Psychologists agree that our perceptions of things and the world around us create our reality.
Think about the economy. Politics. Our interpretation of the real estate market. How we perceive them; whether good or bad, is what we come to believe as reality.
I’m susceptible to this myself. Especially when it comes to the real estate market. That’s why I look forward to compiling the monthly sales statistics for Twin Cities small multifamily properties. It gives me a chance to check and correct myself; which often results in either working to make my thoughts more optimistic or pessimistic, as the data suggests.
June’s real estate sales are a good example of my having to change my perceptions. Whether it’s the larger world that’s had an effect on my psyche, higher interest rates, or the national news media telling us we’re in for a recession, I’ve perceived that things were slowing down.
The facts are, however, they haven’t very much.
Let’s start with the definition of a balanced real estate market. The measure that determines whether sellers have an advantage in any given real estate market, buyers do or everybody’s on equal footing is the month’s supply of inventory. This basically means if no new listings came on the market going forward, how many months would it take for us to be completely sold out of duplexes, triplexes and fourplexes to sell?
This number is based on a 12-month average. So, if we have 5-6 months of inventory, it’s considered a balanced market. This doesn’t happen very often and when it does, it’s generally considered to be transitional.
A buyers market, where buyers have all the negotiating power in a real estate transaction, is when there is more than six months worth of inventory. A sellers market, on the other hand, is less than five months of properties.
In spring 2021, there was a 30-day supply of duplexes for sale in the seven-county metro area. That’s about as big of a sellers market as you can get. And while it feels like the market has slowed some, this spring and early summer market has seen an average of a two-month supply. So yes, not as robust as 2021, but given an almost two-point increase in interest rates over that time, it’s still very much a seller’s market.
In the seven-county metro area, June saw 257 active duplex, triplex and fourplex listings. Of these, 216 were in Minneapolis and St Paul. June saw 104 new listings come on the market in the two cities, while the broader community-contributed 26 more. In all, 130 properties changed hands in the month of June at an average sales price of $407,569. This is down from May’s $431,598 average, as well as June of ’21’s $425,359. As the average sales prices over the last two years seem quite elastic depending on the collection of properties sold during a given time, I can’t say that I can yet see a downward trend in valuations. It’s important to keep in mind that today’s values are well above the pandemic-induced average sales price in June of 2020 of $353,644.
Ironically, the average number of days a property spent on the market before the seller accepted an offer in June of 2022 was 22. During the same month one year ago, it was 23 days!
The lesson I’ve taken from all of this is to not believe what my mind tells me but rather, to search for the facts and find comfort there.
After all, regardless of what the interest rates are, people will always need a place to live. And if a property cash flows when you buy it?
Then it always will.
Regardless of what the pundits say.