The housing market went on a roller coaster ride in 2023 due in large part to the impacts of mortgage rates hitting levels not seen in over two decades. Activity in the existing market slowed significantly as sellers became reluctant to list and give up mortgages that were locked in at much lower rates. Consequently, many buyers were forced to the sideline as supply dwindled and prices rose.
Activity in the new construction market began to pick up speed in the latter half of the year. Many homebuilders offered incentives such as rate buydowns to attract buyers who were left frustrated with little supply in the existing market.
Permits for new single-family homes in the Twin Cities metro area in November 2023 were up 47% compared to the previous year. Metro homebuilders pulled 5,093 permits for new single- family homes year-to-date through November, which is only a 2% decrease from the same time last year.
While the construction of new single-family homes saw a pick- up in activity, multifamily activity saw a significant drop-off in activity. As of November 2023, year-to-date, developers had pulled permits for 4,930 units. This is a 58% decrease compared to November 2022.
According to the National Association of Realtors (NAR) annual Profile of Homebuyers and Sellers, the 2023 housing market saw interesting shifts in the makeup of who was buying homes. First-time buyers made up 32% of all buyers, up from last year’s 26%, but off from the historical 38% average.
One of the more notable points of the reports finds that 70% of homebuyers did not have a child under the age of 18 in the household.
Fifty-nine percent of recent buyers were married couples, 19% were single females, 10% were single males, and 9% were unmarried couples. This is the lowest share of married couples since 2010.
Sales, Inventory, and Prices
Over the last few years, low interest rates have sheltered the housing market from its affordability issues. However, rates over the last 12 months have peaked to a level not seen in over 20 years.
According to the Minneapolis Area Realtors (MAR), due to
high rates of borrowing, buyers in 2023 were facing monthly payments that were an estimated 66% higher than what they would have been in 2020. With this, pending sales year-to-date as of November in the Twin Cities were down 17%. High rates are not only impacting purchasing power but also how homes are being sold.
MAR reports that cash buyers are still on the rise with this segment of home purchases making up nearly 20% of all sales in October. This segment of the market has been slowly increasing over the second half of 2023.
Inventory levels in the existing market remain low as the softening in demand has been met with a similar decline in
new listings, keeping the balance relatively tight. Although the month’s supply of inventory rose 15% to 2.3 months of supply, this is still far from the 5 months of supply that is recommended for a balanced housing market.
Additionally, the median home price in the Twin Cities increased by 3.3% to $387,095 year-over-year.