Jim Buchta’s latest Star Tribune article, “Twin Cities home sales fall for second straight month” gives a great rundown of the local market’s current state. The article provides insights on the MAAR’s latest Monthly Indicator, which covers August 2017. Buchta’s title may make people think that perhaps this whirlwind market is petering out, but home sales aren’t falling due to lack of demand. Rather, it’s due to combination of the expected seasonal market shift along with the ongoing low supply of starter homes. There are a lot of people interested in that bracket but not enough sellers to fulfill the demand. The situation has compounded from this time last year, when election concerns were creating a bit of a selling/buying frenzy, contributing to the slightly lower number of closings when compared to last year (down 1.4% across the board). The median sales price has been pushed ~7% higher to $252,800. The upward pressure on the sales price is coming not only from the higher prices of starter homes, but also from a “significant increase” in the number of upper-bracket homes selling, as told in the article.
The current market imbalance in the starter home range is in line with what we’ve been hearing for the past year or so. Overall, there was only a 2.5 month supply of homes at the end of August with number of listings down 17% from last year. This value will likely continue to drop as we move into the slower winter months. The article does well to point out, however, that this situation doesn’t relieve sellers of certain must-do items. Yes, sellers still need to spruce things up a bit, have their homes staged well, and get those carpets cleaned. When a seller brings a starter home to the market that actually looks like a home in which a person would want to live, then it’ll fly and attract top dollar offers. If they don’t put in the work, they’ll likely have to wait longer and possibly miss out on some equity.
On the flipside, for higher-bracket homes (especially those in the $1M+ range), the buyers are calling the shots. The article reports a much larger supply for both the $500K-$1M and $1M+ ranges, at 6-months and over 12-months, respectively. When compared to the starter home supply, with the $150K-$190K range having a supply to last 1.4 months, there is clearly a large disparity. The article notes that a balanced market will have an active listing supply in the 5-6 months range.
The article closes with speculation on long-term mortgage interest rates, which have stayed low all year despite fears of rapid increase. As quoted in the article, according to Freddie Mac’s chief economist Sean Becketti, “If Treasury yields continue to rise, mortgage rates could see an increase in next week's survey.” So, the same question remains – when will rates start to rise and how will the market react? If you’d like to jump on the ship before it sails, give me a call (952-258-3100) or email.
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