ST. CLOUD — It’s more of the same in the Central Minnesota housing market, with inventory continuing to tighten and sales prices increasing. But if you’re hoping to wait to buy or build new, industry insiders have news for you: They’re not expecting that trend to change any time soon.
According to market updates from the Minnesota Realtors, year-to-date new listings are down in Central Minnesota by 10.5% in 2021 compared to the same time frame (January through March) in 2020.
Premier Real Estate Services realtor and St. Cloud Area Association of Realtors Nancy Costanzo said while the decline in inventory has been going on for years now, the current inventory squeeze is the worst she’s seen in her career.
The housing market bubble burst in 2008 was driven by a large inventory of new construction homes. The problem then was that houses were sitting empty and wouldn’t sell, Central MN Realty realtor Shantel Waytashek said.
“We are 100% the opposite problem with that right now,” she said.
From January through March this year, the percent of original list price received in Central Minnesota reached 100%, up 2.9% from the same time frame last year, according to the Minnesota Realtors report.
“If a house is priced accurately, and it goes into multiple offers, it’s selling for over list,” Waytashek said.
The median sales price went up 19.8% in Central Minnesota from the same time frame in 2020, compared to 10.5% in the rest of the state.
That higher sticker price means clients may have to adjust accordingly, Costanzo said. For instance, if their limit is $175,000, they may have to look at homes in the $150,000 range with the knowledge they’ll have to offer above list price.
Competitive market for home buyers
The bottom line? Competition for homes up for sale is stiff. Costanzo said while in the past she’d usually see anywhere from one to three offers on a home — “If you got three offers, you were doing great,” she said — she’s now seeing homes average seven offers in less than five days on the market.
Waytashek said this change happened fast. Last fall, she wasn’t seeing the majority of homes go to multiple offers.
People are forgoing home inspection contingencies in their offers, Costanzo and Waytashek both said.
But a real gamechanger has been a change to Minnesota’s MLS (multiple listing service, a database that provides information about properties for sale) system, Waytashek said, which now has an option to introduce a house that’s not yet on the market but will be soon.
“Buyers can make offers on them, sight unseen,” Waytashek said.
At this point, that home hasn’t even hit the market as active, Costanzo said.
“It’s getting pretty, in my opinion, risky,” she said.
Those offers are less common, Waytashek said. What does happen, though, is when the listing becomes active, those interested have packed the showing schedule for the first few days.
Buyers getting creative
Waytashek said she’s preparing her clients for the thought that they might have to offer on a handful of properties before one gets accepted.
And working in the market right now means real estate agents have to get creative, she said.
“Sometimes it’s just literally, try all the things at once, and hope that’s enough to get the sellers to accept (an offer),” she said. “… Ultimately, when we’re talking a lot of dollar signs here, the sellers are gonna make a decision based on how much they’re going to take away from the table.”
According to Waytashek, how long it takes a buyer to successfully purchase a new home depends on how quickly the buyers are willing to “get aggressive” with their offers.
Costanzo said she thinks some people are waiting for a bubble burst in the housing market. Though they can’t predict the future, neither she nor Waytashek are anticipating that to happenanytime soon.
“I think if you’re waiting for the prices to drop, you’re going to be waiting for a while,” Costanzo said.
How new construction impacts housing prices
Both Waytashek and Costanzo said they believed the cost of building new to be a contributor to low inventory.
“It trickles all the way from building materials to… a backlog of appliances,” Costanzo said.
But according to David Werschay, CEO of Werschay Homes, understanding the true cost of building right now means needing to be more specific.
Take the cost of materials. It takes a lot of different materials to build a new homes.
“When we say materials, oftentimes people just think lumber,” Werschay said. “But in the industry, when we say materials, there’s lumber, there’s windows, there’s flooring, there’s lights, there’s cabinets. There’s a lot of different materials.”
The cost of materials has gone up for a component of that overall materials package, Werschay said, and that’s plywood.
“The price of that has gone up an incredibly large amount that we haven’t seen before,” he said.
But if a materials package is, say, $140,000, Werschay said, the lumber portion of that might be $50,000 — and the percent of that that’s plywood is even smaller.
Another component of building a new home — land prices — explains a separate contributor to cost increase, Werschay said.
But it’s typical for the cost of building to increase. It goes up a little every year. This year, that increase was a little larger, he said.
And he hasn’t seen it dissuade customers in their market. People who want to build will, Werschay said (and good interest rates don’t hurt). Werschay Homes was about as busy in 2020 as it was in 2019, and in the first few months of 2021, it’s been busier.
“The amount of projects that we have currently in the works and the amount of activity, inquiry activity, is high,” he said.
Central Minnesota Builders Association government affairs consultant Steve Gottwalt said the CMBA has seen a “slight plateau” of single-family-home permits in local communities. Uncertainty surrounding the pandemic has had a chilling effect.
But he had a similar message as Costanzo and Waytashek for those who may be holding off from building new: The waiting game likely isn’t going to yield lower prices later, he said.
“The reality is, right now is the best time if you’re going to get to build a new house,” he said. “… It’s not like existing housing is a cheaper option.”
While he acknowledged material costs have increased, interest rates are low. And they won’t necessarily stay that way.
“(The opportunity to build is) not gonna get better,” he said. “That’s the bottom line.”
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