You’re not helpless when it comes to mortgage interest rates! A lot of buyers are concerned about monthly payments now that the interest rates have gone up.
I talked with Chris O’Connell at Loan Depot about 4 options that home buyers have to pay a lower interest rate and therefore a lower monthly mortgage payment. Chris had one that was surprising to me and we talked a bit about the one that seems to be getting a lot of attention in the real estate world right now, the 2/1 buy down and why that may not be the BEST option.
Take a look at this video interview if that is something that is worrying you as you think about buying a house now.
A month goes by in a hurry it seems, so here we are! Did a month make a difference with the real estate market? YES. It is notably busier!
I don’t think I’m telling you anything you don’t already know, but the real estate market is on fire. Someone hit the gas pedal on the housing market in February and they have a lead foot. What does this mean specifically? Let’s look at the twin cities housing market as of Feb 18 2022.
If you are a seller – LIST NOW and you’ll be partying all the way to the bank.
Just about every listing is getting multiple offers in the first couple of days. The supply of buyers is so great and the supply of homes is so low right now – 15% fewer listings on the market than last year at this point!
Why are sellers hesitating? I assume that it’s because they are worried about finding THEIR next home. As an agent that represents a lot of buyers, I can tell you that sellers can not only command great prices for their homes they can still get a closing date that suits their needs. For example, if a seller is considering putting their home on the market, but are worried it will be gone in a blink, there is a great likelihood that the seller can ask for and receive a 60 close, flexible closing, or recently I’ve seen them asking for a seller’s home purchase contingency or lastly a rent back situation after closing remembering that most conventional loans require the transaction to close in 60 days on the buy side so no long term rentals this way! but this way the seller will have cash in hand and be able to buy while also have a roof over their heads while they wait for their next home to be available.
One of the things that I really like about real estate is that EVERYTHING is negotiable – as long as the parties work it out (within the law!) and get it in a signed contract, the parties can work together to find a solution that works for everyone. Do you have a creative way to structure a contract that lets everyone get what they need? Bring it up and there may be a way to make it work out!
This past week we had offer acceptance rates at 15%, which means that sellers are receiving 6-7 offers on average. But the average for the month is hovering around 35% according to Home Free Transaction Coordinators. I’ll give you more info on what they see in a successful offer after I take you through current market conditions.
It’s a seller’s market, but to what degree? In the past I’ve explained that the way that we determine this is based on the absorption rate or how many months worth of housing inventory we have at a given time if nothing new were added to the market. 5-6 months is considered balanced, more than that is a buyer’s market and less is a seller’s market. Obviously the more extreme the number the more it favors one or the other. That obviously varies by housing type.
Single family homes have a .56 months (about 17 days) supply now as compared to one year ago when they were at .62 (about 19 days). We have started this year off with available inventory down by 21% year over year. New listings this month are down by 15% from last year.
I was looking for a bright spot and looked at new construction. Builders are responding to the need for houses and have started increasing their production too.
This image shows the big dip and now the increase starting in single family new builds between $400 & $600K. Its not dramatic, but any amount helps – if you have 50 more houses that’s 50 buyers that have found something.
If you have been thinking about selling and are curious about what your home is worth today, let me know. I’ll give you a free estimate of what your home is worth today – absolutely no obligation, just for your information if you want to know – just send me an email. We need homes and now is definitely the time to get the maximum amount of money out of your sale! firstname.lastname@example.org if you’re curious. I’m happy to do it.
Townhouse/ Condo properties are at .97 months (29 days) vs 1.13 a year ago (34 days). Prices on Townhouses are at a median of $267,000 which is UP 12.2%. Average days on market for a townhouse is down 26% to 14.
Condo prices are at a median of $195,000 up 6.6% from last year and are on the market for about 30 days. If you are a first time buyer or someone that likes condo living, this is the softest spot in the market today and your biggest opportunity.
Single family homes in the 14 county metro area have a median price of $370,000, a gain of 12.1% year over year. They are on the market for NINE DAYS. Only about half of what we saw a year ago. And don’t fool yourself thinking you have 9 days to think about it, this is a listing going live on a Thursday, showing through the weekend, closing offers on Sunday and allowing a 5 day inspection period before heading to pending.
The combined absorption rate (all property types) is at .67 months or 20 days of inventory as opposed to one year ago when we had a whopping .75 months or 22 days of inventory.
What can you do if you’re a buyer?
Here are my suggestions and strategies:
1.my office posts properties to agents internally that are off market and that sellers are willing to part with before going onto the MLS, so having that network available helps a lot!
2. make sure you see what is available in “coming soon” and get in there quickly
3. even better if you have the nerve- offer “sight unseen” while in this status. if the seller will do it, you can usually negotiate an inspection this way and if there is something wrong with the property get out of the contract without losing your earnest money, this does require a good offer out the gate. It’s not a way to get a bargain, but is a way to quit losing in multiples.
4. make your offer more appealing are to offer appraisal gap coverage. This means that if you are financing you are stating that you have the ability to make a larger downpayment in order to cover the gap between your offer and what the bank is willing to loan you, having cash is a very important piece of the puzzle in this environment. You can offer any amount of appraisal gap coverage – it doesn’t have to be 100% of the difference!
5 Look at “wallflowers” these are properties that have been on the market for longer than 4 days. This means they have made it through a weekend without getting an offer and may be more willing to negotiate or look at a reasonable but not extreme offer. These can be homes that a buyer got cold feet on, that their financing fell through or other scenarios.
6. Don’t ignore properties that need work! You can get a home loan that rolls a remodel into it. Not everyone can look past a dirty unfinished basement but it’s rarely a bad investment to add finished square footage to a house – especially in an in demand neighborhood.
7. Do you have time? Offer on new construction. You eliminate multiple offers and choose your finishes. Just be aware that contracts allow builders to cancel your contract if the price of materials goes up and you can’t cover the increase. Don’t get yourself in too deep.
8. There aren’t a ton of these available but spec houses are a good option. They may be completed new builds OR they may be nearly completed with an estimated move in date already.
9. my last option coming to mind to look at loans that allow you to offer as if you’re offering CASH – without a financing contingency. This seems like a HUH??! moment, but in my video next week I’ll interview a lender with a program like this that may give you a leg up and I’ll post it here, of course!
OK – lets look at what’s been going on with offers per HFTC:
Buyers are waiving inspection 46% of the time, this is a lot, but that also means that 54% of the time they are getting an inspection.
Off market sales are at 12% – this is the “private listing network” that I mentioned where agents that have upcoming listings market them internally first.
Sales Contingent on the sale of the buyer’s home is down to 5% of the time.
Average sale to list price is 103.2%. I don’t know where these are happening because my buyers have been offering at 15% over and losing… We would be happy with 103%!
Cash is at 17% of offers, Conventional at 69%, FHA has ticked up to 5%, VA is at 0.
Hey! I would love to hear from you in a comment or an email or a smoke signal … reach out if you have questions!
Let’s talk about the Real Estate Market in the twin cities! It’s been a little bit since I’ve done one of these updates, and typically there is some seasonality to the real estate market, with a big slow down in the fall as holidays approach and things picking up in the early spring. Is that the case this year? Let’s find out!
So, how’s the market? If there is one question every agent hears all the time, this is IT! And I think everyone knows the market has been GREAT for sellers and really rough for buyers, so the question is has that changed? The information I’ll give you here applies to the 7 county metro area, but you should know that every neighborhood has its own micro market and behaves a bit independently from the whole, this information is just a snapshot of the general market behavior right now, if you’re curious about your own little niche – let me know and I get you more specific #’s that apply to your specific area in the metro – just send me an email about that and I’m happy to help.
I was able to get a look at some historical data comparing this year to 10 years ago and one of the things that stood out were that the # of active listings that are available to be sold has continually decreased to nearly HALF of what we had then – we had 10,229 homes to choose from in 2016 and now have only 5,692. This isn’t sudden, it’s a distinct trend line going down over the past 10 years. The inventory issue did not sneak up on us and it isn’t going anywhere.
If it’s prices that are freaking you out they peaked in summer and we are now seeing the fall dip. So this could be the time to get a better deal on a home than getting into the scrum with everyone else during peak season.
If you remember from other updates, I like to reference the “absorption rate” how many months would it take for the market to sell or absorb all the homes for sale on the market if no others were listed?
5-7 months worth of housing inventory is considered “balanced” and any number of months less than that indicates a sellers market and a number HIGHER than that is a buyers market.
Right now we have 1.03 mo supply of single family homes, 1.34 mo supply or condos and townhomes, and 1.12 combined mo supply of homes total. A very distinct sellers market! STILL! but better in some degree than earlier this summer when it was less than one month – somewhere around 2-3 weeks, and that takes into consideration days on market and active contingencies like inspection. Reality was that things were sold in a couple of days. And that is STILL the reality depending the price point, condition and the location of the home.
Let’s look at what sellers are deeming a good offer right now:
Offer Acceptance Rate: 62% -this has been as low as about 33% this year
Inspections Waived: 31% which is down from the highs over 50%. I am still seeing this come up a lot in multiple offer situations, and if people are bidding on a competitive house getting an inspection can still be a sticking point.
Pre-MLS Sales: 2.74% – this is lower than it’s been for most of this year – we have seen these off market properties make up around 5% of sales over most of the summer
Average Purchase to List Price: sellers are getting of their asking price 100.67% – great news for buyers and not awful news for sellers. You’ll probably get your asking price.
I will say that this is much MORE likely if it is a single family home as condos and townhomes are still soft spots.
The most recent 3 transactions that I have had have ALL had multiple offers, (7-9 offers), one had an accepted offer at 10% over list price, one at nearly 6% over list and the last I don’t know the outcome because we didn’t get it but we offered (and lost) at 10% over list and were told they accepted a cash offer with NO contingencies (no inspection!).
All of these homes were in the tightest price bracket of $300-$500K. No matter what the statistics say this continues to be an area of really fierce competition when it comes to homes that are in high demand areas and in good condition.
Cash 14%, – if you have the means to make this kind of offer it can really give you an edge. I am aware of some mortgage products that allow you to make a cash offer so if you’re in a competitive price point, and feel like this might be the answer, know that there are options out there and I give help you find out about this.
Conventional loans are still the big dog at 74% of loans.
FHA represented 10% of the accepted offers which is a nice bump up! This is great to see for people that may be first time buyers and need the extra room that an FHA loan grants them. It’s just been difficult to get an FHA loan accepted in this market when you’re being outbid by people that can guarantee appraisal gaps or provide other financial incentives (like cash purchases!).
VA 1% still a tough spot to be in , if you’re not familiar with VA loans, they are a zero down loan. This is a really tough spot when appraisal gap coverage is needed, so if you’re in a position to take any other type of loan, that would probably be beneficial to your offer.
USDA 0% – these are typically on land or rural purchases, seeing a low number here for a metro area is not surprising.
Other = 1%.
Seller Paid Closing Costs: 31% – this keeps going up!
Home Warranties: were included 9.6% – another statistic on the rise – so these indicators all show a very slight softening from the harsh days of early summer for buyers
Contingent Upon the Sale of the Buyer’s Property: 7.5% A little lower than we’ve seen in other months, but present!
Thanks for stopping by! If you’re interested in learning more about the different neighborhoods and suburbs around the twin cities, check out some of my videos highlighting those! I have a playlist dedicated to this with lots of good information if you’re thinking about making a move.
Another surprising community! Today I’ll show you around New Hope MN and give you all the reasons you may want to consider living there.
Lately I’ve been working with several first time buyers, and if you remember buying your first home you probably didn’t have a massive pile of money for a down payment as many people who may have equity from a sale do, so you have to look for a starter house in a more affordable neighborhood.
That’s where New Hope comes in! A quick look at what is on the market right now illustrates my point – there are 30 active homes in New Hope ranging from a 1 bed 1 bath condo for $115,000 to only a few homes in the mid-upper $500’s with MOST homes being single family homes in the upper $200,000’s to mid $300,000’s. The MEDIAN price in New Hope is at $309,000 whereas the Twin Cities Median is at $380,000.
If you’re an investor and want to rent out a residential property you must register the property with the city.
In addition to single family homes and people just starting out in life, New Hope makes senior living a priority as well. They have 3 long term care facilities, some assisted living complexes and senior citizen apartment homes.
Let’s talk Property taxes… New Hope is in Hennepin County, the effective property tax rate in New Hope is 1.35%. Hennepin County’s portion is 1.28%, the effective tax rate for the state of MN is 1.08%. Sales taxes since I looked this up as well – MN has a sales tax rate of 6.88% on everything except (I believe!) food, prescriptions and clothing, and the sales tax rate in New Hope is 7.13%.
The beauty of New Hope is not only the affordable home prices, but that New Hope is actually a really lovely community and it has a lot to offer.
New Hope is an easy commute to downtown or the airport. It’s only about 20 minutes by car to downtown. and Because I’m such a fan of our regional parks I also want to point out how close New Hope is to the beautiful Theodore Wirth Park. I touched on this park in my Golden Valley video (which you can watch next!) but Theodore Wirth really has it all. It’s just gorgeous, and can keep you busy outside no matter what season we’re in.
If you are leaving town or going to fetch a visitor, it’s about 26 minutes to MSP airport and while you’re down there you can stop by the Mall of America and get your shopping done or amuse the kids on the roller coasters. I was a major skeptic because I am not really a “mall person”, but I like “The Mall”! It has so many great stores that you don’t see everywhere else, some nice food options and my kid and I had fun doing some of the rides the first time we stopped in. Being close to it is nice because it can just be something you do for an hour or two and you don’t have to feel like you need to spend all day there since you can go back any time. The Ikea is right next to the mall as well, so if you like. Swedish Meatballs and cryptic assembly instructions for affordable furniture that utilize allen wrenches – you’ll be in heaven!
New Hope does NOT have it’s own school district, all schools in New Hope are part of the Robbinsdale Schools aka ISD 281. It’s a pretty big district with 10 k-5 elementary schools, 2 middle and 2 high schools. I always recommend that you do your research and see if the school district that your home is in is one that you will be happy with. You can check out Niche.com or GreatSchools, but another option is to actually VISIT the schools and talk to the administration and see things for yourself.
Speaking of brain food… New Hope residents have convenient use of 3 branches of the Hennepin County Library system. They can easily access Brookdale Library in Brooklyn Center, Golden Valley’s adorable little library, or the Rockford Library in Crystal. One of my favorite topics when giving community profiles is the park systems. I just think green space improves the quality of life for everyone. New Hope agrees! They are a small city (only about 21,000 residents) but they have 18 city parks and several other venues offering all kinds of recreational activities including:
the new Hope aquatic center which is a community pool and water slide
2 off leash dog parksa 9 hole public golf course
disc golf course
a skate park
tennis / pickleball courts
Community gyms with basketball courts that can be rented out for the day
and 3 outdoor skating rinks that are open in season.
The city hosts a Farmers Market on Saturdays from the middle of June through the middle of October at City Hall.
New Hope allows for a LOT of pets – 3 dogs, 3 cats and 3 “other” household pets, as well as 3 “fowl”, This is not restricted to actual chickens – if you want ducks instead – go crazy! All dogs, cats and ferrets need to be licensed and vaccinated for rabies.
Fencing – IS ALLOWED! 🙂
OK – that is ALL I HAVE on New Hope! It’s a lovely community that I feel lucky to have worked in lately. It offers a lot of great options to people that may be priced out of other areas of the city. It’s 100% worth considering if you’re wondering where to live in the twin cities metro. If you like this kind of content – I have an entire playlist of neighborhoods/suburbs on my YouTube Channel that you can look at to see what feels right for you.
Is the feeding frenzy OVER?!? Not quite, but it seems to be a LOT better? Of course that is relative! and in this case I mean relative to the crazy times we were in in March – May!
In this video and blog post I’m giving you the current conditions of the market for the 7 county Twin Cities area broken down by property type and then I’ll go into a bit about what we see as far as what terms are resulting in accepted offers right now. These are the encouraging signs I’ve been looking for!
This year has definitely been one for the books! It has been the strongest sellers market that anyone I know can remember – and this is AMAZING if you have a home to SELL! Prices are higher than ever and you can dictate the terms for the MOST part – HOWEVER! Buyers! Do not despair! Things ARE getting easier for you now (at least compared to a couple of months ago when it was an all out SCRUM!)
A note about these graphs – I chose to make them show monthly ups and downs without the smoothing effect that softens the seasonal aspects, so keep that in mind as you look at the dips and heights. the market changes constantly, and this shows those changes month to month.
The median SFH price in the Twin Cities sits at $380,000 – that is UP from $326,100 at the beginning of this year.
You’ll often hear me talk about the “absorption rate” or the # of months supply of housing available to be sold if no other homes were to go on the market. For context it is considered a BALANCED market if there is 5-6 months of supply. We have been UNDER 1 month for different segments of the market for much of this year, mainly anything under about about $600K. Right now we are STILL at .8 months for anything under about $400k. For single family homes in general we are at a little over 1 month’s supply of homes.
Homes are only on the market for FIVE DAYS!!! a year and a half ago it was FOURTY FIVE! And only 6 months ago around 20! So still homes are still flying off the market.
Let’s look at the 2 softer spots – Townhomes and Condos.
The median price for a townhome is consistent with the rest of the market rise in prices and is at $271,000 from $240,000 in January.
For Townhomes there is a little uptick in supply and we have a full month available right now.
Condos! This is the place if you’re looking for any kind of deal! Sellers are negotiating! You can get an INSPECTION! 🙂 Condo prices are at $171,000 for a median price, up a similar amount from the beginning of the year as other property types are.
The supply of condos is where the opportunity comes in – Still a sellers market but for people selling condos it can feel like a whole different world. There are 2.5 months worth of inventory available. This has dropped a small amount since January but has been relatively flat this year overall.
Now let’s look at what kinds of offers are being accepted!
This is a valuable bit of information that the Minnesota Transaction Coordinators gives us on a regular basis and I’ll add my 2 cents to about what I am seeing (although as a much smaller segment of the market)
Offer Acceptance Rate: 42%
Inspections Waived: 31% – we haven’t been in the 30% range since March
My 2 cents: the last 6 contracts (this past month or so) that I have either written or accepted have had inspections included and accepted. that’s 100% of my sales in the past several weeks. I’ve been thrilled for my buyers and I am 100% fine with it for my seller as well because I feel like inspections protect EVERYONE, the buyer, the seller and ME.
Pre-market Sales that happen without hitting the MLS : 2.8%. This is DOWN from earlier this year! It was over 5% for quite a while – maybe due to pandemic fears about having too many people in a home?
Average Purchase to List Price: 102.7% – about the lowest it’s been since the spring market!
Still great for sellers, but also good news for buyers! And a lesson to sellers about pricing appropriately. Things change, you want to not have YOUR home sit because it’s been priced too high as well as understanding that unless you have something really special that the insane bidding wars may be over for now.
I have talked to many agents saying that showings are down from earlier this spring when agents were setting overlapping showings and having the home packed full of people for 12 hours per day. Now there are private showings again. There may be open spaces in the calendar. More than one offer may come in but they aren’t seeing the literal STACKS of offers that they were before.
Cash 11.5%, which is higher than it’s been
Conventional 68.5%, – a little lower than its been
FHA 8.5%, higher!
VA 3%, Still a rough spot! People that use VA are often choosing it because it is a no downpayment loan, which means they are short on cash. If you can’t make appraisal gap guarantees, or add other sweeteners that need ready cash available this can be a VERY tough time to buy.
USDA 8.5% (this is a high number and I wonder if it is a function of the sample size that they had – if they had 2 transactions it could hit this #). These loans are generally for rural buyers.
Seller Paid Closing Costs: are at 12%
Home Warranties: 5.7% – I was able to negotiate this recently as well!
Contingent Upon the Sale of the Buyer’s Property: 8.5% (this seems HIGH to me! I’m still cautious about having this particular contingency, it can be a real weak spot in an offer if you have any competition at all. I would avoid this at all costs or you may have to make it an offer they can’t refuse due to price, or magically find a seller that wants to stay a little longer.
And that is ALL for this week. I’ll be back next week with some more neighborhood profiles. I’ve been AWOL due to this insane market and actually getting a vacation for the first time in YEARS. No regrets. 😉
My last post & video about this were pretty well received, so even though numbers aren’t flashy, I’m going to try to make this a monthly feature as we navigate through this crazy market. This post has some good little nuggets in it if you’re in certain segments of the market, so stick with me.
There is an obvious lag in the data because we need to look after homes close and that shows up in the MLS, but I do get some data relatively quickly thanks to Minnesota Transaction Coordinators, a company that helps many of us with processing our transactions.
Let’s start there with their analysis of terms that they see in contracts.
In the past couple of months we’ve seen quite a few buyers deciding to waive the inspection in order to release one more contingency ahead of everyone else. By “a lot” I mean 38% of buyers were waiving inspection in the first 2.5 weeks of the month, but when they looked at the first through the 26th the rate went to 31%. That means that enough people have STOPPED waiving them to lower this percentage by 7%. Buyers are insisting on protecting themselves and sellers are acquiescing to that.
Offer acceptance rates
Even better, offer acceptance has gone from 31% for the month last week, to 39% for the month over all as of the 26th. YAY!!!! Sellers are accepting offers! I represent a lot of buyers and it has just been TOUGH. So this is great news.
Homes listed on the open market vs witheld
In an office as large as mine, we often hold listings off market and only market to agents within the office. This shrinks the pool of who looks at the house which is desirable for a lot of reasons – from Covid, to privacy, to simply wanting to not have to deal with the preparation and hassle of selling on the open market. Sellers can name their terms and if another agent has a buyer that can meet those, there is a happy meeting of the minds without all of the associated prep work, exposure, etc and everyone feels satisfied. The number of sales that they have worked on in this status is down to 5.6%. This is good because more homes are hitting the market than have been.
Percentage of list price received
Current purchase price to list price ratio is “down to” 104% from 105% last week. It has been hovering between 103% and 105% in the past couple of months. It’s good to have that number in mind, even though it’s not a fixed price, it’s an idea of what you should think about when offering on a property that has a lot of interest. Price is not the entirety of a an offer, there are a lot of other terms that need to be in line as well, but this is good info for this metric.
Seller paid closing costs
26% of deals include some seller paid closing costs. I have to assume in this market that the offer price was increased to account for these, but I like that we are seeing it because it means sellers are accepting these terms.
Forms of financing
76% of loans are conventional (you do NOT need 20% down for a conventional loan! These are viewed as more favorable and if you can get a conventional loan it’s one more check mark on the list of terms).
FHA loans represent 10% of the offers, CASH 10%, and VA & USDA loans are at 4%.
Traditionally, inventory really increases around this time of year (inventory = homes being listed and available for sale). We currently have less than HALF of the listings we had 6 months ago.
Good news for downtown condo buyers!
Downtown condos are in a balanced market right now! If you are looking for a condo in the central city including neighborhoods like Loring Park, Downtown, University, Dinkytown, Elliot Park etc… now is the time. We believe that this is caused by the pandemic and people wanting to live in less dense housing + fewer people needing to be downtown for work, but don’t expect it to last with the speedy rollout of vaccine and life returning to somewhat new normal.
Days on Market are up to 41 (only from 38), but these are the kinds of indicators that let buyers know that they will not likely have to pay more than list, that sellers will be willing to negotiate because they know you can find another condo to buy and someone will play ball with you.
So that is what is happening! Sellers are still mostly in control of things, but if you’re a downtown condo buyer you’re in the sweet spot!
Next week I’ll give you another neighborhood profile – I’m excited about my small town series, and I have one I love and plan to talk about, but this week I’m going to beat a dead horse a bit and talk some more about what is happening in the real estate market in the Twin Cities metro area. I don’t usually do “market update” posts or videos on my YouTube channel, but the fact of the matter is that right now I’m actively helping 6 buyers try to navigate this market and I want to share a bit of how we look at the market and measure it and then also show you what that means for the Twin Cities right now.
I feel like anecdotal evidence about how many offers a listing gets, how fast something sells or how far over list price the offers are is shocking at times or maybe sounds like a fish tale that we like to tell – “the big one that got away” kind of thing. Stories are great and interesting, but in this post I want to talk about DATA. Weee! Exciting!
Not exciting? Well, I disagree. I think this tells a very clear story and because it looks at the entire market and then breaks it down by price it might tell the story in a way that makes sense in a different way to more people. This is the WHY behind the HOW that I’ve talked about before when I’ve done videos/posts about making the best offer.
How DATA tells you if it is a buyer or a seller’s market: Meet the “Absorption Rate”
These are my words, not something from a real estate dictionary somewhere.
When we look at a market and try to decide who it favors we look at the number of active listings available in a 30 day period and then look at the sales. It’s a ratio. But the way that I think is easiest to visualize this ratio is as the “absorption rate”. This rate shows us how long it would take for ALL houses actively listed to be sold if NO OTHER homes were put on the market during that time.
We are measuring time in months for this exercise, and the magic number of months where REALTORS feel that the market is in balance is 5 (not set in stone, some argue for 6 months etc). This means that when it would take 5 months for every home to be sold should no other homes be listed, the market does not favor either a buyer OR a seller.
Any number smaller than 5 indicates a sellers market. The smaller the number the more it favors sellers. This works in the converse as well, the LARGER the number over 5 the more the market favors buyers.
What is the Twin Cities absorption rate today?
Emphasis on TODAY because this rate changes seasonally and with market forces – I’ll talk a bit about what those are too.
The current absorption rate for the Twin Cities metro is 0.86. LESS than one month’s supply of homes. Very much in the favor of the seller. And it is not getting better – in the past 6 weeks the rate has consistently decreased from 1.32 the first week of January to where we are today.
The last half of 2020 was a crazy market, due to Covid hitting in spring and the uncertainty that brought with it there was a lull in what would typically be the busy spring market, but once everyone got their bearings it was off to the races and it never really slowed, even during the holidays. Add extremely low interest rates into the mix (under 3% for a pretty extended stretch), and a bubble of Gen Y aging into home ownership and bumping up what was already high demand from buyers, and things have just not cooled at all. All of this to say we sold a LOT of homes last year and possibly ate into what would have been inventory for this year. January 2021 started with 38% FEWER listings than we had in January 2020.
Supply continues to drop, particularly in the under $300K price range where new listings are down 15% YTD. The over all market YTD has 6.9% fewer listings. If you’ve taken any economics classes at all you’ll know that price is a function of supply and demand. We have low supply and high demand and that is pushing prices higher as people bid against each other for homes.
Absorption rate by price point
The best way to show this is to give you a screen shot of the table that we looked at in our data meeting this week. I love this table because it breaks it out by general price points and you can see the trend over the past 9-10 months for each. You’ll notice that higher price points have slightly looser markets because there are fewer buyers that can manage those budgets. I do think that the $500-$1M may need to be broken up a bit because at $500K there is still a quite a large bubble of buyers that are able to enter the market and compete for homes at that price. There may be a break closer to the mid $600’s where the ratio gets closer to 1.4, but I think $500 is still quite competitive.
So, that is the data geek light version of the market at this point in time in the Twin Cities. An opportunity again for me to encourage you to be as prepared as you possibly can be before you enter the fray. You really need to be in the best position possible if you want to land at the top of the heap when you get into this market.