The Twin Cities has become one of the most competitive housing markets in the country, and there’s no relief in sight for spring buyers.
More than a third of all home sellers in the Twin Cities got more than their asking price last year, trailing only San Francisco, San Jose and Boston, according to an analysis of the top 35 metro areas by Zillow.
Just two months into the year buyers are outpacing sellers in many parts of the metro, leaving shoppers with fewer options than last year in every price range under $1 million.
“It’s insanity,” said Daren Jensen of Edina Realty, who recently listed a tidy midcentury rambler in Richfield for $325,000. Within 24 hours, agents scheduled 41 showings and Jensen hosted an open house. More than 80 groups of buyers showed up. “I had to shut it down, there were just too many people,” he said.
The sellers were overwhelmed, too, but with offers: 21 of them, including one for $70,000 more than the list price.
The situation is more than a little vexing for buyers, who are wooing sellers with personal letters, and waiving what are normally standard — and prudent — financing and inspection contingencies.
Last week’s stocks slump has emerged as a wild card for the housing market as has the possibility of soured consumer sentiment amid investment portfolio losses and prospects of the coronavirus fallout slamming the brakes on the economy.
So far in 2020, the housing market has been flush with a backlog of buyers who didn’t get what they wanted last year. Many are trying to get ahead of rising home prices, and they’re getting an early start. The first week of February saw 20% more signed purchase agreements than the same period a year ago, according to the Minneapolis Area Realtors. Mortgage rates last week dipped a full percentage point below last year’s levels, and are likely to remain at all-time lows as nervous investors seek refuge in the bond market.
Those early season buyers are entering a market that has 14% fewer house listings compared with last year, with those shopping for a house priced at less than $300,000 facing the biggest declines. The depleted supply is being driven in part by would-be sellers who are afraid of the competition and are staying put; empty nesters who are choosing to age in place longer than expected, and a lack of new construction in that price range.
While starter houses are most scarce, agents say move-up buyers are starting to feel the crunch, as well. Zillow data show that last year starter homes were twice as likely as the luxury segment to sell for more than they were asking. But during the last couple months of 2019 there was a meaningful increase in over-ask offers for move-up houses.
Jensen recently tried to show clients an $895,000 house in Minneapolis, but by the time they were able schedule a tour those sellers already had four offers.
“My buyers looked at me and said, ‘We’d rather look for something else,’ ” he said.
Zillow economist Joshua Clark said that while the situation is frustrating, the Twin Cities is actually one of the healthier housing markets in the nation. While the median sale price has breached record highs, annual price gains have been moderate and in line with the national average.
A price bubble, he said, is unlikely. “The Minneapolis market has been fairly steady,” he said. “But it seems the market is starting to heat up.”
So far the listing shortage is most acute in urban neighborhoods and aging suburbs like White Bear Lake, where Joy Erickson of Edina Realty recently listed an 810-square-foot house for $200,000. Within a day of hitting the market, she scheduled 24 showings and delivered eight offers to her sellers.
“Buyers who weren’t able to find something last summer have been waiting through the fall and winter for more listings,” she said.
While it’s very early, Erickson said coronavirus-induced economic jitters aren’t derailing deals.
Over the weekend, she was involved with three transactions, and during the past 36 hours she put together five deals. “None of them have expressed concerns,” she said.
Still, one client is questioning what’s going to happen. “An 8 to 1 ratio seems positive, given the week on the stock market,” she said.
The current market volatility could have another impact: even lower mortgage rates that bring even more buyers into the spring market.
Ali Wolf, director of economic research for Meyers Research, a national housing research company, acknowledges that the threat of a recession, or a sustained correction, could upend the spring market, especially if the baby boomers who control about 70% of the nation’s wealth aren’t feeling confident. “This group may be less eager to buy a home until it becomes clearer where the stock market will settle,” she said.
Erickson said the current shortage of house listings is forcing many buyers to bid on houses that don’t fully meet their expectations or have cosmetic flaws.
“Sellers are excited that they do not need to do as many things to their houses as they thought they would,” she said. “Everything does not need to be ‘HGTV like’ to sell a home.”
Erickson said that in addition to helping buyers write letters to the sellers, many are sweetening their offers in other ways. That includes shortening inspection contingencies to five days rather than 10, and telling sellers they’ll call out only health and safety concerns.
For buyers, waiving contingencies can be risky. Forgoing an inspection means an expensive defect might go overlooked. Waiving a financing contingency could mean that an appraisal comes in below the agreed-upon purchase price and the buyer is on the hook for the difference between what the lender thinks the house is worth and what the buyer has agreed to pay.
Many buyers are also waiving home-sale contingencies, which let buyers out of the deal if the home they already own doesn’t sell. In a swift market with low inventory, that’s often not a problem, but buyers can be left with two overlapping mortgages.
Jensen, the agent who quickly sold the rambler in Richfield, wasn’t able to say how much more the sellers got because the sale hasn’t closed yet. But he said that unless the highest offer is also a cash offer, it’s not always the strongest offer. In the case of the Richfield house, three of the 21 offers were for cash.
“You often have to take that [the highest offer] out of consideration because you know the house is not going to appraise,” he said. “They took an offer they knew would close.”