House listings are increasing at breakneck speed this spring in the Twin Cities, but that's doing little to satisfy buyers in many parts of the metro.
Last month, 4,667 houses, condos and townhouses hit the market, a 34.5% increase compared with last year at the same time, according to a monthly report from the Minneapolis Area Realtors. That was the fourth-consecutive monthly increase in listings, providing a bit of relief for house-starved buyers who wasted no time snapping up the increased inventory. Buyers signed 3,308 purchase agreements in February, 13% more than last year, according to the report.
This rebound comes in the midst of unprecedented uncertainty for Twin Cities real estate agents who are struggling to understand how a blockbuster real estate commission settlement the National Association of Realtors made last week will impact their income as well as the future of the industry.
Under the current practice, sellers pay a 5% to 6% sales commission split between the listing agent and the buyer's agent. The settlement, which needs judge approval before implementation this summer, bars agents from advertising their compensation in listing materials and would essentially force buyers to pay their own agents, if they hire one. The upshot, critics of current practices say, is it could make buying and selling a home cost less at a time when a prolonged shortage of listings and higher mortgage rates have pushed housing costs to all-time highs.
Last month, the median price of all closings increased 4.5% to $357,700, a February record. If the sellers of a house at that price were paying today's customary 6% commission, they'd share about $21,480 of their equity with the listing agent and the buyer's agent.
"Immediately, I think [the settlement] creates a situation where the consumer will see immediate relief," said Greg Lawrence, broker/owner of Golden Valley-based HomeAvenue, a flat-fee brokerage.
Competition, prices still high
For now, however, there aren't many breaks for buyers. Even now with a jump in listings, buyers are still outpacing sellers in many parts of the metro with houses selling almost as soon as they're listed and often for more than the asking price.
"It feels tough to be a buyer right now," said Nicole Neumann, who has been contemplating buying for more than a year and is relieved to have more options. "We are trying to keep our hopes up."
Sellers accepted offers at 97.5% of list price after 59 days on the market, a slightly higher average at a slightly faster pace than last year.
"Buyers do have more listings to choose from, but the supply is still unable to keep up with the demand," said Mackenzie Owens, Neuman's real estate agent. "It seems that for every attractive house in south Minneapolis, there are at least four offers on it, all of which are over the asking price, and it's sold in a weekend."
At the end of the month, there were 6,665 houses for sale across the metro, 13.3% more than last year. At the current sales pace, there were enough listings to last a little under two months, nearly 30% longer than last year. Still, buyers are stretched since the market is evenly balanced between buyers and sellers when there's a four- to six-month supply of listings.
Buyers have more options in every price range, but the gains have been strongest for move-up buyers willing to spend more than $250,000. Buyers saw at least a 20% increase in listing inventory in every price bucket higher than that.
"Although we do have more listings, the fact is the level we're at is not keeping up with demand and people's ability to buy," Owens said. "And that makes for a very competitive market even with rates hovering around 7 percent."
She said she's seeing multiple offers across the board, from the $250,000 all the way up to $800,000.
"Spring 2024 is already remarkably busier than spring 2023. I think last year, people were still in shock over the rate hikes that began in the summer of 2022," Owens said. "Everyone was watching what the Fed was going to do, and people were still hopeful rates would go back down to the low 3 percents we saw in 2020 and 2021. At this point, it's been a year and a half of higher rates, and people are just ready to make moves."
Weather and rates
David Arbit, director of research for Minneapolis Area Realtors, said the "thaw" in the spring market lines up with two factors: The Fed's decision to pause rate hikes in December and an "exceptionally warm, warm winter" that's allowed buyers to go to more showings and open houses while sellers have had less time to prepare their homes for the market.
After peaking at nearly 8% last year, mortgage rates have slipped in recent months. On Thursday, Freddie Mac said the 30-year fixed-rate mortgage nationwide averaged 6.74%, a nearly quarter-percentage-point decline in just two weeks.
Arbit, like Owens, said house shoppers seem to have adjusted to higher rates and are comfortable with the prospect they might be able to refinance if rates decline later this year or next.
"With these gains in seller activity, it seems like some are finally willing to give up their ultra-low mortgage rate," Arbit said. "The trade-off is that if your home just isn't working for you — too small, too far away, more than a 10-minute drive to Target, not enough bedrooms for virtual work and learning, etc. — then sometimes the benefits of upgrading the home outweigh the drawbacks of paying more interest for now until a refinance."
Many move-up buyers now have enough equity from their first homes to eliminate private mortgage insurance, which can add hundreds to a monthly house payment. They can also afford a 20% or more down payment to lower their monthly costs.
"But it's the first-time buyers who are struggling and feeling locked out," he said.
Neuman knows that struggle firsthand. She and her partner have been seriously shopping for their first house since January after more than a year of thinking about it.
Their wish-list isn't extravagant: air conditioning, a garage and a dishwasher. But they're not finding many affordable options. So to increase their buying power, they've decided to purchase a duplex in Minneapolis so they can use the rental income to help qualify for a larger mortgage. Even with a $300,000 to $500,000 budget, competitors still outbid them on one house, one of just a few options they found.
"We were told that the sellers liked our offer, but they wanted us to waive the inspection. Everyone else was waiving the inspection," she said. "They asked us to, but we just couldn't do that. We were really disappointed."
