In the market for buying or selling a home? Experts in the field share how the current climate has created a perfect storm resulting in fewer options for buyers and above-market sales for sellers.
According to new market data from the Minneapolis Area Realtors and the Saint Paul Area Association of Realtors, the median price of a home in the 16-county Twin Cities metro area increased 10.3% from last March to a record high of $327,500.
Prices were driven in part by a lack of supply and the demand is growing faster than the supply.
The number of homes for sale at the end of March was half of what was available a year ago. That’s an 18-year low and amounts to 0.9 months of supply. A balanced market typically has four to six months of supply.
Market times shrank 37.7 % to 38 days and multiple offers are commonplace, the report stated.
“Demand is still growing faster than supply,” according to Tracy Baglio, president of the Saint Paul Area Association of Realtors. “With less than one month of supply, buyers must be patient and understand they may lose out on a few bids before an offer is accepted. Be ready to act fast.”
According to data provided by Minneapolis Area Realtors, the absorption rate for communities in the west metro show Robbinsdale, New Hope and Hopkins have the lowest absorption rates with approximately one month of supply, followed by St. Louis Park, Plymouth, Golden Valley and Eden Prairie at approximately 1.5 months of supply.
Minnetonka has two months supply and Wayzata has the highest absorption rate of the cities listed with 4.5 months of supply. The lower the absorption rate, the tighter the market.
Single-family homes are in the greatest demand with townhomes and condos a distant second and third, respectively. Sales in all three categories are outpacing last year’s sales.
Additionally, New Hope had the highest sales rate within the metro area in February with 4.6% rate, followed by Brooklyn Center, which had a 3.3 % sales rate.
Between an inventory drought and the low interest rates, Phil Rustad, a 22-year veteran real estate agent with Edina Realty in Plymouth, said it’s a great time to be selling “unless you have to move and find something else.”
While this inventory drought isn’t something Rustad hasn’t seen before, it is different.
In one instance, a home labeled as “coming soon” already had two offers before the property was even available for showing. Both of the offers were also significantly higher than the asking price, Rustad explained.
It’s also not only in entry-level homes, but properties up to $1 million, he said.
When they have 18 offers show up on a home that just listed, “it’s not a fun situation for Realtors,” Rustad said.
That’s also not a good atmosphere for people to make good decisions on what is typically a long-term, high-priced investment, he noted.
Rustad’s advice for a successful offer: Be realistic about price and appraisal.
“Offers that are successful are the people who will guarantee to make up the difference between the contract price and the appraisal value,” he said. “Some people can do that, but if you’re a first-time buyer, that [payment] might not be enough.”
He advises to be realistic about the price and notes that buyers may get cold feet or have to back out because they can’t deliver.
Data from March show sellers listed 11.6 % fewer homes than last March, offering little relief to buyers eager for more options. However, sales activity climbed above year-ago levels for the 10th straight month. Buyers continue to be motivated by attractive mortgage rates, a healing labor market and a desire for more space.
“On top of lightning-fast market times, those who choose to sell their home are often rewarded with offers at or above asking price,” said Todd Walker, president of Minneapolis Area Realtors. “For buyers, that means writing strong, straightforward offers right away. For sellers, it means their listings will stand out and will likely sell quickly at full price or better.”
Walker shared several factors that are impacting the market, including the remnants from the Great Recession of 2007-2009, when new development ground to a halt.
The impact of a worldwide pandemic also resulted in fewer homes being listed.
Additionally, more sellers have chosen to refinance with the low interest rates to lower their payment instead of competing in a challenging market.
Renters and other first-time buyers are also putting even more pressure on an already under-supplied market, since when they buy they take a listing out of the inventory without putting another listing on the market, according to Walker.
Hampered by a shortage of lots, labor, lumber, lending and bound by an array of laws, builders simply cannot keep up with the demand, he said.
Others looking for a healthy return on their capital are also using single-family rentals as a lucrative investment vehicle, thus withholding inventory from the marketplace, he noted. When a household does decide to move, some are choosing to rent out their old home instead of selling it.
So, what are buyers and sellers to do with this information?
Buyers should be prepared “to come out swinging with your strongest and most straightforward offer as quickly as possible since many sellers are receiving multiple offers,” Walker said. “Patience, persistence and positivity are the name of the game.”
Walker recommended sellers have a contingency plan in place because properties sell quickly. They will want to make sure they don’t close on their home sale before they finalize their next step, he noted.
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