If you bought a home ten years ago, you probably feel like you’re doing pretty well.
But if you’re trying to buy a home today, it can feel almost impossible.

I’m Travis Andersen, and to understand why today’s housing market feels so frustrating, we need to look at what actually happened over the last decade — both nationally and here in the Twin Cities.

The truth is this: the last ten years weren’t one market. They were several very different markets stacked on top of each other.

A Market That Took Years to Recover (2012–2016)

After the housing crash in 2008, the market didn’t immediately bounce back. Prices finally bottomed out toward the end of 2011, and recovery began in early 2012.

From 2012 through 2016, home prices were still relatively low, but buyers remained cautious. Mortgage lending was tighter due to new regulations, and many builders had exited the market entirely during the crash.

Even though buyer demand slowly increased, the supply of homes stayed limited. Here in the Twin Cities, prices appreciated by roughly 8% per year, but it still took until June of 2017 just to return to 2007 price levels — a full decade later.

The “Normal” Years That Weren’t So Normal (2016–2019)

From 2016 through the end of 2019, the housing market finally felt more balanced on the surface. In the Twin Cities, home sales leveled out around 60,000 transactions per year, and mortgage rates gradually declined.

However, beneath the surface, problems were building.

New construction lagged, especially at the entry level. Millennials were entering the market in large numbers, but the inventory needed to support that demand never materialized. The result was pent-up demand — pressure quietly building without enough homes to relieve it.

Why the Supply Problem Never Got Fixed

Several factors contributed to the long-term supply shortage.

First, housing policy and zoning laws made it difficult for smaller builders to return after the crash. Larger national builders acquired much of the available land, especially in suburban areas, which limited competition and flexibility.

Second, real estate shifted from being just a place to live into a major investment class. Small investors, large institutions, and corporations began buying homes aggressively, fueled by historically low interest rates.

At the same time, builders largely moved away from entry-level homes and focused on higher-priced “move-up” properties. As a result, new construction became more expensive, further shrinking affordability.

COVID Didn’t Start the Fire — It Poured Gasoline on It (2020–2021)

All of these issues were already in place before COVID.

When the pandemic hit, interest rates dropped below 3%, and demand exploded. Homes suddenly needed to serve as offices, schools, and gyms. People wanted more space, and many homeowners had built significant equity over the prior decade.

Selling and buying felt easy — but new construction couldn’t keep up.

Inventory collapsed. Bidding wars became common. Buyers waived inspections and appraisals. Sales rarely depended on selling another home first because competition was so intense.

In the Twin Cities alone, we saw 66,000 home sales per year, a massive surge in demand — and prices followed.

The Rate Shock and the “Sales Crash” (2022–2023)

Then inflation took hold.

To slow the economy, the Federal Reserve raised interest rates. Mortgage rates, while not directly tied to the Fed rate, climbed quickly — well above 6%. Demand dropped sharply.

Home sales fell below 45,000 per year in the Twin Cities. By most measures, that level of activity would be considered a crash. But unlike past downturns, prices didn’t collapse.

Why? Because inventory was still extremely limited. What we experienced wasn’t a price crash — it was a crash in home sales.

Rate Lock and Today’s “Standoff Market”

This brings us to today.

Many homeowners feel locked into their existing mortgage rates. Giving up a 2–3% loan to buy at today’s higher rates doesn’t make financial sense for many households. As a result, they stay put.

That creates a ripple effect. The people who would normally sell are also the people who would normally buy — moving laterally, upgrading, or downsizing. When they stay out of the market, both supply and demand remain constrained.

At the same time, higher rates and stable prices have left many first-time buyers feeling priced out.

The market feels awkward — but it’s still functioning.

Why Prices Don’t Need to Crash

There’s a common feeling today that we’re waiting for a bubble to burst. But when you step back and look at the data, we’re actually not far from the long-term historical trend.

Home prices are only modestly above the 4% annual appreciation trend line. If prices remain relatively flat over the next couple of years, the market naturally realigns — without the need for a dramatic crash.

The last decade wasn’t one market. It was five distinct markets, each with very different conditions. Much of today’s confusion comes from comparing those past environments to today and expecting the same outcomes.

Understanding Matters More Than Timing

We’re no longer in a recovery market.
We’re no longer in a cheap-money market.
And we’re no longer in a panic market.

Today’s housing market is best described as a constrained market — higher rates that are slowly easing, limited supply that is slowly improving, and buyer demand that is beginning to return.

Prices don’t need to fall for the market to reset. The reset is happening through time.

If you’re waiting for 2012 to happen again, you may be waiting a very long time — unless there’s a truly catastrophic economic event.

The key isn’t timing the market.
It’s understanding the market you’re in.

If you understand that, you can still make informed decisions — even today.

 

—
Travis Andersen
Twin Cities Real Estate