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Minnesota Real Estate Market Trends & Analysis

The Minnesota real estate market has yet to stray from today's most prominent national trends. The state of the Minnesota real estate market is the direct result of the pandemic and its lasting impact on the economy. While local indicators will vary slightly from other states, the fact remains the same: home prices continue to test new highs in the wake of low interest rates, pent-up demand, and insufficient inventory levels.

Years of appreciation have forced investors to reevaluate their stance on the market. Whereas flips and rehabs were once the preferred exit strategy, lower profit margins have highlighted the benefits of working with rental properties. That’s not to say Minnesota real estate investors can’t flip homes (there’s still plenty of short-term opportunity in the distressed property market), but rather that today’s indicators cater to long-term outlooks.

The Top Minnesota Real Estate Markets

While the best real estate market in Minnesota is up for debate, here’s a list of the cities investors may want to pay special considerations to:

• Bloomington

• Duluth

• Minneapolis

• Rochester

• Saint Paul

Minnesota Real Estate Fees & Regulations

Real Estate

Closing Conducted by:	Title Companies, Lenders, Real Estate Agents, Attorneys
Conveyance:	Warranty Deed

Foreclosure Procedure

Primary Foreclosure Method:	Non-Judicial
Process Period:	2 - 3 months
Notice of Sale:	Sheriff
Redemption Period:	6 Months

Taxes

Income Tax:	5.35% - 9.85%
Corporate Tax:	9.80%
Sales Tax:	6.88%
Estate Tax:	13% - 16%
Inheritance Tax:	No
Median Property Tax:	1.05%
Property Taxes by County:	http://www.tax-rates.org/minnesota/property-tax#Counties

Average Transactional Costs

Closing Cost:	$2,436.00
Transfer Fee:	Deed 0.33%; Mortgage 0.23%
Origination Fee:	$1,836.00

Minnesota Housing Market Overview

• Median Home Value: $326,359

• 1-Year Appreciation Rate: +12.6%

• Median Sales Price: $304,500 (+7.8% year over year)

• Closed Sales: 3,919 (-12.9% year over year)

• New Listings: 5,801 (-8.5% year over year)

• Days On Market Until Sale: 45 (-6.3% year over year)

• Months Of Inventory: 0.9 (-18.2% year over year)

• Median Rent Price: $1,102 (+5.7% year over year)

• Price-To-Rent Ratio: 24.67

• Unemployment Rate: 2.7% (latest estimate by the Bureau Of Labor Statistics)

• Population: 5,707,390 (latest estimate by the U.S. Census Bureau)

• Median Household Income: $73,382 (latest estimate by the U.S. Census Bureau)

• Foreclosure Rate: One in every 11,133 households

Minnesota Median Home Prices

The median home price in the Minnesota real estate market has tested new highs every month in 2022 and now sits somewhere in the neighborhood of $326,359. To be clear, today's price represents a significant jump from the start of the pandemic. In March of 2020, when COVID-19 was declared a global emergency, the median home value in Minnesota was about $264,000. In just over two years, home values in Minnesota have increased by 23.6%. The increase is primarily due to the imbalance of supply and demand. The lack of available inventory hasn't been able to keep up with buyers, which has created bidding wars that heavily favor sellers. For some perspective, the median home value in the United States is approximately $337,560. In the two years since the pandemic began, the country's median home value has increased by 33.9%.

Since the pandemic began, the Minnesota real estate market has become nothing short of a seller's market. Competition has enabled owners to increase asking prices almost exponentially. However, despite the latest increases, there's no sign of an end to the appreciation anytime soon. Prices will continue to rise as long as inventory remains tight and demand persists. While prices may not increase at the same rate as last year, it's safe to assume a slightly tempered rate will continue moving forward. Nationwide forecasts call for homes to increase as much as 20.6% over the next 12 months, which means homes in Minnesota will most likely see a slightly more modest increase.

Minnesota Median Rent Prices

In the two years local home values have appreciated because of the pandemic, rents have done the same. It is safe to assume higher home values in Minnesota are a big reason for the state's increase in average rental asking rates. At the very least, those who can't afford to buy will be relegated to the renter pool. However, in addition to buyers being priced out of the market, competition also prevents many people from owning a home—consequently, the more people who can't buy, the more that are forced to rent.

With more people expected to rent for the foreseeable future, Minnesota landlords have found themselves in a position of power. Most notably, rents have increased 5.7% over the last 12 months, and now sit at an average of $1,102. As a result, renters can expect to pay the following in rents (for now):

• Studio: $853

• 1-Bedroom: $948

• 2-Bedroom: $1,162

• 3-Bedroom: $1,408

• 4-Bedroom: $1,694

To put things into perspective, the national average someone can expect to pay in rent is $1,333. At that price, it's about 20.9% less expensive to rent in the Minnesota real estate market. The difference is hard to ignore, and the disparity will likely continue to grow. If for nothing else, home values are expected to grow faster across the country than in Minnesota.

Minnesota Foreclosure Trends & Statistics

According to ATTOM Data Solutions’ February 2022 U.S. Foreclosure Market Report, 25,833 U.S. properties received a foreclosure filing (default notices, scheduled auctions, or bank repossessions). The same report acknowledges that foreclosures are up 1.0% from the previous month and 129.0% year over year.

“February foreclosure activity looks a lot like what we can expect to see for at least the next six months – double-digit month-over-month growth and triple-digit year-over-year increases,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “This isn’t an indication of economic turmoil, or of weakness in the housing market; it’s simply the gradual return to normal levels of foreclosure activity after two years of artificially low numbers due to government and industry efforts to protect financially impacted homeowners from defaulting.”

Foreclosure filing are on the rise across the country and in Minnesota. The most recent reports suggest one in every 11,133 households in Minnesota are distressed. Of the homes that have filed for foreclosure, the largest distributions can be found in the following counties:

• Wright

• Rock

• Washington

• Pipestone

• Murray

Tax Lien Investing

• Tax Lien or Deed: Tax Deed State (used to be Tax lien State)

• Interest Rate: Now no interest anymore because of switch to Tax Deed State)

• Redemption Period:1 Year

Minnesota Real Estate Investing

For the better part of a decade, the Minnesota real estate investing community has capitalized on attractive profit margins from flips and rehabs. However, appreciation brought about by the pandemic has weighed on profit margins for at least a few years. In two years, it has grown harder to find homes to flip because they are too expensive to acquire. While more people flipped than ever last year, profits weren't what investors had come to expect.

"Even as quick-turnaround sales by investors shot up, gross profit margins on home flips in 2021 sank to their lowest level in more than a decade after dropping at the fastest pace in more than 15 years," according to ATTOM Data Solutions year-end 2021 U.S. Home Flipping Report.

Per the latest report, "Homes flipped in 2021 typically generated a gross profit of $65,000 nationwide (the difference between the median sales price and the median amount originally paid by investors). That was down 3 percent from $67,000 in 2020 and translated into just a 31 percent return on investment compared to the original acquisition price – the lowest margin since 2008."

With profit margins dropping because of higher home prices, investors started turning towards long-term strategies. Across the country and in the Minnesota real estate market, one strategy became more viable in today's market than any other: long-term rental properties.

Rental property investors can help offset high prices with attractive borrowing costs. As recently as the first quarter of 2022, the average commitment rate on a 30-year fixed-rate loan was 4.17%. While up year over year, today's rate is historically low and represents an excellent opportunity for Minnesota investors to increase cash flow and offset higher acquisition prices. At the very least, the less money rental property owners have to pay towards their mortgage each month, the more they can pocket from incoming rent.

Minnesota Housing Market Predictions

The Minnesota real estate market has followed the same path as the rest of the country. Home prices are at all-time highs because of low inventory levels and high demand. Moving forward, it's safe to assume many of the same trends will continue. Specifically, Minnesota real estate market forecasts are calling for the following:

• Higher Interest Rates: Mortgage rates have now eclipsed 5.0% and have almost doubled since bottoming out at the beginning of last year. The increase is the Fed's attempt to fight inflation, but the increase in borrowing costs will impact the Minneapolis housing market in a big way. With rates rising, buyers will attempt to get into the market before rates can go higher. However, there will be a tipping point when rates detract from the competition. Demand will remain high for the foreseeable future, but we may see it decline by the end of the year.

• Higher Home Prices: The same indicators which have increased prices for a decade are still in play. Supply and demand constraints will push prices higher, but more slowly than Minnesota residents have grown accustomed to. Higher borrowing costs will eventually decrease demand, but prices will continue rising throughout the year.

• More Investors Will Become Landlords: Higher prices will drive more buyers to become renters. Growing demand in the rental market will make owning a rental property even more attractive than it currently is. In addition to lower borrowing costs, the added attention should convince more investors to invest in rental properties.

Summary

The Minnesota real estate market appears to have matched the pace of national averages. Appreciation rates, home values, demand, and inventory are all closely aligned with the rest of the country. As a result, real estate in Minneapolis has been allowed to thrive. Everyone partaking in the market—buyers, sellers, and investors—has found at least some reason for optimism. Everyone in the Minnesota housing market, for that matter, should be excited about where things appear to be headed for the foreseeable future.

Sources:

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https://www.zillow.com/mn/home-values/
https://www.zillow.com/home-values/
https://www.freddiemac.com/pmms
https://www.bls.gov/regions/midwest/minnesota.htm#eag
https://www.census.gov/quickfacts/fact/table/MN/PST045218
https://www.apartmentlist.com/research/category/data-rent-estimates
https://www.attomdata.com/news/market-trends/foreclosures/attom-february-2022-u-s-foreclosure-market-report/
https://www.attomdata.com/news/home-flipping/attom-year-end-2021-u-s-home-flipping-report/
https://www.sofi.com/learn/content/foreclosure-rates-for-50-states/#:~:text=Massachusetts,one%20in%20every%207%2C747%20homes.
https://higherlogicdownload.s3.amazonaws.com/MNREALTOR/9cf30271-bf80-42c6-8899-68643538c1d4/UploadedImages/Feb_22_Full_Report.pdf