Buyer Demand in the Current Market

BUYER DEMAND IN THE CURRENT MARKET

Thanks for joining us again. Did you refresh that beverage yet? You should do that now as this story is going to get a bit weird and twisted. Ok.. back to the story of our current market chaos. As we discussed earlier, there is low inventory but the real story is the demand. 2020 was supposed to be a year on pause – the ability to hug your kids while you’re working from home or take a bike ride at 12pm to catch a break and then get back to “work” when you could. Well – as people were taking that pause, they took a look around and decided they wanted something different.

The home took on a different function – more than ever before in our lives. We now think of our homes as our offices, our school rooms, our getaways, our recreation centers. When you can’t go anywhere and you’re stuck at home – odds are you’re going to want to change your home. Looking back, it makes sense. Having the vision to see it before it happened – impossible. Ask Poolside in Little Canada when you can get a pool installed. Head down to Polaris in Vadnais Heights to check out what’s available to buy for fun toys. Nothing is available and your pool install for 2022 better be scheduled or you may be out of luck.

Not only did people want decks, patios, landscaping, additions, recreation and more added to their home – they also wanted a new home. In 2020 – the year of doom and gloom – we had the most homes sold EVER in the state of Minnesota and in US history. I think that’s a sentence worth re-reading. Thought 2020 was busy – 2021 said sit back and watch this! We’re on pace to pass 2020 and have the most sales in MN history AGAIN and in the US too. Think about that for a moment. The most sales EVER recorded in MN history was 2020 and now again in 2021. See Figure 2 below. This is a graph of the total homes sold in our 7-county metro area over the last 15 years. Now look specifically at the last 2 years within that. Mind blown!!

Figure 2

What’s driving that is multiple factors and who’d have thought that a world-wide pandemic that was supposed to stop us in our tracks did anything but. It created the ability to work remotely.. it created the need to change what your home meant and that’s not slowing down or going away. I don’t think the evolution in living style that we just went through will ever go back to pre-pandemic living. I for one won’t look at my house the same way and I can’t imagine you will either.

Not only is the demand through the roof but we’re also being enabled like we never have been before. Wait.. what? Money is super cheap to borrow. If you’ve worked with me as a buyer recently, you’ll recognize this concept: $100,000 at 3% on a 30-year fixed costs $420 per month. Yup.. for the price of some peoples’ monthly coffee & cig habits, you can afford an extra $100,000 value in your home. So let me ask you.. does it matter if the home is $400k or $450k? The difference is $210 per month. For a buyer at $800k.. does it matter if it’s $800k or $900k? Not really.. it’s $420 per month. Don’t get me wrong, a couple hundred dollars monthly adds up but when we’re talking about house payments – it’s pretty darn manageable.

So when will demand slow down? I don’t know and don’t be fooled by people saying they do. I do know the affects of pandemic life aren’t slowing down. The meaning of a person’s home I feel is going to change forever moving forward. Interest rates.. are they stable? Absolutely not but I don’t see rates making a difference anytime soon. In my opinion and feel free to ask Thomas Jussila – ad in the front inside cover – you won’t see rates edging higher anytime soon. If they do, will it matter? Remember the narrative above - $100k at 3% = $420/mo.. at 4%, it increases the payment by $56/mo. So it’ll take rates in the high 4% to make a dent in affordability.

Is the buyer pool shrinking then once people buy? Is it growing with new buyers? Um yeah.. this is where it gets weird my friends. You’ve got a younger generation that didn’t buy per usual in their late 20’s.. they’re starting to get angry at rent prices and enter the market. Here’s the weird one.. Wall Street. Yeah, they’re coming for your home and it’s something that’s not talked about. Remember that you read it here first. There are 4 million single family home rentals in the US. The vast majority are owned by mom’s and pop’s owners.. people like me and you. 2% of those are owned by big money hedge funds and Wall Street power houses. That’s shifting.. and shifting fast! They want to up their 2% ownership stake to 20% plus. That means they’re literally coming for your home! Instead of owning a skyscraper with 1,000 units – they want to buy 1,000 single family homes and run it as one stable rental pool. Again.. mind blown. We’re not seeing this too heavily in Mpls/St. Paul but this is happening around the country and it’s coming for us too!

So where does this leave us on our market of chaos? It leaves us with many questions still but you all know what to look for.. inventory creation, interest rates and buyers entering & leaving the market. Hang in there for the ride and let us know what we can do help along the way. It’ll certainly be an interesting few years ahead of us!!