Last summer’s frenzied market of overbidding to beat multiple offers has noticeably quieted, however, inventory around the metro remains low. Seasonal slowdowns are expected. With the advent of cooler temps, a new school year, and the holiday season, home shoppers downshift to a less aggressive search mode. But they’re still out there, on the sidelines. And new homes continue to enter the market, though at a slower rate than our traditionally fast-paced spring and summer markets. Competition for the most desirable new listings in sought-after locations is still evident with those properties selling within days when the price is right. But the rush to beat out the competition has significantly subsided. And at this time of year many buyers, distracted by holidays and winter weather, are content holding out for anticipated seasonal price-drops. But how does this compare to last fall? Is there a discernible trend? Will next spring and summer be a repeat of last? Both buyers and sellers are asking, “should I wait?”

Seasonal Slowdown

As people’s priorities shift with the season the housing market slows and homes take longer to sell, theoretically favoring buyers. For home sellers, enduring an extended time on market can cause anxiety and a willingness to accept lower offers to avoid the mid-winter slump. Shoppers anticipate this downturn and those with flexibility often wait it out in hopes of getting a deal. I’ve recently talked to many potential buyers who are doing just that. After witnessing the summer drive-up in prices and stress of multiple bids, many have positioned themselves in stable temporary housing (short-term renting, house sitting, living with family, etc.) to avoid the pressure and anxiety of hyper-competitive buying. These buyers may not necessarily be waiting for a winter bargain, but rather the right home and the luxury of time for making a sound decision. It’s a smart move if you can pull it off.

One drawback to slow-season home buying, however, is lack of inventory. As the competition diminishes, so do properties. Last summer’s new listings in the 16-county Twin Cities Region peaked at 9,022, up from a mere 2,158 the winter before. No doubt the same will happen this year. The graph below clearly depicts these year-over-year seasonal dips — a predictable pattern for Minnesota markets. If you can find what you’re looking for, buying this time of year might be advantageous. If not, hold tight, the new year will bring more choices. Just be financially prepared and emotionally ready to face increased competition in a market experiencing an already scant supply of low and mid-priced homes.

Seasonal Changes in New Listings

Low Inventory

How low is low? It depends. Yes, the market has slowed from last summer but not because supply has increased, especially in the lower price ranges. Starter home supply is especially lacking with a meager 1.1 months available in the $150-200K range as of late October. A 5-6 months-supply is considered balanced, favoring neither buyer nor seller, which is currently the case in the move-up market. October data reveal a 5.9-months supply of homes priced $500,000+ across the Twin Cities Region, with 4.0 and 4.2 in Minneapolis and St. Paul, respectively.

Changes Ahead

During the past three years we’ve experienced a steady decline in available homes for sale across the metro, tipping the balance in favor of sellers. Is that changing anytime soon? Perhaps, but slowly. Data from the past year show less of a decrease this year compared to previous years — only 1% from last October. Considering we experienced double-digit drops in the years preceding (17% then 14%), this number stands out as potentially significant. It may be signaling a trend reversal and shift toward greater balance in the market.

The months-supply metric also shows signs of leveling. This October was the same as last at 2.4 in the 16-county region for all home types, sizes and sellers (traditional and lender-mediated). Since its high point in 2008 (9.9) that number has plummeted to its low last winter (1.5) but appears now to be holding steady. We’ll see what this winter brings.

What might these changes mean for home shoppers? It’ll be good news for buyers wanting more choices. And a greater number of homes to meet demand could translate to price-dropping, or at least price-leveling in the coming year.

Selling this spring

What about current owners looking to list? Future sellers should be comforted by the inventory numbers which are still historically low. If you’re selling in the low-to-mid market, you should be okay. Location and condition matter too, however. And, despite the limited supply, home buyers’ expectations tend to be high. If you plan to list this spring or summer, start now with repair and update projects (if you haven’t already)! Most buyers expect HGTV-worthy homes that are updated and move-in ready. What does that mean? You should declutter, deep-clean and make small repairs at the very least. Neutralize your paint colors, update lights and fixtures and complete small remodeling projects if you can. Then work with a stager to add or arrange on-trend furniture and decor to match your target market. It may seem like too much in a “seller’s market” but homes that have been thoroughly prepped stand out from the competition and typically sell faster. And, the costs involved are usually recouped through a higher offer price and fewer days on market. Most buyers cannot see past clutter or disrepair when visualizing living in a space. Sellers can help them! Now is the time to start if you are planning a spring listing.

Mortgage Rates Rising

Mortgage interest rates have ticked up and many speculate further increases for the coming year. Have the recent hikes affected buyer behavior? For the most part, no. Buyers appear more focused on changing sales prices than fluctuating interest rates, for now. Why? Perhaps because rates are still historically low and people have been able to purchase the homes they desire. But if you’re thinking about buying soon (in the next year or so) consider closely the cost of another potential rate increase. Even a 1% change could drastically affect your monthly payments and amount for which you qualify. For example, payments on a $250,000 house (with 20% down) jump from $1053 to $1177 per month with a 1% rate hike, and you would end up paying an additional $44,773 in interest over the life of the loan.

You should also be aware of how increased monthly payments can affect your buying power. Fannie Mae and Freddie Mac conforming loan guidelines require certain “front-end” (mortgage-to-income) ratios — typically your monthly payment cannot exceed 28% of your income. If your monthly payment goes up with a 1% rate hike, so must your income if you wish to purchase that same $250,000 home. The consequences of rising interests rates could push you into a lower price-bracket, unless your income keeps pace.

Example: 1%↑ in Interest Rates

Slow and Steady

The Twin Cities Region has experienced a steady rise in median home sale prices over the past several years. As of October the median price of traditionally-sold properties (non lender-mediated) had increased 6.8% over last (with a 5% bump the year before). With supply still lacking in the low-to-mid range, major price drops in the coming year are not anticipated. For city dwellers, St. Paul remains a more affordable option over Minneapolis with a current median sale price of $216,600 compared to $265,500 in Minneapolis.

Condo and single-family homes are on similar tracks across the Twin Cities with 5.8% and 6.0% increases, respectively. Townhouses may be in greater demand showing an 8.2% jump since last October. Keep in mind the real estate market is location-driven and what’s true in your neighborhood may not be the case in another. Even within neighborhoods, demand and price can vary block to block. Overall, however, our region appears stable despite the early chill in the air and consequent drop in market activity.

*Homes for Sale refers to the number of properties available for sale in active status at the end of a given month. Also known as inventory.

In this this post the Twin Cities 16-county Region include the following: Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Le Sueur, Mille Lacs, Pierce (WI), Ramsey, Scott, Sherburne, Sibley, Washington, Wright and St. Croix (WI).

Heidi Swanson is a Realtor® based in St. Paul, Minnesota. She writes a blog to share information on a variety of real estate related topics including buying and selling, market conditions, homeownership trends and more. Reach her at heidi@lyndenrealty.com or 651-503-1540.