MINNEAPOLIS — The shift in the Twin Cities housing market in 2022 was as stark as the shift in seasons.
Though sales started the year on a hot streak, after hitting a 20-year high in 2021, the war on inflation later sent mortgage rates soaring and a corresponding chill through the market. Closed sales ended the year down nearly 20%, the lowest level since 2014.
"A big factor here is the lack of supply of more affordable homes," said Jerry Moscowitz, President of Minneapolis Area REALTORS.
Despite the drop in sales, home prices in the Twin Cities still climbed more than 6% in 2022, hitting a record $362,500. Though, local realtors say there continues to be a struggle to find homes in that price range.
"A lot of what they are building is $450,000 and up, and so we have this block, from a base to about $450K, which is your average first time home buyer," said Brianne Lawrence, President of the Saint Paul Area Association of REALTORS. "It puts a strain on why it's an issue because not everyone can afford – nor do they want – that $450,000 and up house."
Add in rising interest rates later in the year, and it froze out even more potential buyers.
"Going from 3% to 6%, was just an affordability shock," said Lance Lambert, who covers housing for Fortune.com. "Not only did it price some buyers out, but some buyers lost their mortgage eligibility all together."
Lambert says the same shock has taken place nationwide. In some markets, it's been enough to cause home prices to fall, and it's sparking uncertainty about where prices will go in 2023.
"I track forecasts from 27 different real estate research groups and every single one of them is different," he said. "And a lot of it is because they don't exactly know where inflation is going to go."
But if there is stability anywhere, he says it is in the Twin Cities and several other midwestern cities.
"Based on everyone that I've talked to, they don't really see your market falling a lot," Lambert said. "Moody's has your market going down 6% in their forecast model and Zillow is at 3%. To me, that's essentially kind of a flat market."
The reasoning behind many of those forecasts comes down to inventory. Though inventory is now up by 47% from last year, it's still nowhere near the 4 to 6 months of supply that realtors look for in a balanced market. Meanwhile the median house is still just spending two weeks on the market.
"When you look at the historical numbers, that's really fast that the houses are selling," Moscowitz said. "We're doing a lot of comparing to a market that we really hadn't seen before."
While inventory, especially of affordable homes, will likely remain a major issue in the year to come, realtors say downpayment assistance programs are beginning to help first-time home buyers. So is the changing geography of work.
Lawrence says small communities at the far edges of the metro area, like St. Bonafacious and Hampton, saw some of the biggest growth in sales last year because many buyers are worried less about commutes and more about space and value.
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