Twin Cities Real Estate Market Update for September 2023

Home Prices Rise Again as Supply of Homes for Sale Remains Low

Leaves are changing, temps are falling, will the Twin Cities real estate market climb out of it’s summer slump? 

As regular readers of this blog know, each month I crunch the data from the previous month’s home sales to identify real estate market trends and how those trends impact home sellers and homebuyers in the Twin Cities.

This month, I’m looking at what happened in August with new listings, home sales, home prices, and interest rates.

New Home Listings Increase Slightly

I like to start each month looking at the number of new homes listed for sale because new home listings are one of the best indicators of what’s happening in the market.

In August, the number of new homes for sale actually rose slightly, ending a three-month slide. Metro-wide, there were 5,020 new listings in August, 178 more than in July. But that is still down 3.7 percent from August of last year as mortgage interest rates continue to put a damper on sellers and buyers activity.

It is interesting to note though that interest rates are not having the same effect on home prices, at least not yet. More about that later in this column.

Chart showing the number of homes for sale in the Twin Cities in August 2023

We can see the effect on interest rates on buyers by looking at the total number of homes for sale.

In August, there were 6,502 homes for sale in the metro, just a slight increase over the previous month. The total number of homes for sale has been ticking up all summer, although there are still fewer homes for sale than last year at this time.

Many Homebuyers are Sitting on the Sidelines

With fewer homes to choose from and higher interest rates eroding their buying power, many buyers appear to have decided to sit on the sidelines until market conditions improve.

We can see that in a measure of months supply—that is the time it would take to sell all the homes currently on the market if no new homes were listed for sale.

The supply of homes for sale in August was at 2.1 months. That is the highest it’s been since October 2019. Even with that increase in total number of homes for sale, this is still a sellers market.

Another measure of market activity is median days on market, or, the number of days from when a home is listed to when it goes pending.

Graphic showing the months of supply of homes for sale in August 2023

In August, the median days to sale was 14, up couple of days from the previous month, but the same as it was in August 2022. 

So what we have here is a pretty stabile, pretty subdued real estate market.

Home Prices Edged Upward in August

Despite some kind of pessimistic predictions earlier this year, home prices have been rising. In the Twin Cities, the median sale price rose by about $5,000 last month, from $380,000 to $385,000. That’s up about 3.7 percent over August of last year.

Much like last month, the core cities split. Minneapolis saw an increase in the median sale price compared to last year and St. Paul saw prices drop slightly.

Just a quick note here, on median versus average sale price. The median sale price means that half the homes sold were about that price and half below. The average sale price, is of course, and average of all the homes sold. The average home price in the metro was $466,226 in August, up 5.8 percent over last year.

Across the metro, sellers are still getting about 100 percent of their original asking price. So we aren’t seeing a lot of discounting going on, but we’re also not seeing those manic bidding wars we saw in 2020 and 2021.

Moving on to interest rates. Home mortgage interest rates for a 30-year conventional mortgage have been edging up and were at 7.25 percent this week. Interest on a 15-year fixed rate mortgage was at 6.60%. And it doesn’t seem like the Federal Reserve is planning cut rates anytime soon.

Where are Home Prices Headed?

Now let’s take a look at where home prices may be headed. Each quarter, Pulsenomics polls more than 100 economists, investment strategists, and housing market analysts for their quarterly Home Price Expectation Survey (HPES). The combine those responses to come up with pricing projections.

The most recent survey shows quite a bit of optimism for the housing market in terms of price appreciation. 

Chart showing how home prices are projected to rise over the next five years

Home prices are projected to continue rising for at least the next five years. This is a significant shift compared with the first quarter of the year when attitudes were not so rosy.

If you’re thinking of buying a home or if you already own one, this is good news. Appreciating home prices will help homeowners and families grow their wealth. For example, if you purchase a 400,000 home this year, you could see the value of your home rise 17 percent over the next five years. Not a bad return on your investment.

Just remember, every individual’s situation is different. If you want to know how these market trends might affect your plans to buy or sell a home, or if you want a more specific look at the market trends in a particular city or neighborhood, or an estimate of your home’s value, call, text, or email me. I’m here to help.

J Trout Lowen is a Minneapolis REALTOR® and an expert at helping homebuyers and home sellers navigate the Twin Cities housing market.

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