What will next year’s housing market look like?
As president of Edina Realty, Barb Jandric provides guidance and direction to the company's 60+ sales offices and 2,300 REALTORS®.
For many, this past year in real estate felt a lot like 2013. We continued our slow progression toward a more normal and balanced market, and we regularly used words like “stable, solid, favorable and slower-paced” to describe market conditions. And similar to 2013, limited inventory still irked some buyers who found themselves in multiple offer scenarios multiple times.
The Twin Cities saw high affordability, low unemployment and the increased availability of traditional homes for sale rather than distressed (short sale or foreclosure) properties. Plus, the luxury home market experienced increased sales and price improvements.
I expect us to stay on our same path of steady recovery in 2015. However, a competitive rental market combined with greater opportunities for first time homebuyers will likely drive more renters to take the leap to owning a home in the Minnesota and western Wisconsin real estate market.
- Twin Cities’ housing is affordable. The housing affordability index is 191, meaning that the median household income is 91 percent higher than the income needed to qualify for the median-priced home at current interest rates (Nov. 2014 data from NorthstarMLS).
- Newly constructed condominiums, particularly in downtown Minneapolis, are boosting prices. There’s a bit of a boom happening downtown – and not just surrounding the new stadium for the Minnesota Vikings. We’ll be keeping an eye on this segment of the market.
- Low mortgage interest rates are expected to continue in 2015 with a possibility of an uptick later in the year – possibly up to 5.0 percent.
- We’ve seen 33 consecutive months of year-over-year median price gains (Nov. 2014). This trend is expected to continue, although gains will likely be tempered a bit.
- Limited, although improved, inventory will continue to be a challenge, giving sellers an opportunity to appeal to buyers lacking a lot of choices.
- Equity improvements will continue to offer opportunities for homeowners to come out from underwater and sell their homes.
Trends in homeownership
- In the next five years, millennials will represent 2/3 of household formations. That may translate to new demands in housing types, styles and locations, including those with access to public transportation in walkable neighborhoods.
- A rollout of new mortgage products from Fannie Mae and Freddie Mac will help first-time homebuyers qualify for conventional mortgages with down payments as low as 3 percent. These new products are expected to open homeownership opportunities to more buyers, especially as rents continue to rise.
Our local economy
- According to the Bureau of Labor Statistics, the Twin Cities had the lowest rate of unemployment among major metros in the nation in October 2014. Our rate of just 3.2 percent is significantly lower than the national rate of 5.8 percent. The state of Minnesota’s unemployment rate dropped to 3.7 percent in November, the lowest level since 2001, according to the Minnesota Department of Unemployment and Economic Development. With a bright jobs picture comes a bright housing picture.
- The Minneapolis-St. Paul metro area was predicted by CNN Money to be one of 2015’s hottest housing markets, especially among the millennial generation, due to extremely low unemployment, a large population of young residents readying themselves to buy and affordable housing.
What modern home buyers should consider when buying a home
Historically, advice on buying a home hasn’t changed much. We’ve all heard that you shouldn’t buy the biggest home on the block and that you should come to the table with the largest down payment you can muster. But in our changing world, what should buyers consider when searching for a new home? Here, we share our top tips for modern home buyers.
Many buyers check to make sure that the home is wired for cable and Internet and that the nearest cell tower is providing good mobile phone service. Of course, if the home is a knockout, you likely won’t nix the deal, but it’s nice to know if you’ll need to re-wire or switch phone carriers before moving into your new abode.
Create a smart home
Next, many buyers want to connect their home to the “Internet of Things,” that is, to connect their home’s systems, appliances and technologies so they can easily control them from their mobile devices. The most common example of this is the Nest thermostat, which becomes intelligent to your living habits over time and turns itself down when you’re away. Nest also recently partnered with Dropcam, a live-streaming service, to provide a full smart home service that includes smoke and carbon monoxide detection.
The Rachio smart sprinkler system is another way to keep your utility bills down. Rachio measures weather conditions in your region and makes sure your lawn is watered only as much as it needs to stay lush and green.
While devices like Nest and Rachio help you save money, many other smart home products are designed with convenience and safety in mind. For example, products like Ascend and LiftMaster open and close your garage door from your smartphone, allowing you to let in guests when you’re not around or to double check that your home is secure even after you get to work. Similarly, the August Smart Lock detects when you (or approved guests) are approaching and unlocks your front door. That’s right, you can finally carry all seven grocery bags into your home at once. Plus, August’s customization options mean you can give 24/7 access to your world-traveler brother who shows up unannounced but only let your contractor in when you have a set appointment.
Last, a product for those of us who aren’t morning people: The Mr. Coffee Smart Coffeemaker brews coffee on demand from your smartphone in just eight minutes. While you can set up a brew time in advance, just think of the power you’ll feel when you hit “brew,” then “snooze,” allowing a few more minutes of sleep and the promise of a fresh cup of joe when you finally arise.
Remember, if you control security systems or smart appliances with your mobile phone, you need to be sure the device is protected against hackers. Add a pass code to your phone, and download an app that will remotely erase data if your phone is lost or stolen.
Know the “not-so-hidden costs” of ownership
Monthly bills from utilities can affect your purchasing power, so we will ask the current seller to share their average costs for water, trash removal and average bills for heating and cooling the home during our extreme Midwestern seasons. Plus, keep in mind that you could have to replace expensive systems like your furnace, water heater or soft water system, or pay for upkeep like a new roof. Together we'll ask the sellers for information on the last upgrades or system replacements, so you can foresee upcoming costs.
Often, buyers think about a long commute in terms of time, but not in terms of money. When home searching, be sure to calculate the average miles per gallon your car gets, then determine the daily cost of commuting from various areas. Remember, living closer to the city may be more expensive, but small families could downsize to one car and commute via public transportation. Conversely, living farther out could mean a lower monthly mortgage payment but a higher car payment if you upgrade to a newer vehicle with better gas mileage.
Avoid big purchases
Speaking of buying a new car, it’s best not to do that (or make any large purchases) until after you have closed on your new home. Your mortgage approval is dependent on your credit and finances, and any large recent purchases could hurt your chances of being taken seriously by your lender. Think of your home as your next big purchase, and save the dream vacation, new car, boat and riding lawn mower for after you’ve unpacked your boxes.
Understand your credit score
As stated above, your credit score is important when applying for a mortgage. The easiest way to keep your credit score high is to pay your bills on time, as 35 percent of your credit score is dependent on bill payment history. Currently, the Federal Housing Administration requires a credit score of 640 or higher to secure a loan.
Know your rate
During the preapproval process, your lender will provide you an estimated loan amount, as well as your estimated loan interest rate, should mortgage interest rates hold. It is important to review the best loan product and interest rate for you, so you can fully understand your buying power.
Keep in mind that while today’s rates are still historically low, many experts believe that rates will rise in 2015. You can always check the daily mortgage rates to see if interest rates are fluctuating.
Whether you’re looking for an ultra-connected home you can monitor from afar, or a place where you can paint the walls magenta on a whim, we can help. Email me today to get started.
To start your search download the Edina Realty Home Search app, which includes every active available listing in Minneapolis and western Wisconsin.
Four unusual housing trends that came out of the market correction
The last few years have been full of surprises for our local housing market. First, we saw a bargain buyers’ market with a high percentage of short sales and foreclosures driving low prices. Next, we saw inventory stall and increasing prices, create a market with a sellers’ advantage. Here’s what’s happening in the Minnesota and western Wisconsin housing market now.
1. Multi-generational homes are rising in popularity
Baby boomers are often called the “Sandwich Generation,” because they are simultaneously caring for their aging parents and their young adult “boomerang” children, who are commonly moving back home. This phenomenon has expanded to housing in the last few years and we are seeing a major increase in multi-generational living.
Thirteen percent of 2014 buyers nationwide purchased a home suited for multi-generational living (National Association of REALTORS®). In Minnesota, this number was last measured in 2013 and showed that 10 percent of statewide buyers were purchasing multi-generational homes.
So, what are the common features of these types of homes? Often, they have a separate entrance to a private unit that includes a bedroom, small living area, kitchen and bathroom. These apartments offer a private, attached home for aging parents or younger family members who’ve moved back in. When the house doesn’t have a “mother-in-law” unit, it may include flex space on the first floor that can be easily converted to a bedroom, if necessary.
2. Senior housing rates are rising – even for those who aren’t yet retired
Members of the “Sandwich Generation” aren’t just taking care of their extended family. Many of them are also preparing early for retirement by buying homes in active senior communities or single-family homes equipped for retirees. In fact, 13 percent of home purchases by homeowners aged 50 and older were for senior-friendly homes and active senior communities (National Association of Realtors).
Senior-friendly single family homes usually include hallways, bathrooms and kitchens wide enough for wheelchairs to pass through. These buyers are also looking for ramblers so they can avoid stairs as they age. Meanwhile, chic retirement homes are popping up all over the Twin Cities and beyond, offering transitional amenities and a sense of community. Many younger seniors are happy to ease into retirement by purchasing a stake in these communities, which rarely resemble the “nursing homes” of the past.
3. The number of For Sale By Owner properties is decreasing
As the market continues to balance out, fewer homeowners are choosing the For Sale by Owner (FSBO) route. In Minnesota, only 9 percent of homes were listed FSBO in 2013.
We Midwesterners are a friendly sort, so it’s unsurprising that 75 percent of FSBO sellers statewide knew the buyer in advance of the sale. Nationwide, only 44 percent of FSBO sellers were previously familiar with their home’s buyer.
Because we have such a high rate of “friendly sales” in the FSBO segment of the market, only 2.25 percent of total sales in Minnesota were For Sale by Owner homes where the seller and buyer did not know one another (Minnesota Association of Realtors).
The National Association of Realtors reports that across the nation, sellers using an agent earned 25 percent more on their sale than FSBO sellers, which is enough to cover an agent’s commission and still have plenty left over. And there are so many other benefits to enlisting professional help when selling your home: from staging advice to marketing your property and showing it to qualified buyers, working with a Realtor can take a lot of stress out of a complex process. Email me today to to learn more about how we can work together to list your home.
4. Luxury sales are the fastest growing segment of the market
In October, nationwide sales of homes priced at $1 million and above were the fastest growing segment of home sales. There is no mistaking it, luxury home sales are on the rise and we’re seeing that trend locally as well.
In Edina Realty’s market area of Minnesota and western Wisconsin, we consider homes priced at $500,000 and above to be in the luxury homes segment. In November 2014, local luxury homes sold 19 percent faster than they did one year ago, with a median of just 66 days on market, down from 82 days in November 2013 (Northstar MLS).
Low mortgage interest rates over the last year have made it easier for buyers to get more home for their dollar. If you’re thinking of buying a luxury home, do it now to take advantage of the still-low mortgage interest rates.
What it all means
It may seem that upticks in multi-generational housing and senior housing, fewer FSBOs and an increase in luxury home sales have nothing in common. However, it’s important to remember that each of these contingents represent a sense of choice for today’s home buyers and sellers. This is a victory for our local housing market. While many felt “stuck” during the market correction, our improved local economy is showing that today’s homeowners and buyers have options as they enter the marketplace.
What’s causing the boom in our local luxury market?
After years of sluggish sales due to the market correction and buyer uncertainty, luxury home sales are one of the fastest growing sales segments in our local market. Here, we outline what is causing the boom in high-priced home sales and what both luxury buyers and sellers should know if they’re planning to enter the market.
Luxury inventory and prices are increasing
The broader market saw a decrease in inventory in November, but luxury home listings were up 8.2 percent in November 2014 over the previous year. Meanwhile, homes of all prices saw only a modest boost of only 2.7 percent in that same time period.
Additionally, the median home price of luxury homes is $639,900. Home priced at $500,000 and above are considered luxury homes in our market (Northstar MLS).
What this means for luxury sellers: Many would-be sellers avoided listing during the market correction, so they wouldn’t have to take a hit on their property. With a rise in prices and higher home equity in place, luxury homeowners are finding it’s a great time to sell for a fair price.
What this means for luxury buyers: Local buyers with a higher budget will find they have more homes to choose from than those who are buying for under $500,000.
Luxury homes are selling faster than usual
Even with the increased inventory and higher prices, luxury homes are selling faster than they have in years. In November 2014, homes priced above $500,000 were selling in just 66 days. In May 2010, which showed the worst turnover numbers for luxury homes in years, these homes were on the market for a median of 176 days. In short, luxury homes that once took almost six months to sell are now selling in just over two months (Northstar MLS).
What this means for sellers: Even with the highest inventory in years, it’s a great time to put your high-end home on the market if you want to sell quickly.
What this means for buyers: If you don’t find what you’re looking for right away, chances are more luxury homes will come on the market to replace the current inventory. Work with your agent to be sure you’re getting a fair price on your new home.
Total pending sales were up
In November 2014, Northstar MLS showed that we hit pre-correction levels of sales on luxury homes, with 3,372 total luxury homes sold in our 13-county metro area.
What this means for sellers and buyers: Even with record new listings coming on the market, luxury homes are a small segment of our total market in Minnesota and western Wisconsin. If you’re looking to buy or sell a higher-priced home, it’s best to work with a local luxury specialist who understands the exact city or neighborhood where you’re searching or selling. Edina Realty’s Exceptional Properties division specializes in local high-end homes. Email me today to get started on the luxury home buying process or start your luxury home search now.