As we move further into a new calendar year and edge closer to the spring real estate market, it is an ideal time to reflect back on at 2015 and to also look forward to what may transpire in 2016. Of particular significance we will analyze mortgage interest rates, buyer/ seller activity and sale prices.
By most measures, 2015 was a tremendous year for residential real estate in the Twin Cities. Interest rates remained low throughout most of the year despite the constant threat of an interest rate hike. The belief that rates were going to increase helped encourage motivated buyers to make a move before rates actually did rise in December. The incentive to take advantage of historically low interest rates certainly increased home sales.
In 2015 buyer activity reached highs not seen since 2005. Meanwhile seller activity increased, but more moderately than buyer activity. There were 5.1 percent more properties listed in 2015 than 2014, yet this did not keep pace with buyer demand; closed sales increased a whopping 13.7 percent over the same period. The result was a shortage of listings for buyers to choose from. This supply/demand imbalance helped rally the median sales price to $220,000, a 7 percent increase over 2014 and the highest median price since 2007.
As the real estate market unfolds in 2016 many of the same factors exist. Interest rates remain a topic of conversation. Will mortgage interest rates go up or down and how fast? These questions are hard to answer. In fact the unexpected happened in early February when interest rates actually decreased! Most forecasters predict rates to reach 4.6 percent in 2016 for a 30-year conventional mortgage. To put that in perspective, the long term average is just over 8 percent.
One thing is for certain, there will be a shortage of listings for buyers to choose from once again. As of early February there were roughly 10,500 active listing on the Regional MLS. This is a 20 percent decrease from the same time in 2015. It is difficult to forecast seller activity because it is based on many complex factors such as consumer confidence, seller motivation and builder activity. However, we know anecdotally from showing activity and open house traffic that buyer demand is very robust in early 2016. The residential real estate market has struggled with low inventory for 4 consecutive years, but this year we have reached new lows.
Generally speaking, we anticipate another strong year for residential real estate sales. We are fortunate that the Twin Cities has a diverse and healthy employment environment with one of the lowest unemployment numbers in the country. In addition, we have seen foreclosures and short sales decline dramatically indicating increased financial stability for more households. People that are employed and financially stable are more likely to own a home.
The housing recovery reached a new era in 2015 with several municipalities surpassing the previous price peaks of 2006. I anticipate more areas surpassing previous historical price thresholds in 2016. Not all areas have recovered at the same pace. Real estate conditions can vary greatly from city to city and even block to block, there are sub-markets within markets. Because of this the residential real estate market can be confusing. Fortunately today’s Realtor has many tools to help consumers understand what is happening on a “hyper local” level.