We at Minneapolis Area Realtors® often talk about the state of our housing market in the broadest way, a metro-wide perspective. This is the scope we use when you read the monthly housing market reports or watch MAR’s monthly webinars, which cover fundamental metrics of supply, demand, and price of the 16-county metro area. Assessing the performance of the entire metropolitan area has many benefits, but well-informed Realtors® know that not all parts of the market perform the same. Instead, we divide the market into segments in order to tease out local variations. Those of you who are avid users of InfoSparks might regularly look at data on specific cities or use filters to view information on certain property types, for example. Our research team at MAR would like to encourage you to consider a new type of market segmentation using definitions from the Metropolitan Council.
Earlier this year the Met Council published updated community designations which are designed to group cities by common economic and infrastructure characteristics. The full definitions of these designations can be found on their website. We in the real estate industry talk about the division of urban, suburban, and rural communities all the time, but we encourage you to use this specific information to better understand how the different market conditions in these communities impact your business. Generally, we can use these community designations as a label, grouping similar cities together by market performance. Whether you work exclusively in one community or your work straddles multiple market segments, it’s critical that you know how these markets differ to better support your clients. This undertaking will cover the basic real estate metrics: new listings, closed sales, median sales price, median cumulative days on market, and month’s supply of inventory. The community designations will be: Urban, Urban Edge, Suburban, Suburban Edge, Rural Center, Diversified Rural, Rural Residential, and Agricultural. Here is a legend for all the following charts made from annual MLS data by these designations. This blog will focus on high-level trends we see when looking at the real estate market through this new lens. If you’re curious about learning more from what you find here, please, let us know!
Our first peek at the market dynamics of various community designations ought to begin with new listings, our means to measure incoming market supply. First, let’s get the obvious out of the way, residential population is a major contributor to many of the trends we see in these charts. It’s no surprise to see Urban and Suburban leading the charge in terms of seller activity while rural communities seem to hover just above zero. Instead of the obvious, examine the difference in market share between our more populous communities. Historically, two communities vied for the most homes listed annually, Urban and Suburban, with Suburban sellers leading the market’s share of supply for the majority of the 2010’s. Four years ago, the Suburban Edge took the top spot in seller activity as the only community group to report a net gain in new listings that year and has sustained their position ever since.
For Realtors®, this means that the Suburban and Suburban Edge cities are where you’re likely seeing the most listings while cities in the Urban Edge offer fewer opportunities in comparison. Rural Realtors®, you’re keenly aware that the Rural Centers are where you find concentrations of supply for your clients, while listings are in short supply in Diversified Rural and Agricultural communities.
Demand, the driver of the housing economy, has been softening across the metro (and the nation) in the wake of increased mortgage rates. That story remains true here across all community designations. A new insight that can be gleaned is the that while both the Suburbs and the Suburban Edges have been sales leaders since 2015, Urban cities saw relatively increased buyer activity in recent years. Realtors®, take note of how close sales levels are between these top three communities. If – or when – a market shift comes where Urban living is back in high demand compared to the suburbs, you’ll want to capitalize on that emerging opportunity. For those helping your clients buy in rural communities, the Rural Centers have and continue to be the areas with the highest demand for your clients.
It’s no surprise that inventory is low across all communities in the Twin Cities, but some areas have fared better than others in the past. Rather than focus on year-end inventory levels by community designation – which would do nothing more than roughly show us another way to measure residential population – let’s focus on the relationship between available inventory and demand, a community’s months’ supply of inventory. Our next chart shows that the rural areas have historically held more inventory relative to their demand when compared to more urban communities. Agricultural and Diversified Rural communities in particular were leading the market prior to 2019. However, in the buying frenzy of 2021 these communities were the most proportionally sought-after locations, with less than one half of a month’s supply of inventory. Meanwhile, Rural Centers now have the most inventory relative to their demand with almost three months’ supply of inventory. Realtors® working in rural areas should be aware of this sudden change in the rural housing market, but keep in mind how quickly these metrics can shift back in smaller economies. For those Realtors® working primarily in the Urban or Suburban communities, you’ll see how tightly packed each community’s absorption rate is to one another. This shows that you’ll have to dive deeper into smaller areas, such as individual cities, to better understand the variation in the available data. If you’re eager, InfoSparks is a powerful tool available to MAR members that can provide answers to these more detailed questions.
Let’s turn our attention to home sales price, everyone’s favorite indicator in real estate. The Twin Cities median sales price was $362,500 throughout the year of 2022, but this generalization often paints with too large a brush when we’re focused on a more specific part of the market. Using our community designations, we can have a more accurate sales price measurement for cities your buying clients are considering and determine if home prices in a city like Eden Prairie should be compared to the same in Minnetonka or Shakopee, for example.
The chart below generally shows that the more rural the community, the higher the median sales price. There are, of course, broad price ranges within each of these community designations. It’s also worth noting that properties in rural communities tend to come with more land. Looking at our example, Shakopee is on the lower end of the range of sales prices for the Suburban Edge at just under $228,000 while the median sales price for the Suburban Edge communities is $441,000. It would be more appropriate to compare Eden Prairie to Minnetonka, therefore, since they are both Suburban communities, which holds a narrower range of median sales prices for cities within that designation. If you’re ever looking for quickly accessible information on median sales prices for specific cities, we encourage you to access our Local Market Updates.
The theme of wide-ranging sales prices continues between the Diversified Rural and Agricultural communities in the greater metro. Diversified Rural communities have maintained the highest median sales price for years among community designations. They top this list among the community designations because 11 of the top 50 cities by median sales price are categorized as Diversified Rural. Due to the surge of buyer activity in recent years (the last year notwithstanding), these high-acreage properties in rural communities have seen a 43.6 percent increase in median sales price over a three-year period. That same time period was quite different in Agricultural communities. After facing a 10.8 percent drop in median sales price in 2020, Agricultural communities had not quite recovered by the end of last year. In fact, this community designation was the only one of the eight to experience a noticeable decrease in median sales price since the start of the decade. Rural-focused Realtors® ought to be keenly aware of the different market dynamics between these two, sometimes divergent, communities and what that might mean for your clients and your business.
A final useful insight is knowing how quickly homes go off the market. In which community designation do homes sell the fastest? Cumulative days on market in the chart below answers that question. It’s clear that the more centralized communities are more similar to one another while the rural areas, in general, take longer to sell and show some divergent trends. The past few years have, of course, been an exception to the historic trend. In 2021, both the Diversified Rural and Agricultural communities went from taking the most time to sell homes to being one of the faster markets. In conjunction with the information we gathered from the chart on median sales price, we know that these two communities start to see homes sell faster than most for two very different reasons. Throughout 2021, half of all homes in rural communities lasted no longer than a week on the market. We saw hotspots like this throughout the urban parts of the metro at the same time, but that hyper-fast pace was generally not as widespread across the more populated communities. Since then, the speed of the housing market in these communities has dropped to the slowest in the metro. This is another sign of the wide variances in market dynamics our rural Realtors® experience.
Taking time to understand the Twin Cities real estate market through a new lens will better your understanding of your work as Realtors®. This particular exploration into community designations from the Metropolitan Council is tightly connected with residential real estate dynamics. We hope this work from the Research Team at Minneapolis Area Realtors® has provided critical insight for your business and spurred curiosity into more resources that might bring future clarity to an ever-changing housing market.