Home prices are rising in the Twin Cities, but not as fast as other metro regions

The increase in house prices in the Twin Cities pales in comparison with most other cities across the nation.

The latest S&P CoreLogic Case-Shiller Indices, which tracks repeat sales of the same house, shows that house prices in the metro as of January were up 11.8% annually compared with a 19.2 % increase nationwide. That was the second-smallest gain in the nation, only beating the 11.2% gain in Washington, D.C.

"It's not that Minneapolis was particularly weak — by its own standards it wasn't — but other regions picked up dramatically," said Craig Lazzara, managing director, core product management at S&P Dow Jones Indices. "It's definitely less frothy than the average city."

Lazzara said that while the index doesn't measure the relative affordability of one metro to the next, it aims to measure how well an area is performing compared with its own history.

Though price gains in the Twin Cities are behind the national average, they're more than double the historical average for the metro.

For many years, house price trends in the Twin Cities closely tracked with national averages. That ended in 2021 when the national average began to soar, especially in the Sunbelt states. In Miami, Phoenix and Tampa, for example, the price index increased about 30% or more.

Skyrocketing home prices and recent increases in mortgage rates have made moving to less expensive areas the only viable option for many home buyers, especially those who are able to work remotely.

Last week, a record 32.3% of all Redfin.com users nationwide looked to move to a different metro area in the first quarter. That's up from 31.5% a year earlier and up significantly from 26% in 2019, before the pandemic.

"Affordability had almost everything to do with our decision to move out of Denver and back to this area," said Lauren Judd.

She and her husband, Lucas, started housing hunting in the Twin Cities after a futile attempt at buying a house in Denver, where the Case-Shiller index rose 20% year-over-year.

They got married last summer — after postponing their wedding due to the pandemic — and started shopping for a house.

"The process was absolutely wild. Like $500,000 dollars for 900-square-feet wild," said Lauren, who taught preschool in the Denver area. "We had days or even hours to decide whether we liked a house enough to put an offer in on it, and it was just expected that you had to go way over asking price."

In one case, they considered a 900-square-foot, two-bedroom, one-bathroom home in Denver's Park Hill neighborhood. It was listed at about $430,000, they offered $450,000, but got outbid by someone who paid $500,000 in cash.

Altogether they looked at 15 houses, made offers (all over asking price) on seven of them and were outbid every time. That's when they decided to move back to the Twin Cities, Lauren said, choosing it over Milwaukee, where they have relatives, and Chicago and Des Moines, where they have friends.

"Once we saw our friends' house in St. Paul, we knew that was the best place for us to seriously start looking at houses," said Lucas, who grew up in Deephaven and was a project engineer for a general contractor.

Prices are increasing so quickly in some parts of the country that many homeowners are gaining more equity in their home than they earn in their jobs.

Nationwide, annual price growth during December was $52,667 compared with the national median pre-tax income of $50,000, according to Zillow. In the Twin Cities, annual price growth was $39,942 compared with a median pre-tax income of $60,000.

The desire to live in more affordable areas is the continuation of a trend that began in 2020, as rising home prices and the proliferation of remote work made it easier for people to move to less-expensive areas.

Last year, the average interstate mover moved to a ZIP code where homes were about $35,800 cheaper than where they came from, up from the 2020 comparable average ZIP-level price decline of about $29,500, according to a Zillow analysis of local home value data and data from Allied Van Lines.

Before the pandemic, the report said, people tended to move to ZIP codes with very similar average prices. The analysis shows that on average those movers spent about $7,500 less in each year from 2016 to 2019.

The top destinations for movers in 2021 were fast-growing, mid-priced metros in Sunbelt states. The top origins for those who wanted to move out of their current region were generally colder places like the Twin Cities.

Still, the Twin Cities is attracting a sizable number of buyers from more expensive metros. The Judd's Twin Cities real estate agent, Emily Green, said she's had several out-of-town buyers recently, but the reasons for moving are often varied. Many, she said, were motivated in part by the desire to be nearer to their grandchildren

"I think people are pleased with what they can buy [in the Twin Cities]," she said.

Green said buyers from more expensive areas are often formidable competition for local buyers because they're coming with much bigger budgets.

"I noticed that they were much more comfortable being competitive (or aggressive) than local buyers in multiple-offer situations," she said.

Green said the 1,678 square-foot brick rambler the Judds bought in the Highland Park neighborhood in St. Paul was exactly the kind of house many buyers are seeking. It has three bedrooms, two bathrooms, hardwood floors and two wood-burning fireplaces.

The house was listed late last year for $358,000 at a time when there tends to be fewer buyers. The house also needed a "little love," Green said, making it less attractive to many buyers. Though the Judd's offer wasn't the only one on the house, they paid only $340,000.

And it was the only offer the couple made after looking at a half-dozen other houses.

"Our home buying experience in the Twin Cities was a breeze compared to Denver," Lauren said.