From coast to coast, house listings are becoming more abundant, bringing relief to weary spring buyers.
Not so in the Twin Cities metro, where demand for entry-level houses continues to outstrip supply, creating a listing logjam that’s choking home sales.
By the end of March, Twin Cities home buyers had 5% fewer options than last year, according to an analysis of sales and public property records by Zillow. That’s in contrast to nearly every one of the biggest metros across the country, where buyers now have far more house listings to choose from than they did last year.
“The Twin Cities are an outlier,” said Skylar Olsen, Zillow’s director of economic research. “And that’s going to keep the homebuying experience very stressful.”
The most dramatic inventory declines so far this year have happened in about two dozen mostly inner-ring suburbs where the aging housing stock is affordable and attractive to entry-level buyers priced out of more expensive urban neighborhoods. Olsen calls the trend, which has gained steam in recent months, a “flight to affordability.”
In St. Anthony and Arden Hills, about half as many houses were available through the Regional Multiple Listing Service during the first three months of the year compared with the same time last year. And in Isanti and Little Canada, first-quarter inventory was down by about a third.
Nationwide, price gains are cooling. Not in the Twin Cities, where competition for those dwindling listings is causing price gains to accelerate, which is why last month sellers in the Twin Cities got nearly 100% of their original asking price. And because the deepest dearth of listings is among entry-level houses, first-time buyers are suffering the biggest price increases. According to a recent Star Tribune analysis of 2019 assessment data from Ramsey County, the least-expensive houses in the county are appreciating twice as fast as the most expensive ones.
Nationwide, slowing sales in places with frothy price increases are driving inventory gains. To attract buyers, sellers are offering deeper discounts. The share of listings with a price cut is higher than this time a year ago in 33 of the nation’s 35 largest housing markets, Olsen said.
A combination of factors is driving the listing logjam in the Twin Cities. Would-be sellers, particularly baby boomers who want to downsize, are reluctant to sell because they worry they’ll have to pay more for a smaller house. And builders aren’t keeping pace with demand for one-level houses that are more appealing — and affordable — to those downsizes and the large wave of younger buyers who are entering the market.
Sellers aren’t complaining. When Tracey Kruse listed her one-level townhouse in Apple Valley for $250,000 last month, she got 30 showings and nine offers in three days. Because the sale hasn’t closed yet she can’t reveal the final price, but the lowest of those offers was for her original asking price.
Among sellers in the Twin Cities, Kruse is something of an exception. The baby boomer is moving to the family ranch out of state to be closer to friends and relatives and to help care for her mother. So her decision to move wasn’t affected by concerns about where she’d move and how much she’d have to pay.
But her timing was perfect. Although she knew that her 1,400-square-foot, one-level townhouse would be a hot commodity, particularly among first-time buyers and other boomers wanting to downsize, she had no idea how well she would do.
“At least once a year I’d get a letter stuck in my door that says ‘I’ll buy your house, if you want to sell’ from a random person that wants to buy,” she said. “I’d like to say I was a real estate genius, but it was just dumb luck.”
Her agent, Sheryl Petrashek of RE/MAX Results, teaches seminars about downsizing, so she’s keenly aware of how many homeowners in their 70s and 80s would like to downsize but are still living in their two-story suburban homes.
“I’m seeing a lot of singles and couples who want to downsize, but can’t find a reasonably priced house to downsize into, so they stay in their current home and won’t put it on the market,” she said. “And that’s holding us back in terms of inventory.”
Many of those people bought their houses shortly after the Great Recession when prices and mortgage interest rates were lower than they are now. Even though many of those buyers are ready to trade up because of changing life circumstances — and a boatload of equity — they’re choosing to stay put because they don’t want to buy into an inflated market with a higher mortgage rate.
“Even those who want to move are saying, ‘I got this great house for $260,000; if I want to replace I’d have to pay $350,000 and pay a higher mortgage rate,’ ” Petrashek said. “They’re not very inspired to go out and buy a new house because the price and rate is so high.”
Though a record number of upscale rentals have been built in the Twin Cities, homebuilders say it’s nearly impossible to build entry-level for-sale housing here because the price of land, labor and materials is on the rise. On top of that, municipal development and infrastructure fees have made the Twin Cities a notoriously expensive market to build. Those factors are key reasons why, in a market with a languishing supply of existing homes, fewer permits to build single-family houses were issued during the first three months of the year than the same period a year ago.
Meanwhile, less-than-ideal weather might explain an uptick in supply that emerged last month.
Gena Henrich, director of marketing for Edina Realty, said that companywide there was a 10% increase in new listings during April compared with last year. “The snowstorms and polar temps seem to have kept people sidelined in the early part of the year,” she said.
The same was true at Keller Williams, where Julia Israel is a sales coach and real estate agent.
She said that during April her office took in 152 listings, the second most for any April.
Although Israel said her last five listings all sold before they hit the market, she’s optimistic sellers will unlock more listings.
“Something is making sellers wait,” she said. “I feel like they’re coming.”