Housing trends remain worrisome for homebuyers
Jake Spitzack
Staff Writer
Recent data from the St. Paul Area Association of Realtors and the Minneapolis Area Association of Realtors shows the Twin Cities housing market is expected to remain competitive this year. Inventory levels have crept up to 2 months’ supply but a healthy market typically has 4-6 months so it’s still a seller’s market, with most getting their asking price or higher. As of April, median sales prices were up about 4% from last year, from $369,900 to $385,250. Average days on the market was about the same, at 45 days.
Overall, sales last year in St. Paul increased 15.5% while sales in Minneapolis grew nearly 11%. New home sales rose an astonishing 10 times more than existing home sales, and townhome sales rose twice as much as single family homes. Mortgage rates hit a 23-year high last October, spiking the average monthly home payment to $2,700, compared to $1,800 in 2021. According to Freddie Mac, the national average 30-year fixed-rate mortgage was just above 3% in January 2022 and nearly 8% in October 2023. Rates today are hovering around 7% and aren’t expected to rise again much this year.
“The market activity is rising from the lows of 2023 and the mood is definitely different,” said Amy Peterson, president of the St. Paul Area Association of Realtors in a statement. “The numbers show it’s still a seller’s market in most areas of the Twin Cities and buyers can position themselves for success by being ready to make a strong offer.”
Here’s how the market changed in the St. Paul Voice distribution area over the past year. Data is through April 2024.
Median sales price on the West Side increased by 23.5%, from $230,750 to $284,990. Time on the market decreased 23.8%, from 42 to 32 days. Supply of inventory decreased from 1.1 to 0.8 months.
Median sales price in downtown St. Paul increased 40.2%, from $150,000 to $210,250. Time on the market decreased 9.3%, from 162 to 147 days. Supply increased from 5.4 to 6.3 months.
Median sales price in West St. Paul increased 23.6%, from $275,000 to $340,000. Homes sold a bit quicker, decreasing from 29 to 21 days on the market. Supply of inventory increased from 1 to 1.5 months.
Median sales price in Mendota Heights increased by a whopping 84.9%, from $397,450 to $734,961. Days on the market dropped from 97 to 78 days. Supply of inventory increased from 2 to 2.4 months.
Median sales price in South St. Paul decreased by 5.1%, from $295,000-$280,000. Time on the market increased from 14 to 25 days. Supply of inventory increased from 1 to 1.3 months.
Rental properties
The cost of rental properties in St. Paul has increased since April last year. According to a recent report by HousingLink, median rent for 1-bedroom units increased 9%, to $1,099; 2-bedroom units increased 3%, to $1,380; and 3-bedroom units increased 8%, to $1,829. Estimated monthly income required to rent a home is $2,748 for a 1-bedroom, $3,450 for a 2-bedroom and $4,573 for a 3-bedroom.
Construction of affordable housing continues in the metro and surrounding areas. Affordable housing in St. Paul is identified as costing 60% of the area median income (AMI) and “deeply affordable” housing as 30% of the AMI. As of April, 79% of vacant properties were affordable, 36% were available for 50% AMI and none were deeply affordable. In St. Paul, 729 new multifamily units were permitted for construction last year, about half as many as the previous year.
Why the competition?
All was relatively fine and dandy with the housing market – supply was high and mortgage rates low – until the COVID-19 pandemic halted virtually all home sales for much of 2020. The pause forced prospective buyers to put their searches on hold and when they began again they were joined by an influx of eager buyers, which pushed up competition, and it hasn’t quite recovered since. By spring 2022, mortgage rates were on the rise as the Federal Reserve raced to combat high inflation, and inventory levels plummeted further.
Looking ahead
While homeowners today can sell their home for a pretty penny due to the low inventory, many are wary to leave what they have due to high interest rates, further stunting the market’s inventory growth. In the meantime, some buyers are being forced to get creative with homeownership. It’s becoming more common for siblings and friends to purchase a home together to make it more affordable. Likewise, some are turning to rental homes, which don’t accrue equity.
Homebuyer resources
Minnesota Housing, the state’s housing finance agency, has a new down payment program for first-generation homebuyers. The First-Generation Homebuyer Loan Program provides down payment and closing cost assistance loans to people who have never owned a home and to those who have lost a home to foreclosure. Minnesota Housing has other programs for homebuyers who do not fit those categories. First-time homebuyers must take a homebuyer education class before using a Minnesota Housing program. Classes are available at little or no cost and provide information about the homebuying process, from financial planning to purchasing a home to what to expect as a new homeowner. To learn more about available resources on homebuying, visit mnhousing.gov and search “Homebuyer Education.”
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