“This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” – Sir Winston Churchill, Speech in November 1942
This quote was made shortly after the British had a minor, but impactful victory over the Germans who had been pummeling the Allies until this point. Its purpose was to motivate and galvanize his country and troops for what lay ahead. This quote came to my mind when reading recent news articles regarding the Twin Cities Real Estate Market (I know, not quite as dramatic as a World War).
What I am reading is a lot of talk about a “shift” that is taking place. Specifically, a shift from a seller’s market to a buyer’s market. I am not really buying this headline. First off, I would argue that the concept of a buyer’s or seller’s market is untrue. What I have observed over the past twenty years is a vast segmentation in the residential real estate market based primarily on location and price. For example, homes prices below $200,000 near the urban core of Minneapolis would fall into the definition of a seller’s market because of high demand and low supply. At the same moment, a home located in a distant exurb priced over $1 million would have low demand and high supply, which would be considered a buyer’s market. In general, we have been in a seller’s market based on statistics. However, when people buy a home it is specific, not general. Moreover, people do not base their home purchases on statistics, they base it on wants and needs.
The measurables that I focus on such as new listings (-2%*), pending sales (-4.2%*), closed sales (-4.5%*), median sale price (+7.7%*) and listing inventory (-4.4%*) have not changed much. What these stats tell me is that the market has slowed down in general, but we still have a diminishing supply of listings and a healthy appreciation rate. Perhaps a shift is coming, but we are not there yet.
The real estate market is evolving as all markets do. Now the most significant influence is mortgage interest rates, which have steadily increased in 2018. I suspect that one major reason we have enjoyed an incredibly active market during the past five years is because of the expectation of increased interest rates. Ever since the US economy got back on track around 2012 I have been hearing that interest rates would increase, and they never did…until now. The belief that the interest rates were going to increase undoubtedly motivated many to purchase a home sooner than later. This would explain the slight decrease in sales. The market may be returning to balance slowly and this is good news for buyers and sellers.
This is not the end of a robust real estate market, it’s not even the beginning of the end, it is perhaps the end of an overheated market and the beginning of a balanced market.
Andy Fazendin – Owner/Broker