Temperatures are Soaring, the Real Estate Market is Cooling
The spring market was frantic as usual, with multiple offers on almost every home, or so it seemed. The media was waving “It’s a Seller’s Market!” flags, and there was very low inventory of homes. Buyers were frustrated, and it was common to write at least three to six offers for a buyer before landing them a home.
In Minnesota, we have seasons, and real estate rolls with the season. If Punxsutawney Phil doesn’t see his shadow on February 2, we can hope for an early spring market. The high point of sales for real estate is usually April, with a robust March and May. By the end of May, people are attending graduations, weddings, planning vacations, there is a dip. Around July 4 weekend is a flat line, and in August people are squeezing every drop of summer mornings as possible before Labor Day. Sales begin to slide, and then rebound for fall.
Economists warning that we are overdue for another recession chills us to the bone even if it is 95 degrees. We’ve seen prices rise zoom past the Boom years, increments of 5-6% each year. Home prices in SW Minneapolis this year average $461,936, +6% YOY. Zillow says prices rose 8.1% on a national level (if you guessed that’s because of California, you hit BINGO), and predict another 6% for 2019.
Buried in the good news, is not so good news. 40% of the market is usually first time buyers. They are being priced out, there aren’t enough affordable homes, and the affordable ones go into multiple offers that raises the price by $20,000. One lender is telling me that he spends his day talking buyers out of, “I’m just going to wait until prices come down.” They are exhausted after writing and losing multiple offers on homes that they want to love, but someone beat them to it. Sales are down in Minneapolis 6% YOY for a couple reasons. Under $300,000 is still very competitive. Last week I wrote an offer on a partially finished home that was listed at $175 @ square foot, the buyer was excited. So were another 26 offers, and we didn’t get it because we didn’t offer $200 @ square feet that I know will not appraise. On the other hand, homes priced over $300,000 that don’t have upgraded kitchens and gorgeous cosmetics linger weeks on the market without a single showing. You can tell from the number of price reductions how many that would be.
Every morning I check MLS to see what the numbers are saying. As of August 13 theactivity on Northstar MLS over the past 7 days reads:
A high number of new listings is common for summer months. Price reductions mean that the original price got no offers. That high a number of price reductions is surprising, we need a reality check. Back on the Market is every seller’s nightmare. It means that the buyer had a change of heart, financing came apart, the inspection found spiders, or the appraisal came in short and the house goes back on the market to start all over again. Cancellation is a seller who didn’t sell, got frustrated and are taking their home off the market. This trend has been going on since last fall, and shows that we are in a correction. This isn’t a bad thing. Normal appreciation is an annual 3% rise. Prices have climbed rapidly 5-6% over the last several years, and I’m seeing starter homes that were $250K, now listed as high as $450K.
What I hate about big data is that it can’t tell the difference between a houses that both have 3 bedrooms, 2 baths, 2 car garage, 1900 finished square feet, one has $75,000 in upgrades and the other that has none. They look identical to data. Online estimates are all about data. Period. Pricing a home for sale is an art. Besides location, and data points, there is condition, upgrades, landscaping, amenities, market trends and charm to take into consideration. Ultimately the final price is what a buyer will pay, what the market will bear (and what an appraiser agrees with). The key to every sale is a well prepared home for buyers schooled by HGTV in what they should expect. Even in a Seller’s Market there are limits to what buyers will pay. Lower price point homes are still buzzing, but overpriced homes are snoring. The market speaks for itself.