Sellers holding all the cards in Rochester's 'absolutely crazy' housing market
Around November of 2020, when the last leaves were hanging onto the trees, Rochester’s Mason Duckett realized it was time to enter the market for a new house.
His three daughters were just beginning to enter elementary school, and as they grew, Duckett recognized that the split-level home his family bought in 2009 wasn’t going to be big enough in a few years’ time. Before long, the bank was behind him and he found a house that met his family’s needs. He and his wife took a weekend to contemplate… was this house the one?
When Monday morning arrived, the house was already sold. A few weeks later, it happened again.
Now, in the dead of winter, Duckett still hasn’t had any luck. He hasn’t even been able to put in an offer. It quickly became clear to Mason and his wife: this might take longer than they thought.
“You’re either jumping in with both feet, or you’re waiting for two months until the next one comes along,” said Duckett. “You’re not comparing A vs. B, it’s A or wait and see.”
The Ducketts are just one of countless examples of families having to deal with the most lopsided seller’s market in Rochester in years.
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The Southeast Minnesota Realtors association releases a monthly report with various indicators in the housing market — the latest one came out last week. The numbers in January’s report showcase exactly how tough the situation is for prospective buyers, and the situation is most easily identified in “month’s supply of inventory.”
Basically, the statistic measures how long it would take to run out of homes for sale if no new homes were to be listed, and sales continued at the pace it had been on for the previous 30 days. Like most other housing stats, this one goes up and down with the seasons: down in the winter, up in the summer, with a neutral market averaging about six months of inventory.
Rochester’s numbers have been relatively low and trending downward over the 2010s, but continuously went up and down — until suddenly, when it was supposed to come up in the summer of 2020, it didn’t.
For the first time since this data was first recorded in Rochester, our month’s supply of inventory is under one (0.7), and Rochester’s Realtors say it’s really more like two weeks. Houses are being snapped up as soon as they hit the market, if they even get there.
Carrie Klassen is a Realtor with 16 years of experience in the Rochester area. She says she’s never seen houses move this fast.
“I think sellers are enjoying the fact that they’re getting maximum exposure,” said Klassen. “They’re understanding how much more money they can make in this market if they just list their house on Thursday, leave for two days, come home at night, and let 21 showings happen on Friday and Saturday. All of a sudden, you’ve got several offers.”
Through-the-roof building costs
So, how did things get like this, where a house gets snapped up by a feeding frenzy of buyers within hours of hitting the market? It’s partly thanks to the Covid-19 pandemic, but not entirely — more a multitude of factors that have been coalescing since the end of the Great Recession.
“The biggest change, I think? You can’t be a first-time home buyer and build,” says John Eischen, executive director of the Rochester Area Builders.
He says the pandemic drove supply costs even higher, after a decade of international wrangling over Canadian lumber tariffs and added regulation fees had already sent the price of a new home sky-high. Developable land in the city is also running low, further lowering the supply of new homes.
Now, Eischen says it’s unlikely to find a brand-new single-family home for under $325,000 in Rochester — nearly double what the entry costs were pre-recession. It’s closed off the pipeline for new homeowners to buy new, something Eischen did himself in 2003.
“We looked around, and didn’t really like anything that was in the range we could afford,” said Eischen. “I built our house for about $153,000 — that was something a first-time homebuyer could afford, right? To do that now… you just can’t.”
Couple the local trends with historically low interest rates across the country and a boomer generation that’s largely holding onto their homes after the Great Recession decimated their long-term financial plans, and demand for homes out-paces supply by a lot.
The market correction, Eischen says, will come if and when new construction picks back up, regardless of the price point it’s at; even if first-time homebuyers can’t buy new, people looking to move out of a starter home and into a dream home can.
In his experience, he says mobility for one family can have ripple effects across the community. Take, for example, the story of an older couple, that was able to build a modest but brand-new home for a little under $400,000.
“They moved out of their house, which was an affordable, existing home,” said Eischen. “Somebody that was in a First Homes [affordable] housing unit was able to buy that one, which freed up that extremely affordable unit for someone else. Three families were affected by one new home.”
Supply shortage creates a sellers market
That story used to be very common, but it’s not so much anymore. Currently, there’s 50 percent fewer homes on the market now than there were this time last year. That’s led to a reversal of the normal buyer-seller relationship, Realtors say — instead of submitting a bid under the list price, the smart play in 2021 is to bid 10-15 percent over the list price.
It’s elevated the median sale price to record highs in 2020-21, hitting a peak this month at $271,000. It was half that back in the fall of 2009, when Duckett originally bought his split-level home at around median price. It was just as much a buyer’s market then as it is a seller’s one now; Duckett joked he could have thrown a dart at a map and found a house that would suit his needs back then.
While the home-buying process is frustrating right now, the home-selling process promises to be much easier, thanks to the equity his home has created.
“If I sell it for less than $265,000 I’ll probably be disappointed,” said Duckett. “And I think that’s absolutely crazy, to pay [that much] for the house I live in … but I assume for the house I’m buying, the sellers are also thinking ‘wow, I can’t believe I’m getting this much for this house.’”
The family’s sort of in a catch-22 right now: it’s the perfect time to sell, but if they sold now, where would the family go? So, for now, Duckett and his family remain in their first Rochester home, preparing for a quick move.
That way, once the next good house shows up, his family is ready — just like so many other young families right now — to make a life-altering decision in the span of a few hours.
“If you really think about it, you have less than a day to spend a half-million dollars, and just hope all of it works out,” said Duckett.
Isaac Jahns is a Rochester native and a 2019 graduate of the Missouri School of Journalism. He reports on politics, business and music for Med City Beat.
