Hi, I’m Travis Anderson, your local real estate expert, and today I’m diving into the third installment of my series on affordability in the Twin Cities. We’re exploring key metrics that shape the housing market—foreclosures, unemployment, closed sales, inventory supply, and more—to understand what’s driving affordability and how it impacts buyers and sellers.

Understanding the Affordability Index

Let’s start with the affordability index, a critical measure of a buyer’s ability to qualify for a mortgage. This index is based on median income, median home prices, and interest rates. Right now, affordability is under pressure because home prices and interest rates are outpacing income growth. This mismatch is a key reason we’re seeing shifts in market dynamics, which we’ll explore further.

Foreclosure Rates: A Historical Perspective

Foreclosure rates offer a window into market health. Back in 2008, at the onset of the Great Recession, foreclosures spiked sharply and remained elevated through 2014. Today, national foreclosure rates are slightly higher than the stable period from 1994 to 2007 but align closely with the national average, including here in Minnesota. While foreclosures aren’t at crisis levels, they’re worth monitoring as an indicator of economic stress.

Unemployment and Its Ripple Effects

Unemployment trends often mirror foreclosure patterns. During 2008–2009, unemployment peaked, driving a surge in foreclosures. Many homeowners, even those who could afford their mortgages, chose to walk away as home values plummeted. Interestingly, while unemployment dropped sharply post-recession, foreclosures plateaued for a couple of years. Today, unemployment is low, signaling a strong job market, yet other factors are dampening housing demand.

Closed Sales: A Sign of Waning Demand

Closed sales in the Twin Cities tell a striking story. Over the past 12 months, we’ve seen about 45,000 closed sales—the lowest since the Great Recession. Compare that to the pre- and post-recession periods, when annual sales consistently topped 50,000, often hovering around 60,000 for nearly a decade. This drop reflects a significant decline in demand, driven largely by affordability challenges.

Negotiating Power in Today’s Market

What can buyers negotiate in this market? The average percent of original sales price—how close a sale price is to the listing price—provides insight. Currently, homes are selling at about 99% of their list price, a sign of a competitive market. During the COVID-19 frenzy, buyers often paid above asking, while the Great Recession saw deep discounts. Today’s near-100% ratio underscores that we’re still in a seller’s market, with limited room for negotiation.

Inventory Supply: A Seller’s Advantage

The months’ supply of inventory measures how long it would take to sell all available homes at the current demand level. Right now, we’re at roughly two months of inventory—a historically low level. Before the Great Recession, inventory peaked at 10 months, indicating a sluggish buyer’s market. A balanced market typically sits between four and five months. Below four months, as we are now, signals a seller’s market, where demand outstrips supply, giving sellers the upper hand.

The Seller’s Market Paradox

Despite low foreclosures, low unemployment, and tight inventory—all hallmarks of a seller’s market—demand is down significantly. About 20,000 fewer buyers are entering the market annually compared to recent years. This paradox points to one overriding factor: affordability. Since 2020, the affordability index has been the primary driver of hesitation among buyers. Median incomes simply aren’t keeping pace with rising home prices and interest rates.

The Role of Consumer Confidence

Beyond the numbers, consumer confidence plays a huge role in the real estate market. Despite favorable conditions like low unemployment and a strong seller’s market, confidence is lagging. Demand is down 30–40%, largely because buyers feel squeezed by high home prices and interest rates. While factors like job security and inventory levels should inspire confidence, the affordability crunch is overshadowing these positives.

What’s Next for the Twin Cities Market?

The Twin Cities real estate market is at a crossroads. While sellers still hold the advantage, declining demand and affordability challenges are creating uncertainty. In my next post, I’ll dig deeper into what’s driving these trends and what they mean for buyers and sellers in 2025.

Have questions about the Twin Cities market? Drop a comment, give me a call, or send a text. I’m Travis Anderson, and I’m here to help you navigate the real estate landscape with confidence. All my best to you and yours!