Housing market steadying after COVID-19 speedrun, but low inventory remains an ongoing issue
The housing market seems to be steadying out after a pandemic-fueled homebuying spree, but the low inventory of available homes on the market remains an issue.
WILLMAR — The housing market seems to be steadying out after a pandemic-fueled homebuying spree, but the low inventory of available homes on the market remains an issue, according to Sue Blumhoefer, CEO of the West Central Association of Realtors .
Blumhoefer, who has worked in the real estate industry for more than 10 years, said the numbers have continued to drop even as the United States recovers from the pandemic and the interest rates begin to rise once more.
"Inventory is just incredibly low right now, when you go from a six-month supply five years ago, to a month and a half supply now," she said.
Within the WCAR's 18-county service area, the inventory has shrunk from more than 1000 homes available at any given time in April 2017 to just 278 in April 2022, a little over 25% of the inventory homebuyers and area Realtors were working with five years prior.
"It makes it a little tough for everybody, regardless of whether you own a home and want to move up or whether you're trying to get into a home," Blumhoefer said. "The competition is tough."
That competition has also cut the time a house is on the market just about in half — homes now, from listing date to closing date, spend about 52 days on the market, a significant decrease from 2017's average of 122 days — "less than two months, from start to finish." Those 52 days encompass several steps, from negotiations to appraisal to closing and completing the title work, before the new homeowner takes possession.
Pandemic surge in an already tight market
The shift in workplace locations for many jobs early in the pandemic made an already high housing demand tighten its belt loops, as the need for single-family homes with office space ballooned and those looking to move out of the city now had the opportunity to do so.
"Some (people) that could now work from home are now moving into a different area. They don't have to live in the city they work in now that they can work from home, so that definitely played a part in it," Blumhoefer said.
The WCAR has seen an uptick in clients moving from the Twin Cities and larger metro cities to smaller communities in west central Minnesota.
"And in our case, some of them are moving to their lake places, or finding a lake place (they can) move to if they can work from home and they're in an area where they've got the internet capability," Blumhoefer said. "It's nice to work from the lake, too, if you can work from home."
Data from the WCAR showed Kandiyohi County as one of the locations feeling a crunch on the available inventory, something that comes as no surprise to many living in and around the area. The Willmar City Council on May 2 approved the creation of a Mayor's Housing Task Force to address the need for both apartment and single-family housing options.
But other communities are also experiencing difficulties in their housing availability. "Montevideo, Marshall ... (they're) all low inventory. They're looking, too, they're like 'what are we going to do?'" Blumhoefer said. "Even Redwood Falls, right now, has only two and a half months' worth of inventory. Last year, they were at a little over five months."
To translate, if nothing else were to come on the market, Redwood Falls would have zero homes available in just 10 weeks. "Everything would be gone," Blumhoefer said.
A normal, "comfortable" inventory for any size community is about six months, she clarified. But west central Minnesota communities haven't seen a six-month inventory in quite some time.
Growing demand leads to higher prices
Much like in 2008, the housing industry ballooned quickly in 2020 and 2021, with demand soaring and homeowners able to sell quickly and at prices far above value.
But that may be where the similarities end.
"The (2008) bubble was really caused by more of a credit issue," Blumhoefer cautioned. "They're requiring a better credit score; there's definite changes within the banking rules."
Home buyers are required to put more money down to secure a loan, or to pay in cash. The WCAR has seen more cash sales lately in its service area than in years past.
"It is something that we didn't see five years ago, not at this rate," Blumhoefer said. "Normally, your first-time homebuyers are working with a lender."
With a short supply and high demand, sellers have more negotiating power than the average year, although prices are settling from the sky-high sales points earlier in 2021.
Now, "sellers need to have their price where it should be, and ready to sell. If there needs to be maintenance done, that should be done right away, before you even put it on the market," Blumhoefer said. "That's how you're going to get your best price."
However, those selling their homes need to have their own moving plan in place, whether they're upsizing, downsizing or moving into a retirement community, because of just how condensed the process has become.
"If you're putting it on the market, you need to be prepared to move to your next step, whatever that might be," Blumhoefer said. "As far as the buyer, they need to be prepared to make that decision that they're ready to buy. You can't go in and then think about it for a few weeks. It will be gone by then."
Buyers need to have their ducks in a row
Financing should be at the top of any potential homebuyer's priority list, in addition to knowing just how much home they can afford.
If buyers aren't coming in with the intention of paying in cash, "you need to be pre-approved," Blumhoefer said. "If you're even looking at this point, you need to have your financing in place."
And buyers need to be flexible, she cautioned. With low inventory comes the risk that buyers may not find their dream home, or that the search may take far longer than anticipated if buyers aren't willing to have flexibility.
"You need to pick that one most important thing you need, but be flexible on everything else," whether that's location, the number of bedrooms, an unfinished basement or the yard size.
"You used to be able to — if you wanted a three-bedroom, you could look until you found that three-bedroom that was perfect — and now you need to look at a three-bedroom and be like, 'Okay, this is my first home and is this what I can feel comfortable in?'" Blumhoefer said.
Another worrying trend Blumhoefer cautions against is skipping a home inspection.
"That inspection's important," she said. "Even if you don't do anything, just to know what might come up in the future, in two or three years, what you might need to repair, or if there's something that you need to save for to fix or upgrade."