the Twin Cities metro during May were down nearly 25% compared with last year, according to a monthly report from the Minneapolis Area Realtors.
During the first half of June, listings continued their double-digit decline in the Twin Cities even though COVID-19-related restrictions on open houses were lifted in late May.
“The market is pretty intense right now,” said Sam Foltz, an agent with Fulton Realty.
At the beginning of June he listed a 1,742 square-foot split-level house in New Brighton for $339,900. Within three days the house had 58 showings and 22 offers, all but one for more than the list price.
“It’s a dogfight out there,” he said, for houses under $400,000, especially under $300,000.
He said the hottest houses right now are those with open kitchens that are in tiptop condition and staged well. That’s not the case, however, for houses with odd floor plans, offensive smells (pet odors and cigarette smoke) and a long to-do list.
There’s another clear determinate of demand: price range.
Upper-bracket houses, especially those priced at more than $1 million, aren’t selling as quickly or as often. Last month there was a nearly 15% increase in signed purchase agreements for houses priced from $350,000 to $500,000. That was the biggest monthly gain for any price range. Houses priced at more than $1 million saw only a 2% increase in pending sales last month, and took three times longer to sell.
Agents say buyers and sellers this summer face an unusually long list of issues, including COVID-19, economic uncertainty, social unrest and a looming presidential election. So far those issues seem to be having the biggest effect on those who own the most-affordable houses. That segment of the market is also most likely to work in the ailing service sector and could be affected by the coming expiration of expanded unemployment benefits. At the top of the market, upper-bracket buyers are more likely to be making elective purchases that can be put on hold until they feel more confident about their investment portfolios and the long-term health of the economy.
“I’ve had buyers hit the pause button,” said Foltz. “But most feel like this isn’t a normal recession and we’re going to get through this.”
Paralysis in those segments of the market, along with a shortage of midpriced house listings, stifled sales across the region in May. With total listing inventory available at the end of the month down 20%, buyers signed 5,828 purchase agreements last month, nearly 14% fewer than last year.
With buyers outbidding one another in some areas and in some price ranges, prices continue to rise. The median price of all sales last month was $294,900, a 3.5% increase over the same period last year. That figure reflects deals that were mostly signed in March and April during the height of the COVID-19 shutdown, and is slightly below a record median high price set in April. That year-over-year increase is also a much-smaller annual gain than the previous month, when prices increased nearly 9%.
Record-low mortgage rates last month helped offset uncertainties in the market by creating an incentive to quickly find a house and lock rates. On average houses sold in 41 days, nearly 9% faster than last year. At the current sales pace there were enough houses available to last just two months, a 20% decline compared with last year.
For Hodnefield, a counselor at a school just south of Lakeville, rising prices has been a major motivation. She wants to stay near the Uptown neighborhood in Minneapolis where she has rented an apartment for six years but wants easy access to the freeway.
She started casually shopping for a house at the end of 2018 but was deterred by rising prices. With mortgage interest rates low and the urge to have her own living space deepening, she started shopping in earnest again this spring. She said that as a counselor in a public school, her income is less than 80% of the area median income in Minneapolis.
“The prices kept going up, while my budget stayed the same,” she said. “It makes me incredibly sad to be honest, because I worked so hard for a career that I love only to struggle to afford the thing that I want the most — a house to call my own.”