Shutterstock

Home sales fell for a second year in a row in 2023, according to a joint annual report by the Minneapolis Area Realtors and Saint Paul Area Association of Realtors. This year marked the lowest number of sales in the state since 2011, only two years after home sales hit a 20-year-high in 2021.

The decline in sales is largely attributed to rising interest rates, prices, and a shortage of housing supply. “The pendulum always overswings,” the associations said in a Monday news release. The groups’ annual report outlined buying trends using data compiled by NorthstarMLS.

Mortgage rates nearly tripled from 2021 to 2023, rising from 2.7% to 8%. Though rate hikes diminished buying activity, the housing supply shortage meant home prices still rose. This left buyers cautious this year and sellers reluctant to move as they’d likely have to relinquish more favorable mortgage rates. The average time a home remained listed on the market also increased year over year, but the report noted that this average is still relatively low.

“During the year, we saw many similar trends from the second half of 2022 where higher rates began to weigh heavier on the marketplace,” Amy Peterson, president of the Saint Paul Area Association of Realtors, said in the release. “We saw fewer listings and fewer sales; and yet higher prices, surprisingly strong offers, and relatively quick market times.”

Other key details in the report:

• Sellers listed 59,581 properties on the market, a 12.4% decrease from 2022.
• Buyers closed on 44,310 properties, down 17.6%.
• The median sales price rose 1.4% to $368,000.
• Inventory levels fell 4.9% to 6,270 units as of year-end.
• Days on the market increased 29% to 40 days, on average (median of 18, up 28.6%)

Notably, shifting sales trends varied across housing types. Single-family sales were down 20%, condos 12.8%, and townhomes 9.1%. Previously owned sales declined 19.2%, while new construction sales fell 3.9%. Sales under $500,000 were also down 17.0% for the year compared to a 4% decline for luxury homes over $1 million.

The main challenge facing buyers comes down to monthly payments, the report states. Since 2020, the typical payment on the median-priced home has risen from around $1,600 per month to $2,700 per month. Most home buyers take out a mortgage with monthly payments rather than paying in cash. “In that sense, monthly payments matter more than price,” the report reads, noting that, with high-interest rates in mind, some people who downsized to a smaller, cheaper home within the last year may still be paying higher monthly mortgage rates.

“Enough well-paying jobs are key to sustaining the monthly payments, upkeep of, and demand for homes. That’s why in the short term, rates matter. But in the long run, it’s the economy and labor market that determine the long-term health and sustainability of the housing market,” the report reads.