If you’re like most homeowners, you have a lot of questions right now about the state of the real estate market, and the future of the housing market in Minnesota and in your little piece of the world. Well, I have some answers! Here’s a quick overview of the factors driving the “pandemic” housing market, and the current outlook for home sellers.
This chart shows historic interest rates through this month. You can clearly see that rates remain at historic lows. Although there have been some gyrations lately, the trend has been lower rates this year. Although rates can’t save the market, they can prop it up in times when other factors may be crimping demand (like quarantines, temporary lay-offs, etc).
We know there have been millions of layoffs in the national economy. There have also been some layoffs in Minnesota. But for the most part, and for now, Minnesota is faring better than the rest of the country, perhaps because we have a well-diversified local economy that includes booming pandemic sectors like food and health. Our rate of infection is the lowest in the country (17 per 100,000) because we quarantined quickly and aggressively. A look back at previous pandemics like the Spanish Flu of 1918 tells us that cities and countries that respond early and strongly bounce back faster, and have more economic recovery and job gains following the pandemic, than those that wait. In 1918, Philadelphia waited, St. Louis didn’t, and the recoveries were very different and more positive for St. Louis.
Right now, we have a variety of factors constraining supply that are helping to retain, and in some cases, improve home sale pricing, especially in markets where demand is already high like Edina and Southwest Minneapolis. It’s still good to be a seller! Remember, we are in the middle of our seasonal spring market boom, and although demand is tamped by quarantining, buyers are still out there viewing homes “carefully.” In seasonal markets like Minnesota, it’s the spring time shift that changes buyer psychology and makes people want to pursue their housing dreams again, the crisis notwithstanding. Right now, inventory levels have dropped off precipitously, meaning there is less for buyers to look at (and also less competition for your home). This chart shows new listings over the last three months of this year (solid line) compared to last year (dotted line). You can see just after 3/21/20 there is an abrupt flattening of the pace of new listings:
This slowdown in new spring listings is pushing overall inventory down. In this chart, you see running inventory levels over the last three months (solid line) compared to last year (dotted line). After 3/7/20, the trajectory turns downward quickly, whereas in a normal spring market that trajectory would continue to rise through May:
In sum, we are experiencing a deep drop in supply (inventory) while demand has remained relatively steady. These market conditions will continue to boost sales and price for sellers in the seasonal spring market. Again, no one has a crystal ball as to what the future holds, but assuming rates stay low and job losses are manageable, we should remain within the seller’s market.
The Bottom Line for Sellers
Given the seasonal spring demand, low rates, and continued buyer activity due to restrained job losses in Minnesota, combined with abnormally low inventory levels this spring, the market in the short-term will be a win for sellers. Pricing will remain high, market time low, and those brave enough to hit the market will be rewarded. Middle price ranges in Edina and Minneapolis from $400,000-$800,000 will flourish. Higher-end product may see a little more of a challenge.
Sellers can maximize the perceived value of their homes by properly pricing, prepping, and staging their homes. These strategies will make their listings simply irresistible to the buying market, regardless of conditions. Next, I will share some of the great success stories from the front lines of the pandemic housing market in Part Two of What the Pandemic Means for Your Real Estate. Stay tuned!