Regional experts weigh in on housing markets in the Dakotas, Minnesota
The headlines nationally are indicating a downward trend in the housing market
The housing boom in 2022 was the best of times for sellers and the worst for buyers.
Fargo-area real estate agent Amber Carlton remembers buyers forgoing home inspections and offering thousands above face value to jump to the front of line. Sellers could sometimes expect to sell their home within days.
Carlton says 2023 has seen the return of patience to the housing market. Buyers are able to take a breath and do research so they are comfortable with what they are purchasing.
“People are actually taking their time and waiting and seeing what their options are,” said Carlton, a realtor at Berkshire Hathaway HomeServices Premier Properties. “That is causing the homes to sit on the market a little longer.”
Even though the time on market has increased, sellers are still getting multiple offers, she said. Prices aren’t falling, but there are no longer mad-dashes for buyers to make the first and best offers.
The headlines nationally are indicating a downward trend in the housing market: Forbes is calling it a “housing market slump.” CBS News is offering tips on how to “maneuver the
slowdown.” Meanwhile, Fortune is saying the market is in a “correction” phase.
Experts across the three-state region don’t quite see it that way, but they acknowledge there was nowhere else to go but down from the housing market highs of 2021 and 2022.
Where housing prices are now
Home sales start rising this time of year and peak in the spring and summer before July 4, Carlton said.
So the first month of the year can be a good indication of where things are headed during the peak sales season.
“My January was one of the best I have had,” Carlton said.
According to the Fargo-Moorhead Association of Realtors, both average housing prices and average days on market are trending downward.
The average sale price in Fargo in February was about $5,400 less than it was in 2022. In Moorhead, average sale prices dropped about $15,000 during the same timeframe. Only West
Fargo saw average home sale prices increase from February 2022 to February 2023 — a rise of about $4,400.
Meanwhile, time on market is generally going up. Comparing last February to the same data from a year ago, homes in Fargo spent 18 more days (60) on the market. In West Fargo, time on market increased 14 days to 64. Only Moorhead’s time on market went down — 10 days — from 46 to 36.
The numbers are similar in Sioux Falls, where the average sales price decreased about $12,700 to $308,071 in February compared to the year prior.
“Sellers have been increasingly cutting prices and offering sales incentives in an attempt to attract buyers, who have continued to struggle with affordability challenges this winter,” according to a February report from the Realtor Association of the Sioux Empire. “The slight decline in mortgage rates earlier this year convinced some buyers to come off the sidelines, but with rates ticking up again in recent weeks, buyers are once again pulling back.”
Experts caution against reading too much into one month’s data, as one or two large home sales can skew the numbers, but the trends over time show that the regional housing market is slowing, if only slightly.
Jason Beal, president of the Realtor Association of Southern Minnesota and an agent at JBeal Real Estate Group in Mankato, said rising interest rates are a key factor.
According to data collected by Freddie Mac, the average 30-year fixed rate mortgage was 6.73% on March 9. A year ago, it was 3.85%.
“The high interest rates took a lot of (buyers) out of the market,” he said. “Has the market slowed a little bit? I think some people are waiting for interest rates to taper down. It’s an unknown of what is going to happen.”
The Realtor Association of Southern Minnesota, which includes Mankato, reported average home sale prices decreased by about $16,000 from January 2022 to January 2023, the latest data reported.
How region can be immune to national trends
The Center for the Study of Public Choice and Private Enterprise at North Dakota State issues a report about the economy every quarter for the region’s cities.
The latest report, released in November, said the economic outlooks for Fargo, Bismarck, Grand Forks and Minneapolis are positive. “Wages, labor force participation and housing prices are projected to grow in the metro areas.”
Jeremy Jackson, the director of the center and an economics professor at North Dakota State, said it’s no surprise that the region is avoiding the overall national housing sales slump.
“Home prices largely follow what we would call the local market,” he said. “They don’t necessarily have to follow a national trend. There are of course some aspects of what is happening nationally that is going to affect the local housing markets and that depends on mortgage rates. … At the same time, there is a whole host of other things at play in our cities that influence what home prices are going to be in a specific location. That has to do with how many households are there and is there enough housing stock for them to purchase a home. How many homes do we have vs. how many people are searching for them? That creates demand.”
Jackson said additional factors are how many new houses are being built and how many older homes are being sold.
“One of the factors that is at play in Fargo is that for the past year — maybe longer — is existing houses haven’t just been going on the market very much,” he said “There is not a lot of houses up for sale from the existing side, so most of the market has been really from new housing, which we are also quite restricted in where the city can expand.”
Affordable housing remains a challenge
Carlton said one of the biggest problems facing the housing market today is the lack of affordable housing.
The U.S. Bureau of Labor Statistics reports the average hourly salary in Fargo is $25.52 as of May 2021. In Sioux Falls, it was $23.73 in the same month.
According to a Wells Fargo Mortgage calculator, a person making $20 per hour with $500 of monthly debt payments and a down payment of $10,000 can comfortably afford a home costing $100,000 on a 30-year loan.
The average home price in Fargo has risen from $170,000 in 2012 to $301,000 in 2022, Carlton said.
And new construction homes aren’t the answer, either, she said, pointing to approximate costs of about $280,000 for a base-level new home.
“We really need to get creative to figure that out,” she said. “Is it converting an old Kmart into affordable housing? Is it converting garages into a single-family dwelling? We only have so much land, and the cost to sprawl – it doesn’t work. New construction, as much as we need it, isn’t going to be the answer for most first-time homebuyers.”
In South Dakota, the median home sale prices rose 54% from 2018 to 2022, according to the state Realtors Association, while median household incomes rose just 17% during the same timeframe.
“When it comes to new construction, we’ve got to look at ways to increase density,” real estate agent told the nonprofit South Dakota News Watch in November. “We’ve got to be able to build homes on smaller lots and work with the city on how we can do that. It’s about getting back to a smaller footprint.”
Jackson said affordable housing is ultimately a workforce issue. If there is nowhere to affordably live, workers will go elsewhere.
“When you are trying to convince people to move into your state because you need workers, those workers also need a place to live,” he said. “So it’s true that when we think of things like our workforce shortage that they can be connected to a lack of housing, especially if the wage rates that we offer aren’t keeping up with wage rates in other locations.”
Looking to sell or buy a home? Here are some quick tips.We asked two real estate agents what advice they are giving buyers and sellers in the current market. Here’s what they had to say:
Advice for sellers
Fargo area realtor Amber Carlton: “We really want to come out at a good price – not shooting
for the moon the way they were. Last year at this time, we were still getting over asking by a certain amount. This year, I would recommend pricing a little closer to your median if not just a little under the high. Don’t go above your high unless you have a super unique rare property. If you have urgency, you are going to want to price right and have your property in as good of a condition as possible. It most likely will sit (on the market) for 30-60 days or so.”
Mankato area realtor Jason Beal: “We are trying to go in and have them do some things that are going to bring a premium to the property, such as fix outdated carpet or paint. Some people are in the capacity of doing that, otherwise it does affect the sale-price value. The people we are talking to, they are preparing (to sell) for three months down the road. What can I do now (to help sell my home later)?”
Advice for buyers
Carlton: “I’m telling them this is a really great time for them with the different programs that are available. One of our lenders here is offering for certain income thresholds a down-payment assistance that’s 100% forgiven. Seeing those programs, and taking advantage is wonderful. Being able to get a home inspection again and having a little piece of mind what is going on with the home is huge. When rates trickle back down to the five-ish, mid-fours, we think people are going to get antsy again. Securing that property and then refinancing is the better move than waiting and being back where we were last spring.”
Beal: “For new home buyers, the first thing I tell them is to control debt. Save as much as you can until the right property comes up. With everybody else that is more established, you just have to be patient. After COVID, we had people who were just waiving home inspections and doing everything they can to get in the property. Luckily the higher interest rates have stopped the desperation. Now it’s just to be patient and see when things are coming up.”