With supply plunging, Twin Cities home sales declined last month and prices rose

Home sales in the Twin Cities were down nearly 12% last month, but it wasn't for a lack of demand. The problem is so few people are selling.

In January, 3,605 houses, condominiums and townhomes hit the market, the fewest in any month since 2005.

At the current sales pace, there are only enough listings to last a little more than three weeks. The market is considered balanced when there's a six-month supply of listings.

With so few options. there were only 3,170 pending sales, or signed purchase agreements, during January. While that was down from a year ago, it was on par with January of 2019 and 2018. Closings, a reflection of sales that were signed two to three months earlier, have also been stifled by a lack of listings.

"We're in a heck of a conundrum," said Paul Ekstrom, a broker with two local offices and more than 100 agents.

Ekstrom and other agents say that while it's a great time to be a seller, many are reluctant to list their house because they're worried about finding one to replace it.

"Everything has been about getting the listings," he said. "If you own the inventory, you own the market."

In early January, Ekstrom listed a three-bedroom bungalow in Northeast Minneapolis for $300,000. Within a couple days of hitting the market, the seller got nine offers and accepted one higher than the list price.

"And that's nothing," he said, noting that one of his agents listed a $450,000 home in Blaine and got 28 offers on it. "That was a record so far."

Because the sellers of the house in Northeast had yet to find a house to buy, they accepted the offer with a 45-day contingency that make a successful offer on their next house. At that point, he said, they'd been outbid on three houses.

"There's nothing for them to choose from," Eckstrom said.

On average, half of all house listings sold within 21 days, slightly faster than a year ago, according to the MAR report. And multiple offers are still common, enabling sellers to get more than the list price.

The median price of all sales in January increased 10.4% to $332,250 — the highest January median sales price on record.

Denise Mazone, MAR president and a Golden Valley-based agent who works primarily with first-time buyers, said 2022 is stacking up to be a repeat of last year but at lower volumes.

"Our biggest problem is the lack of listings," she said. "The market is expected to remain pretty hot this year as demand continues outpace supply but also as buyers hope to get ahead of rising rates."

Rising mortgage rates are already having an impact on buyers and sellers. People who bought when mortgage rates were at record lows a couple years ago are less likely to sell in a rising rate environment. And higher rates are beginning to erode affordability.

At the end of last week, Freddie Mac's primary mortgage market survey shows that the 30-year fixed-rate mortgage averaged 3.69%, nearly a full percentage point higher than last year and the highest in at least two years.

Sam Khater, Freddie Mac's chief economist, said rate increases are expected to continue due to a strong labor market and high inflation, and that's likely to have an adverse impact on demand in the coming months.

Recent rate increases mean the people who are selling the house in Northeast Minneapolis have already had to pare down how much they're willing to spend by about $25,000, Ekstrom said, making it all the more difficult for them to find a house.

"I have one buyer who was looking to spend $300,000, but is now looking at only up to $275,000 now, and that's a challenge," he said. "Higher interest rates are going to be good for our market. We have to settle this down some."