2020 ISD 196 Housing Market Outlook
With 2020 well under way, I wanted to take some time and assess the last year and look ahead at this year. Today I take a deep dive at what has happened in the past year and what is likely to come. Here are my predictions for the Eagan, Apple Valley, and Rosemount housing market. While much of the same holds true for the Metro, I will include more statistics in an upcoming blog.
How was the 2019 real estate market in ISD 196?
If you will recall my predictions from last year, there were two major variables effecting the housing market. Notably, these were inventory and interest rates. By the end of 2019, the 30 year fixed rate was sitting at about 3.9% – historically good money. You can imagine what this does to buyers; in our area there were still houses coming off market in under a week over the Christmas holiday. The average days on market in late 2019 was nearly identical to 2018, and price growth was identical across 2019 and 2020 at 4.6% growth each year*. At the end of 2018, the median home price of a home sold in ISD 196 was $325,000. At the end of 2019, this was up to $340,000.
Inventory pinch continues (albeit stable).
Take a look at the previous two years of inventory in our ISD 196. After dropping some more in Q1/Q2 of 2018, the housing inventory in the district has stayed consistent. This means around 200 homes for sale monthly on average. This is historically low, but it’s the most stable it’s been in quite some time.
So, what were the real world implications?
Fast value growth recently meant appraisers were sometimes on the late side. Early on, buyers with strong down payments had the greatest buying power. Sellers were eager to cash in and could get more than appraised value by having a desirable property bid on by an exuberant buyer. Still, I had one client get a home for 10.7% under asking because we had done our homework, and knew the market better than anyone. Homes priced appropriately sold in quickly, while houses lingering on the market were (and are still) largely overpriced.
I speculated about a shift to more parity between buyers and sellers in the latter half of 2019, but low interest rates and continued low inventory kept things stable. I DO believe buyer’s have accepted this as the new “normal” on some level, so they are buying rationally in most areas. It’s still a sellers market, and there’s no clear indication that’s going to change. What’s in store for this year and down the road? Read on to find out…
My 2020 Predictions
For 2020, we can expect a continuation of 2019 in Eagan, Apple Valley and Rosemount markets. Continued low inventory as well as historically low mortgage rates will persist during this year. Various sources have not been in agreement about Federal Reserve rate cuts in 2020, with some predicting the current rates to hold through 2020 (while at least one has predicted cuts during the coming year). I wouldn’t be inclined to bet on lower rates, so unless something unexpected happens I would advise buyers to expect the status quo.
The average homeowner is staying in their home a little more than 8 years as of 2019 numbers. This is roughly double what is was prior to the last housing downturn. Many of these people received tax credits and relatively low interest rates when they bought in 2009-2010. They then re-financed to rates well below 4 % in recent years, either lowering their payment or allowing improvements. There’s no market factor that points to a big change in inventory in 2020, which leads me to a LONG range prediction.
The out-sized effect of the baby boom
The oldest person of the baby-boom generation will turn 74 this year, and the youngest will turn 56. Some are only now hitting retirement age. Many of these folks are still very healthy and able, and that’s a challenge to gaining more inventory. According to a Chicago Tribune report in June of 2019, these baby boomers are “aging in place” (not yet downsizing or moving out). 76% of baby boomers own a home, and many are staying right where they are as long as possible. The housing shortage has likewise raised prices of townhomes and smaller homes. For many, it currently is easier to modify their existing home or purchase services like lawn care and shoveling rather than move.
Recent years have seen new growth of senior housing in the area, and predictions are for more growth in this sector coming in 2021 and beyond. When this growth in housing and generational trends make moving desirable, the market as a whole will move. That’s not great news in the short term, but does point to an eventual return to balanced market conditions.
Buyers do well to be educated in the current market, and to be in it for the long haul; the current inventory means most buyers are considering homes one at a time. In the past we could look at more than ten homes in a day, but now may only see ten a week with a focused buyer. I believe in an approach that educates buyers so that when the ideal home comes on market, they can move with certainty and play to win.
For sellers, this year and beyond will be about pricing in accordance with the market and utilising strategies that help us meet each person’s individual needs. Homes are selling quick, but that’s not always the best goal, and can leave money on the table that could benefit you in certain cases.
*All data from Northstar MLS sales of previously owned single family homes within the school district boundaries of ISD 196, and excluding foreclosures. Data points shown are based on a 12 month rolling average. As always, I am happy to share additional data – just contact me and we can discuss.