Million-dollar houses typically haven't been a hot commodity in the Twin Cities area.
Until the pandemic.
Last year a record number of homes sold for more than $1 million in the metro, outpacing the previous year by more than 20% and exceeding sales gains in nearly every price range, according to end-of-year sales data from the Minneapolis Area Realtors.
The group reported last week that sales of $1 million-plus properties were up 75% in January compared with the same period last year.
Upper-bracket home sales are being fueled by record low mortgage rates, rising home equity and a hot stock market that's enabling wealthy homeowners to trade up to even more expensive homes.
"The pandemic has given people with a lot of money even more," said Daryl Fairweather, chief economist for Redfin, a national real estate brokerage. "They can't spend it on vacations and eating out at fancy restaurants and they're spending so much time at home, so people who have the money are spending it on housing."
From Afton to Orono the million-dollar home froth is turning once-sleepy suburbs into battlegrounds for buyers.
In North Oaks, where the streets, beach and paths are private, an uptick in home sales last year left buyers with only half as many options by the end of the year. And with the median price of those sales clocking in at $782,500 — nearly 30% higher than the year before — it has become a seller's market.
And in Afton, a rural enclave with a historic village along the St. Croix River, the market flipped from a buyer's to seller's market midway through the year. By the end of 2020 sales had increased nearly 50% and houses sold nearly twice as fast as they did the year before.
"I've been in the business 30 years and I've never experienced anything like this," said Sharon O'Flannigan, an agent who specializes in upper-bracket properties along the St. Croix River. "There doesn't seem to be any hesitation or resistance in the market right now."
The only problem, she said, is a dearth of for-sale properties.
O'Flannigan normally juggles a stable of 30 to 35 listings, but now has less than half a dozen. And while low rates are most commonly cited as the reason for the gains, many upper-bracket buyers today are paying cash, she said.
Towns and villages along the St. Croix River Valley used to cater to second-home buyers, she said, but with so many buyers working remotely, more of them are accelerating their plans to buy their dream home.
"These are 40- and 50-year-olds who are saying 'If this is what I'm eventually going to do, let's get on it with it,' " she said. "They're exercising their objectives earlier than planned."
She was recently involved with two home sales — one priced at $2.5 million and another at $4 million — that were being used as retreats. The new buyers, she said, plan to use them as primary residences. She even sold a seven-figure home along the river sight unseen.
"People are thinking," she said, 'If I can enjoy this life and work from here, how much better can life be' "?
Luxury home buyers in the Twin Cities have always had an overabundance of options, but the pandemic has turned the tables in some parts of the metro.
At the beginning of last year there were enough seven-figure house listings in the Twin Cities to last about eight months based on sales velocity at the time. By the end of the year, the ratio of new listings to pending sales had fallen by half and in some suburbs there was just a month of listings for sale.
Even in downtown Minneapolis, one of the few submarkets in the city where demand had softened last year, some upper-bracket sales are now happening quickly.
At the Legacy, a condo building with 374 units that opened in 2018, the last remaining $1 million units found buyers in recent weeks. And in the nearby Humboldt Lofts, a $1.2 million condo went pending earlier this month less than a week after hitting the market.
And while some upper-bracket listings are still lingering, there's evidence that there's no shortage of dreamers. Redfin said that last month a record 3.1% of all saved searches in the metro were for houses priced at more than $1 million.
"Wealthy people are reaping the benefits of unequal recovery from the pandemic-driven recession as they earn money from robust stock portfolios and rising real estate values," said Fairweather. "Not only can they afford to move, they also have big budgets."
Redfin said nationwide luxury home sales in the U.S. posted a 61% year-over-year gain during the three months ending Nov. 30, far outpacing sales increases for less-expensive homes. Those divergent trends are evidence that K-shaped economy recovery is underway in the U.S., said Fairweather.
Economists said that in the wake of the pandemic, which has enabled more people to work remotely — at least in the short term — more affordable midsize metro areas are expected to become more popular with buyers.
Fairweather said that during the last quarter of 2020 there was a nearly 50% annual increase in house searches in the Twin Cities being conducted by buyers from out of state.
That search data, she said, closely correlates to actual in-migration trends based on census data that tracks population growth and household formation.
Most of those out-of-state house shoppers in the Twin Cities were from Milwaukee, Denver, Chicago and Seattle, Fairweather said. All but Milwaukee are more expensive than the Twin Cities.
"When people move to new areas they bring a much bigger budget," Fairweather said. "People don't usually adjust their prices to match what the local housing market reflects, people spend more."
In just the past eight years the median price of homes in the Twin Cities metro has doubled, increasing the number of houses that are now worth more than $1 million.
Those gains have also increased the net worth of people who already own homes, enabling them to combine those gains with other financial windfalls to trade up to more expensive ones. During the pandemic the stock market has flirted with record highs.
'It's the haves and have-nots," said Mark Parrish, a sales agent based in Edina. "People with money have done well in bad times."
Parrish said the pandemic increases in the number of remote workers and rising crime in urban areas have forced many homeowners to reconsider where and how they live.
He recently listed a 12,000 square-foot house with its own tequila bar, indoor and outdoor swimming pools with waterslides for $1.499 million. Though the house is unique and in a northern suburb that's typically a destination for starter home buyers, it drew two offers during its first weekend on the market. And when he listed a $1.35 million house in Edina in early January, the first people who looked at it made a full-price offer on the first day it hit the market.
"With these low rates people are surprised at what they can afford," he said. "Many people are saying 'This might be an opportunity to get into something I never thought I'd be able to get into.' "
Jim Buchta • 612-673-7376