- The key expectations in the year ahead include stability and more typical seasonal activity.
- Interest rates will be lower, but affordability remains a challenge, especially for first-time homebuyers.
- More sellers will enter the market, and there will be an uptick in the supply of homes for sale.
- Home prices will be stable with minimal increases.
Sharry Schmid, president, Edina Realty
As president of Edina Realty, Sharry Schmid provides guidance and direction to over 2,000 REALTORS®.
It’s that time of year when we get out our collective prognostication tools and try to predict where things are heading in the next year in real estate! First, let’s take a quick trip down memory lane and review 2023.
The 2023 year-in-review
There was no shortage of headlines this year about the lack of homes for sale as buyers competed over limited listings, driving up prices and reducing market times. By this time, you’re likely well-attuned to the outsized part interest rates played in 2023’s market as rising rates served to lock some buyers out of the market and kept some sellers in place and fully committed to hanging on to their historically low rates.
On the flip side, those sellers who did get in on the action enjoyed relatively quick sales, accepted offers at or near their listing prices more often than not, and had buyers competing for their homes. Overall, home prices in the 16-county metro were up about 2.4% at the end of October and will likely round out the year at about 2%.*
Moving forward: The 2024 outlook
I’m optimistic about 2024, and I don’t say that lightly! I suspect it will be more traditional in terms of seasonality, and much more stable without the high highs and steep declines of past years. To put it another way, I’m looking forward to a much more predictable and boring market!
When I talk about stability, David Arbit, director of research at the Minneapolis Area REALTORS®, puts it this way:
- Lack of affordability and higher rates prevent prices from rising much
- Shortage of supply prevents prices from falling much
In a nutshell, these two key factors serve as a floor and a ceiling for keeping things in check!
Uncertainty about the markets has kept interest rates artificially high, but recent metrics show some signs of improvement in the economy overall, which leads to more stability. To wit, we saw interest rates rise to 8% in October before coming down to just over 7%—a good sign.
Inflation appears to be leveling off, unemployment rates continue to be low (especially in our region), and consumer spending is flat and even up in some areas. These are encouraging metrics for consumer confidence, which influence how buyers and sellers feel about moving forward with a home sale or purchase.
Supply and demand
Experts everywhere are predicting a slow and steady increase in the supply of homes for sale in 2024. For the past few years, we’ve been solidly in a seller’s market, with more buyers out there than there are homes for sale, and that will likely continue, but the gap will close a bit as sellers gradually return to the market after delaying selling. Life events will be driving factors as some people finally decide to make the needed adjustments to their living situations.
When we talk about a seller’s market versus a buyer’s market, what we refer to is who has the advantage when it comes to the home sale or purchase. One key way this is determined is by tracking the month’s supply of homes for sale. Generally speaking, a balanced market that favors neither the seller nor the buyer lies somewhere between 5–6 months of inventory. That means, if no new homes came on the market, it would take approximately 5–6 months for all the homes currently listed to sell at the current pace of sales. Anywhere south of five months is a seller’s market; north of six is a buyer’s market.
While gains have been minimal, in recent months we’ve seen the supply creeping up a bit, and it’s come up quite a bit over the last couple of years. The supply of homes for sale from Jan. 2022–Oct. 2023 went from 0.9 months to 2.3 months, according to data from NorthstarMLS for the 16-county Twin Cities metro area. That’s an encouraging trend—one we expect to continue.
At least some of the inventory growth will be thanks to new construction homes. Over the last year, new construction inventory is up around 20% in our area, and nationally, it’s at its highest point in nearly two years.
Remember the rules of supply and demand: when supply outpaces demand, prices soften. We are nowhere near this happening as we continue to have a shortage of supply for the demand.
Mortgage interest rates will continue to factor into market activity. They are predicted to fall in 2024, likely ranging between 6–7% (closer to six by the end of 2024), which will improve affordability for buyers.
People are adjusting to this standard and will likely make plans to move and then refinance if rates go down. This will be one of the driving forces behind an increase in the inventory of homes for sale as current homeowners finally move off the sidelines and into the market.
If you’re a first-time homebuyer considering buying in the next year, there are several steps you can take to prepare, including learning what you can afford and getting pre-approved for a mortgage to improve your negotiating power.
Home prices and affordability
Home prices will be stable in our market. The slight increase in inventory will likely help offset some of the rise in demand, which will keep price increases in check—likely at 1–3%, making housing a good ongoing investment and wealth-builder.
With a median price of around $387,000, affordability will still be a challenge, especially for first-time homebuyers. As a result, sellers may get more requests to make financial concessions like paying for closing costs for buyers.
Real estate is local
Finally, I’ll reiterate the old maxim: real estate is local. What’s true for Minnetonka is not necessarily the case for Brainerd, Duluth, Woodbury—or the neighborhoods in each!
To get a clear picture of what’s happening in your local market, you should connect with a REALTOR. They have insights about market activity in your area, sales of nearby homes, market times, prices and so much more. Engage a REALTOR who knows your area and can do a personalized assessment of your home, perform a comparative market analysis and provide data and insights for the neighborhood. Your REALTOR can also make recommendations to help you determine which upgrades to make—and which ones to skip—as you get your home market-ready.
Edina Realty has a team of more than 2,000 local experts who work in and around the coffee shops, communities and neighborhoods where you live and work. Reach out today to move forward with your home sale or purchase.
*Based on information from the Regional Multiple Listing Service of Minnesota, Inc., for the 16-County Twin Cities metro area for the period from Jan. 2023 through Oct. 2023.