Will the Spring Market Bloom or Bust?

Twin Cities Housing Market Update May 2023

It’s finally spring here in the Twin Cities. After a long, cold slog of a winter, there is green grass and tulips!

We are seeing some signs of spring in the housing market, too, although not as much as we had hoped.

This month, I look at the Twin Cities housing market trends from April and look at some historical data to try to determine if the 2023 housing market will blossom or wither on the vine.

New Home Listings

I’ll start with new listings—after all, they are the seeds we need to grow the market. 

The number of new homes that came on the market in the Twin Cities in April in the seven-county metro was up a little from March, but still down by 27 percent from last April.

That drop was even greater for existing homes. The number new listings of existing homes fell by 32 percent year over year.

New home listings for the Twin Cities were down 24.4 percent in April 2023 from April 2022.

The only place we did see an increase in new listing was in new construction homes. 

The number of new construction homes for sale in the Twin Cities in April 2023

The number of new construction homes listed for sale rose by 15 percent, but the actual numerical increase was pretty small—from 631 to 727. Kind of a drop in the bucket.

Total Number of Homes for Sale Falls

The total number of homes for sale was also down, but not by quite as much. The total number of homes for sale in the Twin Cities seven-county metro fell by just 3.3 percent. That is probably because we have been in this squeaky tight market for a while now, and inventory has been depressed for months. Once you’re already low, it hard to get much lower.

Months Supply, Days on Market, and Percentage of Asking Price Rise Slightly

Months’ supply is a measure that indicates how long the current inventory of homes would tale to sell given the current sales rate if no additional new houses came on the market. Months’ supply did increase a little bit in April, from 1 to 1.5 months, but that seems to be due to the increase in new construction homes coming to market.

If we look at existing homes, that number stays pretty flat a 1 month of supply. More on this when I take a look at historical market trends below.

Median days on market, that is the number of days between when a house is listed for sale and when it goes off the market, is up compared to last year, from 7 to 16 days.

You can see the impact of rising interest rates there, and also in home prices. The median sale price of a home in the seven-county metro was $370,000 in April this year, down from $375,000 last year.

Seller’s are back to getting 100 percent of the asking price, however, after dropping down to 97 percent in January. Both a reflection of the time of year and those interest rates.

No surprise, the number of closed sales was also down in April compared to last April. And that is a reflection of the inventory shortage.

Mortgage Interest Rates Edged Upward

Let’s take a look at interest rates. The Federal Reserve Board raised its interest rate, called the federal funds rate,  last week by a quarter of a point, which did push mortgage interest rates up slightly.The average rate on a 30-year fixed rate mortgage loan sitting around 6.5, in the second week of May up about from 5.74 percent at the same time last year, but down from the peak of 7.2 percent at the end of October last year.

So as you can see, the housing market continues to struggle both with low inventory and rising interest rates, but I want to take some time this month to put these things into a larger context. This is especially important for those folks who are considering buying or selling but are waiting for market conditions to improve.

The Supply of Homes for Sale has been Low for Several Years

In the past five years, the highest measure of months supply was in September 2018 when supply was at 2.6 months. That is still well below what we would consider a balanced market—which is between 4 and 6 months supply.

Graphic showing the months supply of inventory in the Twin Cities from 2018-2023

So this inventory shortage has been going on for a long time. In fact, the last time we had anything resembling a balanced market in the Twin Cities metro was in September of 2014 when supply was at 4.4 months. That is just barely into what we would consider a balanced market where the number of buyers and sellers is relatively even.

When you look at these historical numbers, you can see the kind of market shift that will bring a slew of homes to market might be years away—baring some kind of larger economic disaster. Say, for example, if Congress can’t get their act together and raise the debt ceiling!

Interest Rates Are New Historical Average

Graphic showing home mortgage interest rates over time

And I know a lot of folks are waiting to buy, and even to sell, until interest rates go down again. Especially people who purchased or refinanced a home in 2020 or 2021 when interest rates were in the 3 percent range.

But if you look at the historical numbers, interest rates on a 30-year fixed rate mortgage are pretty typical compared to the past 30 years. Interest rates on a 30-fixed mortgage were 7.47 in May of 1993 and 7.63 percent is May of 1973!

So I guess my question is, if you’re putting your future plans on hold hoping to see a big drop in interest rates, or a big change in market supply, how long are you willing to wait?

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

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