MINNEAPOLIS — The pandemic and high unemployment rates that followed have had little impact on housing prices in Minnesota, new data shows.
Home prices climbed 4.8% across Minnesota in the past year, continuing eight straight years of increases, according to figures released by CoreLogic, which maintains data on home sales throughout the country.
While analysts say that’s good news for the health of the state’s housing markets, it’s bad news for first time and low-income buyers, who are finding few, if any, homes in their price range, particularly in the Twin Cities area.
“There just isn’t the inventory out there,” said Chris Galler, CEO of Minnesota Realtors.
That low supply of homes is one of the reasons prices are still climbing, often causing desperate bidding wars within hours of a home going on the market, Galler said.
The Duluth area has seen the highest jump in housing prices – about 6% in the last year – despite having a 10% unemployment rate.
The St. Cloud and Twin Cities markets came in tied for second, seeing about a 5.4% jump.
The demand for housing is so high that statewide there’s only about a two-month supply available, according to data from Minnesota Realtor.
Driving the increases, said Galler, are mortgage rates lower than he’s seen in his 35 years working real estate.
The pandemic pushed the U.S. economy into a deep recession as many businesses shut down, which in turn forced the hand of the Federal Reserve to dramatically lower interest rates. The average mortgage rate fell from around 3.75% at the beginning of the year to under 3% in a matter of weeks after the pandemic struck the U.S.
That sudden drop in mortgage rates was an instant boon to home affordability, economists said, allowing many buyers to afford much more expensive homes while keeping the same monthly payments.
And while Minnesota’s unemployment rate hovers from 8 to 10% due to the pandemic, Galler said most of those who have lost their jobs were blue collar workers. White collar workers, meanwhile, are now working from home, and often finding that they need more space to do so.
“This is a permanent shift,” Galler said. “People are realizing this isn’t a fad.”
Minnesota is mirroring national trends, the data show. Buyers across the country are diving into the housing market as inventories and mortgage rates remain low, pushing home sales to record highs in most parts of the U.S., according to an analysis of housing price data by The Associated Press and Core Logic.
All but 9 of 456 metro area's home prices in May 2020 are higher than they were in May 2019, with those increases driven by starter homes.
Like nearly every other industry, real estate largely came to a halt in March when many of the country’s governors put stay-at-home orders in place. But once those orders were lifted, buyers who were intent on buying in 2020 before the pandemic came back in the market, realtors said, further driving up prices for starter homes.
There are some threats to the housing market’s resilience in many parts of the country, however.
Home prices have been rising while the nation is in the grips of a deep recession. Many protections put into place in the early days of the pandemic are now coming to an end – evictions are starting back up, and foreclosures are likely to follow, experts say. Enhanced unemployment benefits have also expired, with unemployed workers left to hope Congress can reach an agreement to extend them.
But Selma Hepp, CoreLogic’s Deputy Chief Economist, said with Minnesota’s diverse economy, lower-than-national unemployment rates and small percentage of houses that could go underwater, the state likely to be immune to any bubble bursting.
“We’re not overall seeing any large risk of that,” Hepp said.