The Minnesota Housing Market Slows Down Before an Imminent Reversal
When we look at real estate market movements, there are hardly any metrics as insightful as market conditions at the beginning and the end of summer. Since the industry is following a predictable pattern of seasonal change, these moments serve as anchor points to which experts can attach any upcoming forecasts. And while the Minnesota housing market was off to a good start and into record-breaking summer months, current reports may point to an imminent reversal.
Prices and seasonal trends affect sentiment and economic activity. When oscillations occur, as they often do, local economies try their hardest to adapt. The housing price affects rent, labor and materials demand, small businesses, and the movement of capital and urban planning.
But what does any of this mean when we take a look at Minnesota? How does the North Star State compare to other US regions, and are we looking at market precedents or just more of the same old seasonal flux?
The current state of the housing market in Minnesota
When we look at historical charts, the recent slowdown seems somewhat predictable. So far, there is no indication that price movement and market sentiment are moving any different than what they were for the last couple of years.
Even the pandemic, which introduced a host of challenges for any industry remotely connected to the housing market, could not disrupt the overall trend.
January to July this year has seen some of the most impressive gains in property valuation, sales, and overall market sentiment. Despite negative macroeconomic trends, 2022 is holding up much better than anticipated.
The median sale price at the close of July was $345,700, a 7.4% increase year-over-year. According to a report by Redfin, metros like Red Wing, Bemidji, and St. Cloud saw a price increase of over 24%.
There are 19,597 homes on the market, which, surprisingly, represent a 0.7% decrease over July last year.
Similarly, only 53.5% of properties sell above the listing price, which is 7.7% lower on a yearly timescale. Nevertheless, the performance is still remarkable compared to previous years, as the trend decisively points upward.
How do current numbers line up with overall trends?
The current cooldown that everybody is talking about is just a slowdown. With two record-breaking years behind, the market is much healthier and more robust than any other season.
If anything, we are returning to a traditional market. Buyers, it seems, are getting the upper hand.
However, in all fairness, recent hikes in mortgage rates, which put them at 6 percent for a 30-year fixed period, prevent an all-out buying spree. According to experts, nearly 15% of homes under contract fell through as the Fed raised rates by 0.7% in June.
As these sources point out, the best homes on the market are quick to go. It is the other properties that have a hard time selling. Nevertheless, the current market conditions only make them sit on the market a while longer – not necessarily a game changer for buyers and sellers, and indeed not a cataclysmic market event.
Other market indicators
One way to compare home affordability between regions is to look at the ratio of median home price to median household income.
When applied to the map of Minnesota, this analysis yields exciting results. While the central part of the state is much more expensive, properties along the western border are far more affordable. Nevertheless, there are still new homes for sale at an affordable price that offer far more features when compared to similarly priced items outside of state borders.
We can say the same for renting, though prices tend to be higher in the East, as the market is more varied but certainly not balanced across the map.
Currently, 5.6 million people live in Minnesota, and the state has an outbound migration of 13,500 citizens from 2020 through 2021. Such demographic developments are bound to affect the demand for housing, if not for international migration, which brought 4,000 people to the land of 10,000 lakes.
When we look at the thriving job market, reasonable weekly wages, and high employee satisfaction, the historic trends for the real estate industry in Minnesota are more than justified.
It would be wise for both buyers and sellers to proceed with caution. However, analyzing the current context does not warrant any concern, much less a stark prediction of a significant market reversal.