Minnesota Housing Market 2023 Report
What is the Minnesota Housing Market Like?
The past three years have been a wild ride for housing markets nationwide, and Minnesota is no exception. After increasing steadily in the years following the Great Recession, the Minnesota housing market has been catching up steam in the wake of the COVID-19 outbreak. As households acquired more mobility with widespread remote work, allowing them to choose a place to live independently from their place of employment, the demand for housing heated up significantly, powered up by mortgage rates near historic lows. Meanwhile, inventory remained limited, leading to a sharp increase in Minnesota home prices. However, as the Federal Reserve Bank initiated an aggressive interest hiking policy to fight back against inflation, which stood at a forty-year high, the Minnesota housing market has cooled down significantly.
Minnesota home prices are still climbing, although at a slower rate. The median sale price in Minnesota reached $321,400 according to data collected in November 2022, the latest available at the time of writing, marking a 3.8% increase compared to November 2021. The Minnesota housing market is still a sellers’ market, with two months of housing supply available, representing a slight increase from one month the previous year. However, since experts estimate that a balanced market requires five to six months of housing supply, it is unlikely that the market will reach an equilibrium any time soon. Besides, the number of houses for sale has gone down 1.0% in the past year, keeping property prices high.
Nevertheless, the Minnesota housing market is slowing down, with a 35.2% drop in the number of real estate transactions in the past year. The average number of days on the market is going down, with 29 median days on the market in November 2022 compared to 22 in November 2021.
How does the Minnesota Housing Market Compare to the National Housing Market?
Despite recent increases, Minnesota home prices remain globally more affordable than the national housing market average. When other housing markets across the country have started to slow down in light of the higher interest rates, the Minnesota housing market is still increasing, although at a more moderate pace than the one observed in recent years.
The combination of high (and still climbing) Minnesota home prices and high interest rates has led the average mortgage to grow significantly in recent years. In consequence, some would-be buyers find themselves priced out of the market, while other potential buyers are putting their homebuying plans on the back burner as they wait for interest rates to decline to more affordable levels. Therefore, the national housing market, including Minnesota, is showing a noticeable decline in the demand for housing. However, it also has an impact on the offer.
Unless they are first-time home buyers, investors, or buying a vacation home, the majority of home buyers also sell a property when they buy a new one. Since they may be hesitant to give up a mortgage with a significantly lower interest rate for a new one that will likely be higher, affecting their buying power, the decline in demand is also accompanied by a decline in the offer, as seen in the drop in new houses listed on the market in the past few months compared to the previous year. Therefore, the demand for housing remains, at this time, higher than the offer and is contributing to keeping Minnesota house prices high. Minnesota includes many of the characteristics homebuyers are looking for when buying a house post-pandemic, such as easy access to the great outdoors and a relatively affordable real estate market. Therefore, it should come as no surprise that the demand for housing in Minnesota is still present.
Minnesota Metro Areas with the Hottest Housing Markets
Minnesota is better known for its pastoral beauty than its metropolitan areas, and for good reasons. Roughly a third of the state is covered in forests, and it is known as the "Land of 10,000 Lakes" for having over 14,000 bodies of fresh water of at least ten acres. In addition, Minnesota is known for its extensive farming activity, particularly in the south and west of the state. More than 60% of Minnesotans live in the Minneapolis–Saint Paul metropolitan area, known as the "Twin Cities", the state's main political, economic, and cultural hub. Here are the metropolitan areas in Minnesota with the hottest housing market in terms of volume.
- St Paul
Minneapolis is the largest city in Minnesota, with an estimated 425,336 inhabitants in 2021. Minneapolis has one of the most extensive public park systems in the US, along with walking and biking trails and recreational lakes. As of mid-2022, Minneapolis area employment is primarily in trade, transportation, utilities, education, health services, and professional and business services, with the seventh-highest concentration of major corporate headquarters in the US as of 2021. The Minneapolis housing market is very competitive, and listed properties receive two offers on average. Minneapolis home prices have stabilized: the median sale price in Minneapolis is $320,000 as of November 2022, representing a 1.6% over the past year. 29.8% of homes sold above their asking price.
Adjoining Minneapolis is Saint Paul, the state capital of Minnesota and the second-largest city in the state, with a population of 307,193, according to 2021 estimates. Saint Paul is a regional business hub and the center of Minnesota's government. The principal economic sectors in Saint Paul are services, wholesale and retail trade, manufacturing, and government. Along with Minneapolis, Saint Paul is the site of one of the largest concentrations of high-technology firms in the United States. In addition, the city is also among the two or three largest livestock and meatpacking centers in the nation. The St Paul housing market is very competitive: listed properties receive three offers on average and sell in around 25 days. St Paul home prices are still rising despite the recent interest rate increases, reaching $265,000 in November 2022, 6% higher than the previous year, and 34.5% of homes sell above the asking price.
According to the 2020 census, Rochester had a population of 121,395, making it Minnesota's third-largest city. It is the birthplace of the renowned Mayo Clinic, which still forms the core of Rochester's economy. The economy of Rochester is also influenced by the agricultural nature of the region, particularly dairy and fermented products, as well as manufacturing, including IBM components. The Rochester housing market is very competitive, with multiple offer situations being common. The median sale price has declined slightly to $278,402 in November 2022, 0.37% less than the previous year, but the average sale price per square foot has increased to $157, up 2.6% since last year. 21.8% of homes sold above their asking price.
Higher Mortgage Rates Could Slow Down the Price Growth in Minnesota
Inflation climbed to a forty-year high in the wake of the monetary policies initiated to protect the economy and Americans’ livelihoods in the wake of the COVID-19 pandemic, as well as the supply chain issues the widespread disease caused worldwide. Consequently, the Federal Reserve Bank has initiated an interest rate hike policy to curb spending. As a result, the interest rates on 30-year fixed-rate mortgages increased from historic lows in the past two years to hovering around 7%, reaching levels unseen since 2008 and twice as high as they were in the previous years. The difference in the cost of borrowing money has translated into an increase of tens of thousands of dollars in the average mortgage, particularly since Minnesota home prices are sitting at record highs and still climbing, although at a much more reasonable rate than the double-digit growth observed since the pandemic.
Since house hunters’ buying power has been affected by the higher interest rates, real estate experts agree that Minnesota house prices should soon slow down their upward trajectory and may decline as the demand decreases. However, the Minnesota housing market inventory still has ways to catch up to the demand, and the difference is keeping Minnesota housing prices higher than usual.
Key Market Stats for the Minnesota Housing Market
According to November 2022 data, some of the key market stats for the Minnesota housing market appear as follows:
- Median home price: $321,400 – a 3.8% Y.o.Y. increase.
- Home sales: 4,941 – 35.2% less than a year ago.
- Months supply of inventory: 2 – compared to 1 in November 2021.
- Mortgage rates as of December 1st, 2022: 6.49%
Minnesota Historic Price Changes and Affordability
Like most of the country, Minnesota home prices have been testing new heights every month since the COVID-19 outbreak, as the limited inventory failed to satisfy the rapidly growing demand caused by low interest rates and the increased mobility gained by workers with widespread remote work. The median home price has increased from $257,200 in November 2019 to $321,400 in November 2022, with a peak of $349,200 in July 2022, representing a 24.96% increase in 36 months.
Although Minnesota house prices have increased at a slower pace than other states nationwide, the average local income is not keeping pace with the combination of high property prices and high interest rates.
- Minnesota home prices have increased more slowly than other states around the country and remain below the national average
- The Minnesota housing market is still going strong, with houses for sale staying on the market for short periods of time, and Minnesota housing prices are still on the rise compared to a year ago
- The limited inventory is keeping Minnesota house prices high