List Prices Reach New Record High as Buyer Activity Remains Strong
The year got off to a mostly strong start with buyer activity and home prices rising even though seller activity was lackluster. Pending sales rose 3.5 percent to 3,033 signed contracts; new listings decreased 7.2 percent to 4,167 homes. In light of that, it’s no surprise that inventory levels fell 22.2 percent to 10,065 active properties—the lowest figure on record since January 2003. Prices continued along their upward trajectory. The median sales price rose 10.3 percent from last January, landing at $215,000. But the big news came by way of median list price, which rose 6.1 percent to $259,900, a record high. The price per square foot rose 7.2 percent to $126.
Buyers wrote offers that were more in-line with asking prices, as the percent of original list price received at sale was up 1.5 percent to 95.0 percent. Furthermore, sellers tended to accept those offers in shorter amounts of time. Cumulative days on market declined 15.8 percent to 85 days, which is a brisk pace for January. Absorption rates tracked closely to inventory levels as months supply of inventory fell 32.3 percent to 2.1 months—also the lowest figure on record. Generally, five to six months of supply is considered a balanced market. While the metropolitan area as a whole is favoring sellers, not all areas, segments or price points necessarily reflect that.
“We’re starting the year in the same low inventory environment in which we ended last year,” said Judy Shields, Minneapolis Area Association of REALTORS® (MAAR) President. “Record sales and rising prices should encourage sellers to list their home. That said, it’s critical that buyers have more choices as the year progresses.”
It’s important to assess specific area and segment performance, since no single property spans the entire metro area nor all market segments and price points. The percentage of sales that were foreclosure or short sale fell to 13.9 percent while traditional sales rose 27.3 percent. Single-family homes continued to dominate sales volume, even though townhomes had the strongest year-over-year gain. Previously-owned home sales increased at a faster pace than new construction, but not by much. Sales activity in the $150,000 and below range declined nearly 18.0 percent while activity in all other price ranges is rising. Edina, St. Louis Park, Plymouth, Hopkins, Uptown and Southwest Minneapolis all saw record prices in 2015.
Recent jobs and wage data has remained mostly positive. Wages are growing at their fastest pace in six years—an encouraging sign that should offset declining affordability brought on by rising prices and interest rates. The latest Bureau of Labor Statistics figures show the Minneapolis-St. Paul-Bloomington metropolitan area had the second lowest unemployment rate of any major metro area at 3.1 percent compared to 4.9 percent nationally. Mortgage rates are still below 4.0 percent compared to a long-term average of about 8.0 percent. Rates actually went down after the Federal Reserve’s December hike, though marginally higher rates are expected this year. The normalization process will be slow and incremental and shouldn’t disrupt the recovery.
“This year’s spring market started earlier and stronger than in past years,” said Cotty Lowry, MAAR President-Elect. “It should also offer some insight into the impact of rising home prices, changing interest rates, an election cycle and a volatile stock market.”