Last year, I posed a few questions about how the current events of that time might affect the real estate market.How would sanctions and the war in Ukraine affect our economy? Would supply chain issues continue to disrupt our markets? And what about interest rates?
First of all, it is news to no one that interest rates doubled in the last year, rising from roughly 3% in January 2022 to over 6% today. And yes, that had a chilling effect on the market last year. The graph at right shows the precipitous drop in the number of sales over the past year. If you’ve followed the market at all this likely comes as no surprise.
How did I do it?
Last year, I made a few predictions.Let’s see how accurate I was. Here’s what I said:
2022 Prediction #1 – Single Family Home Prices will continue to rise. The value of land, and for single famly homes, is still increasing, and despite 10 years of significant appreciation, prices have not even come close to peaking in Minneapolis.
With the 2040 plan, Minneapolis city has encouraged a lot of housing construction, but mostly this construction is taking the form of tall rental buildings. More people will move into the tall rentals, and eventually many of those people will want a yard. Thus, demand will increase for single-family homes, and so will their price and value.
I also quoted these two projections from The Metropolitan Council and the North Star Policy Institute as evidence of my opinion that demand for Minneapolis single family homes will continue to rise for a long time.
“Twin Cities region will gain 818,000 residents between 2020 and 2050.”
“96% of state population growth from 2016 to 2050 is projected to occur within the seven-county metropolitan area. Hennepin County is expected to lead the state in terms of total population growth, adding a project 339,000 people by 2050.”
Was I correct? The graph at right indicates that despite the slowdown in sales, prices have continued to rise.
2022 Prediction #2 – Multiple offers will be the norm in Southwest from now until June. For the last five years, late winter and spring have been flooded with buyers and highly competitive multiple offers, and then by June, the market begins to slow. Note to Sellers: It’s far better to enter the market in May than in July.
That seasonal slow-down was greater than normal last year. As seen in the first graph, the sudden rise in interest rates caused sales to not only slow, but to plummet in the second half of last year. Speaking for myself, I sold 14 properties in the first half of 2022, and only four in the second half. So, my prediction was right, but I was more right than I wanted to be.
2022 Prediction #3 – Okay, in my opinion, my first two predictions are sure bets. Slam dunks. So, here is something more risky. Southwest Minneapolis experienced a 9% increase in prices last year, and I predict this year’s advance will be just as hefty. Why? Because we have record low inventory right now, and coming out of COVID-19, demand is going to be as high as ever. Prices are going up a lot this year… again.
How did I fare on this one? According to the graph at left, median price per square foot in January 2022 was $263, and over this year, that number rose to $277. That increase of $41 over $236 amounts to a 5.25% increase.
So, while I predicted a 9% increase, we only actually achieved 5.25%.
Am I disappointed? Well, actually, 9% is a lot. That kind of number, over years, can make things unaffordable, and can lead to falls and crashes. So honestly, I’m somewhat glad that while I was and still am very bullish on Minneapolis real estate, it’s a good thing values aren’t rising too fast.
My predictions for next year?
All of the above, again. Minneapolis remains one of the best cities in the country to live in, and we have not hit the peak in home values. We will have multiple offers again this spring. Activity will fall off in late summer, although not nearly as much as it did last year.
And on a percentage basis, I predict... oh... only 4.5% percent this year over last.
I’ll revisit this again next February. Thanks for reading! Good luck out there!
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