Minnesota Real Estate Market Trends & Analysis

Despite hosting some of the countries most inhospitable winters, the Minnesota real estate market is currently the epicenter of investor attention. In fact, few states piqued investor interest more so than Minnesota earlier this year. Thanks, in large part, to the Twin Cities (St. Paul and Minneapolis), real estate in Minnesota has become something of a commodity.

As the home of several Fortune 500 companies—Target, Best Buy, General Mills, 3M, UnitedHealth—Minnesota benefits greatly from an incredibly strong economy. Minneapolis and St. Paul, in particular, have both the second-lowest unemployment rate and second-highest job openings per person among the top 50 metros. Strong economic indicators, in association with affordable housing, have facilitated a healthy housing market that looks to be able to benefit everyone for the foreseeable future.

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: $238,800

• 1-Year Appreciation Rate: +5.0%

• Median Home Value (1-Year Forecast): +2.4%

• Median Rent Price: $1,600

• Price-To-Rent Ratio: 12.43

• Average Days On Market: 62

• Unemployment Rate: 3.3% (latest estimate by the Bureau Of Labor Statistics)

• Population: 5,611,179 (latest estimate by the U.S. Census Bureau)

• Median Household Income: $65,699 (latest estimate by the U.S. Census Bureau)

• Percentage Of Vacant Homes: 10.40%

• Foreclosure Rate: 1 in every 5,997

Minnesota Median Home Prices

The median home price in Minnesota is $238,800, which represents approximately eight consecutive years of appreciation. As recently as the first quarter of 2012, in fact, home values in Minnesota had bottomed out during The Great Recession. At that time, the average home value across the entire state settled around $161,000. Therefore, in the last eight years, the average home value in the Minnesota real estate market has appreciated 48.3%.

To put things into perspective, the median home value across the United States has followed a similar path. In the first quarter of 2012, the median home value in the United States dropped as low as $160,000. However, nearly a decade’s worth of appreciation and strengthening economic indicators have increased the national average to $243,225. Since their lowest point of 2012, U.S. home values have increased approximately 52.0%, or a mere 3.7% more than the homes in the Minnesota real estate market. In fact, when all is said and done, real estate in Minnesota was the closest thing to a poster child the latest recovery could boast. You would be hard pressed to find another market more consistent with national trends than The Land Of 10,000 Lakes.

The substantial increase — both in Minnesota and across the country — is primarily the result of three things: the local economy has strengthened, available inventory levels remain insufficient, and the losses incurred during the last recession meant home values could only go up. In other words, the economic conditions exhibited over the last decade created the perfect storm for price increases.

Prices are expected to continue rising in Minnesota, at least for the foreseeable future. If for nothing else, a distinct lack of available inventory will drive prices up as long as demand remains intact. Towards the end of 2019, the Minnesota real estate market only had about 3.2 months of available inventory (a 3.0% drop from the previous year). Balanced markets tend to have about six months of inventory, which means the state would need to increase its listings by about 100.0%. While help is on the horizon, it will be a while until enough homes are brought to market. Until then, it’s safe to assume prices will increase over the next 12 months, to the tune of about 2.4%.

Minnesota Median Rent Prices

It is common for rental listing prices to follow the same trajectory of home values; When home values appreciate, rental listings are most likely going to increase — and vice-versa. While there are certainly exceptions to the rule, Minnesota isn’t one of them. As home values have increased in Minnesota, rental listing prices have done their best to keep up. Since the recovery took hold in the latter part of 2012, in fact, landlords have been able to increase asking prices for nearly a decade. As recently as the first quarter of January, the average rental listing in Minnesota was about $1,326. Today, the median rental listing price in Minnesota is $1,600 — that’s a 20.6% increase in less than 10 years. To put things into perspective, median listing prices across the United States increased approximately 25.6% over the same period of time.

With a median rent of $1,600 and a median home value of $238,800, Minnesota’s price-to-rent ratio is about 12.43. Anything below 15 suggests it is actually cheaper to buy a house than to rent one. As a result, more residents in Minnesota may be inclined to buy than those who are in states with higher price-to-rent ratios. That’s not to say there aren’t pockets of affordable rental housing scattered across the state of Minnesota, but rather that it is currently more affordable to buy in most parts of the state; rents have increased so much that it is hard to warrant long-term commitments.

Minnesota Foreclosure Trends & Statistics

The Minnesota real estate market has become synonymous with a relatively low foreclosure rate. According to RealtyTrac, in fact, only one out of every 6,088 homes is in some stage of distress (default, auction or bank owned); that’s a foreclosure rate of about 1.6%. Thanks — in large part — to a strengthening economy and a healthy housing sector, the Minnesota real estate market has a foreclosure rate that is less than half of the national average. The foreclosure rate across the rest of the country, for that matter, is about 3.6%.

Minnesota has developed an equity-rich reputation. However, despite exhibiting already low foreclosure rates, the state looks like it will continue to lower the number of foreclosed homes found within its state lines. As recently as November, “the number of properties that received a foreclosure filing in MN was 38% lower than the previous month and 19% lower than the same time last year,” according to RealtyTrac.

Despite recent improvements made in the Minnesota real estate market regarding foreclosures, there are still areas with higher distributions of distressed homes than others. In fact, here’s a list of the five counties with the highest distributions of foreclosures in Minnesota:

• Carlton (1 in every 2,654)

• Meeker (1 in every 2,699)

• Chisago (1 in every 2,703)

• Stearns (1 in every 3,029)

• Pennington (1 in every 3,221)

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

Real estate investors in Minnesota have learned to prioritize distressed assets over traditional homes. If for nothing else, the nature of distressed homes suggests they may be purchased for a discount. While not always the case, there is a higher probability that distressed homes will exhibit higher profit margins. Perhaps even more importantly, distressed homes are typically in the possession of owners who may be willing to sell sooner rather than later. As a result, Minnesota real estate investors should pay special considerations to the state’s auction inventory.

Making up 57.5% of the state’s distressed inventory, auction homes are — far and away — the most abundant source of foreclosures in Minnesota. Therefore, investors looking to secure a deal with good profit margins should look in the one place they are most likely to be: local auctions. By focusing their attention where distressed assets are most likely to be, real estate investors in Minnesota can increase their odds of landing a deal.

Outside of real estate auctions, investors in Minnesota may also want to inquire with local banks for potential deals. There, investors will find the second most abundant source of distressed properties across the entire state: bank-owned homes. Otherwise known as real estate owned (REO) homes, bank-owned homes are the homes that failed to sell at auction. More importantly, the banks the originally attempted to sell these assets at auction are just as willing to sell them at a later date; they would rather sell them at a discount than incur holding costs over prolonged periods of time. Remember, banks aren’t in the business of holding onto non-performing assets. Real estate investors in Minnesota who offer the banks a fair price may find themselves with their next deal.

It is worth noting, however, that investors will need to know a lot more than where to find their deals. Once investors locate and secure viable deals, they need to know what to do with them, which begs the question: Which exit strategies are working the best for Minnesota real estate investors? What should local real estate investors do with these assets once they acquire them?

Real estate in Minnesota is firing on all cylinders, which bodes well for investors looking to execute any exit strategy. There’s no reason today’s investors couldn’t implement any one of today’s most popular strategies: rehabbing, flipping and wholesaling. However, the state’s current economic environment does appear to be leaning more in favor of long-term, passive income strategies over everything else. Home prices are reaching higher each year, which lends to long-term strategies. Years of price increases have significantly detracted from profit margins. Implementing a rental strategy could very easily offset today’s higher prices with years of cash flow.

Minnesota Housing Market Predictions

The Minnesota real estate market has followed the same path as the rest of the country. For the better part of a decade, in fact, real estate in Minnesota has exhibited many of the same characteristics as its national counterpart. Price increases, confidence in the market and several other indicators are in line with national trends, but what does that mean moving forward? What can Minnesota real estate investors, homeowners and prospective buyers expect for the foreseeable future?

• Inventory shortages will drive up prices: As recently as the last quarter of 2019, Minnesota failed to add inventory year-over-year. While most states did their best to increase supply, Minnesota actually lost about 10.7% from November 2018 to November 2019. The state’s median home value increased about 4.4% in that time, and there’s nothing to suggest values won’t keep going up. While the state is expected to increase its available listings, the market won’t be considered balanced for a while. In the meantime, prices will continue to rise as competition remains high.

• Foreclosure filings will drop and activity will rise: While Minnesota already has one of the lowest foreclosure rates in the country, economic indicators suggest the state’s growing economy will help homeowners, especially those looking for equity. As the economy expands, it’s fair to assume more homeowners will find ways to get out from underwater. More people will be able to entertain the idea of selling, further increasing inventory levels.

• Investors will remain optimistic: There are simply too many reasons for anyone involved in the real estate sector to be optimistic about 2020. Not only has the market come a long way in a relatively short period of time, but underlying fundamentals suggest the Minnesota real estate market will prosper for at least the foreseeable future. Thanks, in large part, to an improved local economy, the housing market is expected to balance out and spark activity. More people will be able to participate in the market, which is great news for everyone.

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.census.gov/quickfacts/fact/table/MN/PST045218
https://www.bls.gov/regions/midwest/minnesota.htm#eag
https://www.realtytrac.com/statsandtrends/foreclosuretrends/mn/
https://www.realtytrac.com/statsandtrends/mn/
https://www.realtytrac.com/statsandtrends/foreclosuretrends/
https://www.zillow.com/mn/home-values/
https://www.zillow.com/home-values/
https://my.mnrealtor.com/HigherLogic/System/DownloadDocumentFile.ashx?
https://www.attomdata.com/news/market-trends/flipping/q1-2019-home-flipping-report/
https://www.attomdata.com/news/market-trends/mid-year-q2-2019-foreclosure-market-report/