As a Managing Broker for most of my 33 years in real estate, overseeing 33,000 plus home sales, I never imagined real estate markets that required such a high level of expertise and caring, skilled negotiators as needed during the 2020, 2021 Covid years. So far, 2022 has become the most challenging year ever, with an unprecedented low supply of homes "for sale," with just 6,000 homes compared to 40,000 “for sale” at the peak available to buyers during 2007 in the greater Twin Cities metro area. Where will we go from here, from two years of double-digit home price appreciation and rising interest rates?
Thank goodness I can lean on the 70 plus expert Realtors at the Edina Realty/Eden Prairie Office for valuable insights to help guide home buyers and sellers with monumental decisions. We have an amazing culture where Realtors freely share their street knowledge, insights from valued clients, and tricks of the trade to help each other. As one of the top producers in the office (top nationwide too) shared: "None of us is as wise as the sum of all of us sharing expertise together for the benefit of our valued clients."
It is no accident that Edina Realty has led the MN real estate home sale market for 22 consecutive years. Most of our Realtors, even the mega producers, are not household names – and that is by design. The best business model in my opinion is creating endless personal referral opportunities by delivering a "wow" experience one client sale at a time. Our motto of “Honesty, Integrity, Commitment, Innovation, Community" has served us well.
Speaking of community, I am proud to share that our generous Realtors deduct portions of every paycheck to the Edina Realty Foundation that helps fund homelessness needs. We have gladly supported several wonderful Eden Prairie non-profits annually to do our part, like so many others do in our community. Edina Realty has funded over $11 million statewide, since 1996.
These awesome Realtors have led me to correctly predict market shifts several years ahead of the curve in published articles dating back to 2005, 2010, 2014, and twice in 2017. Are you ready to read my latest prediction?
It's time for a paradigm shift from natural concerns over a potential bubble burst after huge rises in home prices to a new dose of reality. Why? Supply and Demand. I am projecting another five years of this crazy ride of an unprecedented "sellers' market" where prices will keep rising dramatically before moderating for the foreseeable future, even in the face of rising interest rates which should remain well below the historic average of 7.5%. Adding to my confidence, is that even after this double-digit spike in prices in MN over the last couple years, home price appreciation is still tracking closely with the long-term annual appreciation trendline of 5%, also witnessed inside of every decade ever since the 1960's.
What is causing this supply/demand dynamic? Builders have lagged with new construction starts for over 10 years to keep pace with buyer demand and will not be catching up any time soon, especially now with supply chain shortages to compound the issue. Many Baby Boom and Gen X sellers already feel too paralyzed by lack of choices to make another move. Add in that the Millennial population (Gen Y, ages 25-40) is now the biggest population in prime buying years all the way up to the million-dollar plus segment of homes comprising growing family formation.
And guess what? The next generation (Gen Z) is just now entering the home buyer market, where first-time buyers historically comprise 40% of all home purchases. It will further fuel the home supply shortage, possibly for another 10-15 years, as too many buyers chase too few sellers. This will only drive up home prices for the foreseeable future.
For those predicting a bubble burst, have I done enough to burst your fears? If not, take solace in the wealth effect of home appreciation and the power of leverage for wealth building. The overhyped tax savings of owning versus renting, in my mind, are just an offset to home maintenance and mortgage payments over time, though the capital gains exclusion up to $500,000 (married couple) for primary residence is a huge deal by itself for wealth preservation.
So why is leverage so awesome? Keep in mind that the long-term 60-year historic average of 5% appreciation in MN means that the whole house is appreciating at 5% – not just the cash down payment portion invested. For easy math, a 10% down payment would translate to 50% return on investment (ROI). If you are worried about your kids and grandkids, a 5% down payment works even more in their favor. It will create a 100% ROI, assuming they will capture the long-term average 5% home appreciation, and keeping in mind that ROIs of the past couple years for 5% down payment buyers have been 200%.
When it comes to home ownership, remember that it's still best to focus on time in the market, not timing the market. The ideal timing is simply when you feel most ready and able to make a move. The best strategy is aligning with a truly caring, expert Realtor to help guide and negotiate on your behalf for one of the most significant personal and financial decisions you will ever make. I truly feel that we have the best of the best Realtors in the industry to choose from at our office!