2023 was a difficult year for the housing market for multiple reasons…
- Mortgage rates hit a 2-decade high
- Inventory continued to be at historic lows
- Sales prices continued to climb
What has perhaps been the biggest challenge driving the market is the shortage of inventory. Many current homeowners purchased or refinanced during the pandemic years when interest rates were historically low, making them hesitant to move and assume a new mortgage at a higher interest rate. But the low supply of homes for sale makes it even harder, as they worry that they won’t even be able to find a home to purchase… and if they do, at what price.
I find it fascinating that new listings have been fairly steady since 2013, dropping the last two years when interest rates rose. In 2023, new listings were almost identical to that in 2000. While new listings remained fairly constant, closed sales rose… until the last two years when they fell more than new listings.
This helps explain the falling inventory… the supply of homes for sale can’t be maintained when closed sales rise more than the incoming supply of homes for sale. With falling sales the last two years, inventory now has the opportunity to increase again after a negligible decrease in 2023 that is almost flat.
All the challenges meant there were fewer buyers, demonstrated in a lower number of property showings. Showings slowed down in 2023… from a peak average of 18.4 monthly showings per listing in March 2021 to a peak average of 7.6 showings per listing in April 2023.
I have long felt that the biggest indicator of the health of the market is the months supply of inventory because it takes into account not only the number of homes for sale, but also the rate at which buyers are purchasing them. The red line on the graph below represents a market balanced between buyer and seller with a supply of about 5 months. It has been a seller’s market for more than a decade, but the last two years have shown small but encouraging increases (as sales dropped). Even with the increases, we still had only a 1.7 month supply of homes for sale at the end of 2023… a long way to go to get to a balanced market again.
Even with a reduction in showings, the inventory shortage kept the monthly percentage of multiple offers higher than pre-pandemic levels… ending 2023 with a yearly average of at least 14.7% of listings sold experiencing multiple offers. (Percentages on the chart are for December to compare year-end activity.)
Percent of original list price received was still 100% or higher for 5 months in 2023, ending the year with an annual average median sale price of 99.3% of list price.
This competition kept prices rising, although at reduced levels.
Year-end median sale prices varied by style and construction status.
Unlike many other parts of the country, we only had one month in 2023 where the year-over-year median sale price fell… ending the year with an annual 1.4% average increase in median sale price.
Average cumulative days on the market before pending rose to 40… higher than the last two years but still dramatically lower than the high of 153 days in 2008.
Although some were predicting a big increase in foreclosures and short sales, the percentage of distressed sales in 2023 only rose to 1.2%
Months supply of homes varied by price range, construction status and housing type, all higher than last year but still low. Only new construction and home prices over $1M were close to a balanced market.
The figures above are based on statistics for the combined 13-county Twin Cities metropolitan area released by the Minneapolis Area Association of Realtors.
Never forget that all real estate is local and what is happening in your neighborhood may be very different from the overall metro area.
Click for the full Annual Housing Market Report – Twin Cities Metro from the Minneapolis Area Association of Realtors.