Twin Cities Housing Market | September 2023

If you have browsed through houses online even at least once this last month, then this blog is for you! 

In order to set yourself up for financial success, I recommend keeping tabs on the local housing market. This blog will cover the local data from the month of September in the Twin Cities 16-County Region.

I’m Bailey Beckman, a Twin Cities resident and local realtor, which means I live in market data. If you’d like to save time and energy moving forward, feel free to subscribe to my YouTube channel to be the first to know about market changes.

Homes Prices - On the rise year over year...

Home prices came down slightly from last month (August), about 2.4%. However, they are up 2.5% compared to September of 2022, now sitting at $371,000.

What may surprise you though, is prices for new construction actually dipped down. Now why would that be… Below you can see the median sales price for a new construction home in the Twin Cities region will run you about $485,000. This is significantly higher than the cost for a previously owned home. With higher interest rates, the mortgage on a new build home is just not affordable for many would-be buyers.

It was common in September to see “buyer incentives” from builders, including price cuts and special financing terms.

Entering the seasonal down-turn

Overall I do expect to see all home prices continue to drop month over month until about February 2024, as we enter the seasonal down-trend in the market.

Here in the orange, you can that September is one of the first couple of months in the  off-season and then in green is the month of February, where we start to see prices increasing again.

Inventory is LIMITED... But why?

Part of the reason as to WHY home prices are up in the Twin Cities, is because homes for sale are DOWN. Homes for sale dropped 7.4% compared to last year, tightening the inventory belt even more. This lack of inventory has kept the market competitive for buyers, causing some homes to sell for above asking price.

Now you might be wondering, “why is the inventory so low?” The term is called the “lock in” effect. Homeowners that were able to purchase or refinance their mortgages over the last few years are “locked in” to interest rates between 2 and 3%. With rates trending in the mid sevens and whispers of hitting 8% in the next rate hike, the majority of homeowners are choosing to stay put. Which means, less opportunities for new buyers.

Are we in a buyer's or seller's market?

So we are in a position of the market where limited inventory is still driving demand, but these high interest rates have taken several buyers out of the overall demand equation.

The impact can be seen in the month’s supply indicator. The number is calculated by taking the inventory of homes for sale at the end of a given month, divided by the average monthly Pending Sales from the last 12 months. It’s also known as absorption rate.

  • A seller’s market is between 0-3 months supply
  • Balanced is between 3-6 months
  • Buyers market is 6+ months.

For the month of September, we did see the months supply increase by 20% to 2.4 months. We are edging closer to a balanced market, which means more buyers were empowered to negotiate with sellers on terms of offers, including seller paid closing costs and purchase prices.

The issue of affordability...

Now we do need to talk about the issue of affordability. The most recent affordability index provided by the Minneapolis Area Realtors Association shows affordability down 10.9% compared to 2022. Which is a significant hit after the 30.4% drop from September 2021 to 2022. 

If you have ever played with a mortgage calculator online, you already know what type of an impact the interest rate makes on that monthly mortgage payment. The affordability index keeps getting tighter, unfortunately pricing large numbers of buyers out of the market completely.

Now I do hear a lot of people think the market has to crash simply because affordability is so tough. And while there may be a cycle or a market correction, I don’t foresee it happening for several years. The majority of people are able to afford their homes locked in at those lower rates and lending practices are much stricter than they were in 2006-2008, so a wave of foreclosures is just not likely which would be needed in order to cause LARGE scale price decreases across the state.

What's coming Up?

Looking ahead over the next few months, the Twin Cities housing market will cool headed into the winter off-season.

  1. We will see sales prices decrease slightly.
  2. However, inventory will stay limited keeping the supply and demand balance in a seller’s market.
  3. Interest rates are trending around 7.5% for a 30 year loan, and there are whispers of a hike to around 8% before they come back down in early 2024.

Ready to learn more?

Download my First Time Buyer Guide for best practices & tips/tricks. 

Join The Discussion

Compare listings