Pandemic has more Twin Cities home buyers looking outward

It took just two days for a split-level house near Stacy to sell this month. Put on the market on a Friday for $284,900, it was shown 18 times and drew five offers by that Sunday, all above asking price.

Realtor Hyounsoo Lathrop wasn't surprised.

"With COVID, people want to be away from the cities and have some space," she said. "Out here you get top dollar."

The modest 1970s-era house some 40 miles northeast of downtown Minneapolis had taken much longer to sell and for a much lower price just a few years ago. But the COVID-19 pandemic is turning the housing market in the Twin Cities inside out.

Some of the hottest housing markets in the metro are now outlying communities and rural townships, supplanting many urban neighborhoods and inner-ring suburbs, according to the Star Tribune's annual Hot Housing Index, which uses annual sales data from the Minneapolis Area Realtors to track changes in buyer demand.

That shift is a reversal of a move toward the core cities of Minneapolis and St. Paul that started a decade ago when home buyers flocked to first-ring suburbs and neighborhoods with short commute times, walkable streets and urban amenities. Those areas remain popular, but with more people working remotely, demand is soaring in areas where buyers are finding bigger houses on larger lots for less than they'd pay in close-in communities. It's a trend, some analysts say, that stands to reshape the metro.

"We would have never anticipated this if not for the pandemic," said Danushka Nanayakkara-Skillington, who analyzes market trends for the National Association of Home Builders. "We didn't see it coming."

The Star Tribune index tracks fluctuations in home sales, prices, the pace of sales and how much of their asking price sellers received every year. For 2020, far-flung communities such as Isanti, Big Lake and Zimmerman emerged as hot spots, nudging aside previous top-tier ranking suburbs such as Richfield, West St. Paul and St. Louis Park.

While low mortgage rates are helping drive demand and public safety concerns have reshaped some urban neighborhoods, Nanayakkara-Skillington said that the pandemic is the single-biggest factor that's changing how and where people live.

It's having the most profound effect, she said, on millennials, those in their mid-20s to age 40 who are entering their peak home-buying years as they settle into careers and start families. While the recession has dashed the financial futures of some, many have lucrative jobs but few places to spend their money. Homeownership beckons.

"If they were planning to buy in the next few years, [the pandemic] has accelerated those plans," she said.

Baby boomers like Mary and Steve Haverty have also become a significant force in the market. Many in this late-50s to mid-70s age group were expected to sell their houses in the suburbs and move downtown to an apartment or a condo. Instead, a significant share are headed for more remote destinations.

The Havertys opted to downsize from a 3,600-square-foot house in Lino Lakes to a lake home where they could spend more time with their adult children and grandchildren. They listed the house in Lino Lakes in September and quickly got an offer for far more than they were asking. With about six weeks to find a home and the threat of another wave of coronavirus infections looming, the pressure was on.

"It was very stressful," said Mary Haverty.

Outbid on one lake home, the couple offered significantly more than the sellers were asking for a lake property in Lindstrom, a small town nearly 45 miles from downtown Minneapolis that ranked No. 9 on the latest Hot Housing Index, up from No. 92 the year before.

Krista Wolter, an agent based in the east metro, said that the retreat to the outer reaches of the metro is being driven by more than affordability. She's sold several high-end lake homes for $50,000 or more than the sellers were asking, a frenzy that is driving sales in communities with abundant lake properties including North Oaks, where sales have been so strong there are now only half as many houses for sale as normal.

"People are open to moving farther out and it's not just for lakeshore," she said. "All of sudden people are open to having 5 acres or more."

That shift is reverberating across the country in big cities, including New York and San Francisco, where apartment rents are falling and condo prices are sagging. But there's no sign yet of an exodus from the Twin Cities. While house listings in Minneapolis increased more than they did in the suburbs last year, so did sales. An exception: downtown Minneapolis, where thousands of luxury rentals have been built over the years and property managers are offering discounts to help fill new buildings and condo listings are far outpacing sales.

With rising crime in Minneapolis and St. Paul and many of the amenities that once drew buyers and renters to those downtowns still shuttered, a new level of uncertainty has emerged about what urban life will look like.

Jeremy Jacobs, chairman of the Urban Land Institute and managing director/market leader for Colliers International, said while the Twin Cities metro is clearly seeing changes in buying patterns, there's no evidence yet to suggest that the recent shift in the market will dampen the future of the city.

Demand for commercial property, including multifamily housing, is still robust and the city remains a "darling" among national investors, he said. While unprecedented house price increases are changing the fundamentals of the market, Jacobs notes the Twin Cities remain one of the most affordable large metro areas in the nation. He expects the same social and economic forces that are driving Twin Cities buyers to the fringes of the metro to in turn lure residents from larger, more expensive areas elsewhere in the U.S.

"We will see higher inbound migration from coastal markets that have been hit by the pandemic, and that will be a trend that will continue for the next five to 10 years," he predicted. "Minneapolis will be a net winner."

Tom Carlisle, a sales agent who specializes in communities in and around Stacy, said that while he's selling more houses to Twin Cities residents who can no longer afford Forest Lake and cities that are closer to the urban core, he's also fielding calls from people from out of state.

"It's crazy how it's changed here," he said. "But [out-of-state buyers] can work from anywhere."

Danielle Leach, Midwest regional director for Zonda, a national real estate research firm, says the ability to work remotely will have a lasting effect on the housing market.

"Extremely low interest rates, limited supply and strong buyer demand have created the perfect environment for migration to the outlying suburbs," she said.

Still, she's bullish on the prospects for urban areas that have been most affected by the pandemic.

"As office and retail spaces are repurposed and post-pandemic life sets in," she said, "the perks of living downtown as well as those of not maintaining a home and yard will certainly be appealing, especially to empty nesters choosing to rent."

Jim Buchta • 612-673-7376