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Kate and Matt Shalbrack heard plenty of horror stories from other first-time homebuyers last year, so after a half-year of house hunting it was hugs and high-fives with Kate’s dad and their real estate agent when the house they’re buying in Roseville recently passed an inspection.
“It was an incredible moment,” said Kate Shalbrack, recalling the night their above-list-price offer on the tidy stucco rambler had been accepted.
For the Shalbracks and other first-time buyers, former renters and downsizing baby boomers in the Twin Cities metro, 2018 was one of the most challenging on record. Those buyers battled for a dwindling number of house listings in the Twin Cities metro, driving the median sale price to a record $265,000 last year, according to year-end data from the Minneapolis Area Realtors.
Even a late-season swell of fresh listings wasn’t enough to relieve the pressure. The least-expensive houses in the Twin Cities sold about three times faster than those affordable to move-up buyers, pushing an untold number of would-be buyers to the sidelines. Builders were besieged, as well, by higher construction costs that made it nearly impossible to satisfy first-time buyers.
A growing disconnect between what buyers wanted and what sellers were offering made 2018 a disappointment to agents; but the slowdown put a lid on what many worried was the start of another boom-and-bust cycle.
Throughout the Twin Cities metro there were only 59,223 home sales last year, a decline of more than 2,000 from the year before, according to MAR.
On average sellers got nearly their full asking price and sold their homes in about a month, about three times faster than what’s considered normal.
“The market is changing,” said Nick George, the Keller Williams agent who helped the Shalbracks find their Roseville house. “I don’t think it’s anything alarming, it’s just the natural fluctuation in the market, it’s more of a leveling. It might take longer to sell — instead of getting seven offers you might get two, or maybe one.”
Todd Urbanski, the new president of the Minneapolis Area Realtors, scoffed at the notion the market is headed toward a price bubble akin to the one that popped in the mid 2000s.
That’s unlikely today, he said, because there are only about a third as many houses on the market today as there were back then, and lending standards are far more strict. Urbanksi, who is also a sales agent and trainer at Fazendin Realty in Wayzata, said a true bubble has its origins in an oversupply of listings.
“And we’re far, far from that right now,” he said.
Year-end data shows far fewer houses were on the market in nearly every price range year last year compared with historical averages. The shortage of entry level houses was most acute.
While houses worth less than $300,000 sold in just days, upper-bracket listings lingered far longer.
The higher the price range the more balanced the market was last year. Sales of $1 million-plus houses posted healthy gains, including several notable sales and a handful of one-of-a-kind listings. After several years and a multimillion dollar price reduction, the Pillsbury mansion on Lake Minnetonka was subdivided, sold and demolished to make room for new houses. Nearby, the owners of a 18,000 square-foot house along Northome Road in Deephaven listed their house for $15 million, making it one of the most expensive of the year.
Across the metro there was a more healthy balance between supply and demand for those upper-bracket listings, giving buyers and sellers more room to breathe.
Owen and Bailey Kinsky were willing to spend more than $400,000 on an older house with charm in a Minneapolis or St. Paul neighborhood, but there just weren’t that many options. After missing out on house after house, last fall they expanded their house hunt to the eastern suburbs. They fell in with a Victorian-style house in Stillwater that had been on market more than 200 days. After listing the property for $450,000, the sellers reduced the price and the Kinskys made an offer.
Like other buyers last year, the threat of higher mortgage rates and the promise of more options drew them into the market during what’s normally the slowest time of the year.
“We knew that the market may speed up come spring and that interest rates were likely to keep going up, so we did want to get ahead of that curve,” said Owen Kinsky. “It felt a little less stressful looking for a home in the offseason”.
Urban neighborhoods where it’s easy to walk to parks and shopping were among the most untouchable areas for buyers, so the Kinskys and others expanded their house hunt to inner-ring suburbs, making them the hottest housing markets in the metro last year, according to the Star Tribune’s third annual Hot Housing Index, which ranks communities based on where houses sold more quickly than the year before, where prices posted the biggest gains and where sellers got closest to their asking price.
The trends last year were clear: Markets that fared the best were inner-ring suburbs like Crystal and Richfield where houses are modest and close to the central cities. A few once-sleepy exurbs also stood out, including Otsego and Dayton where land is cheap and housing construction was unusually robust.
The Shalbracks had their hearts set on a starter house in northeast Minneapolis or St. Anthony, the third hottest housing market last year according to the index, but quickly realized they needed to expand their parameters.
“We’re on the outskirts of Roseville, so it’s still close to Northeast if we want to go to breweries, visit friends or go out to dinner, and it’s not too far from downtown,” said Matt Shalbrack. “It’s a perfect location for us.”
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