By Ingrid Friel, Twin Cities Realtor since 2009
There’s no one reason the market we’re experiencing today came to be. We can’t point to a single factor and say, “Yes, that’s exactly why prices in Twin Cities Metro Area are appreciating so quickly and inventory can’t keep pace with our stronger-than-ever demand.”
Today’s market is an amalgamation of several elements. It’s the product of more remote work, a renewed sense of what it means to be home and an economic landscape pushing up interest rates and the price of building materials. The S&P CoreLogic Case-Shiller Index has home prices up 31% since March 2020, at the start of the pandemic.
But there are less recent events that have also contributed to the market today. Some of what we’re seeing in the housing market can even be traced back several years, to the early 2000s and then to the Great Financial Crisis of 2008.
In June 2003, interest rates were at 1% and buyers were highly motivated to own a home if they never had before. That year, the American Dream Downpayment Initiative was signed into law, with the ultimate goal of helping about 40,000 families per year with down payments and closing costs, and it was intended to strengthen the U.S. housing market. With such an emphasis on homeownership came one unintended result: the relaxing of mortgage regulations, which spurred a whole new set of mortgage products predicated on the idea of easy homeownership for everyone, expanding mortgages to high-risk borrowers, and without getting into the details, one of those mortgage products became known as the subprime mortgage.
In an infamous tale that involves a lot of complex financial terms like mortgage backed securities or collateralized debt obligations, and in an effort to oversimplify the incredibly complicated, what ensued next was the 2008 Great Financial Crisis.
One of the fallouts of the Great Financial Crisis was a stalling or in some markets, a complete halt on new construction. New housing starts were at dismal lows and that continued for about a decade. Even before the pandemic, this residential real estate construction slowdown caused a major backlog in housing demand as it related to supply. Coincidentally, 2020 was supposed to be the year, when new construction finally bloomed and millennials, now reaching peak home-buying age, would cause a wave of home buying throughout the nation that coincided with the expected new home starts.
We all know what happened next. In March 2020, the pandemic began and demand for new homes, which was just about ready to reach the anticipated supply, didn’t just increase, it skyrocketed, blasting into the stratosphere with the advent of remote work, a massive suburban and urban migration, and the idea that a home, if we’re spending so much time inside of it, should align with your lifestyle needs.
So, we return to the present day, when the demand for homes is still greatly overwhelming the supply. And a final question you’re probably wondering about right now: What does this all mean for you?
If you’re a buyer, you understand the market today requires a knowledgeable real estate professional to navigate challenges that are years (or even decades) in the making. If you’re a seller, it’s important to work with a real estate professional who can optimize this never-before-seen market to bring you every single benefit and value it can provide.
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