If you follow real estate trends or pay attention to the local news, you likely heard about the crazy Twin Cities housing market in 2018. As home inventory hit a 15 year low, competition became fierce and desirable homes saw almost instant multiple offers and sometimes sold for 10s of thousands over asking price. First time homebuyers struggled to find anything at an entry level price point and many were pushed out of the city into first or second ring suburbs. Homeowners were routinely told “There’s never been a better time to sell!” So should we expect more of the same in 2019? Here is what to keep an eye on this year.
Interest rates climbed up to 5% and beyond over the course of 2018. While still historically low, many felt rising rates would bring balance to the strong sellers market. However, the December market crash has brought rates down around 4-3/4%. Between the markets and the government shut down, rates are unlikely to rise in the short term. Later in the year we will probably start to see rates tick back up as consumer confidence rises. Higher interest rates tend dampen demand and could help to push the market slightly back towards buyers.
Median home prices in Minneapolis are up 16% from 2016. Many of the in demand neighborhoods of the city saw more growth than that in the last year alone. While this is great news for sellers, it’s effectively pricing out low to moderate income buyers. With a lack of affordable options, more buyers are starting to look further away from the city center. The historically more affordable Northern suburbs have seen huge growth in demand. While urban living remains a must for some, we’re seeing more buyers opt to broaden their search to get more house for their money. With this push outwards, we will continue to see development of restaurants, breweries, shopping and other amenities in previously sparse areas.
The hotly debated 2040 plan for Minneapolis made us the first major city to end single family zoning. Minnesota has one of the worst racial disparities in homeownership in the country. Single family zoning is one of the many pieces of housing legislation that intentionally segregated our city. While much of that legislation (redlining, racially restrictive covenants, etc.) was done away with 50 years ago when the Fair Housing Act was passed, single family zoning remains across much of the US. 50-60% of Minneapolis is only zoned for single family homes. When the new legislation goes into effect later this year, the city hopes to increase housing density and affordability. Whether or not this will have a measurable effect on our housing disparities is debatable, but it’s a ground breaking and positive step forward.
2019 will also see the Upper Harbor Terminal redevelopment move forward along the river in North Minneapolis. The city is in the approval process for a large multi-use development along the unused stretch of river. The project will include an open air amphitheater and riverfront park space. This major development in a historically low income area has many afraid of the effects on home prices. As the area gentrifies, so could we lose the last affordable areas in Minneapolis. Hopefully the city will implement community feedback and find a way for this to be a benefit for all, but it’s sure to change the landscape of the area.
The housing market is likely to remain strong in 2019. While many of us in the real estate world started to feel the shift towards the end of 2018, high rents and relatively low interest rates keep buyers motivated for the foreseeable future. Towards the end of the year, we might begin to see a more balanced market as the rates rise. It remains a great time to sell your home, additional inventory is still needed. Keep an eye on city developments as the Twin Cities continues to grow and become a highly desirable place to work and live.