Twin Cities home market appears less likely to crash than others, data show

House price increases in the Twin Cities are slowing, putting the region on track for a softer landing if demand melts because of soaring interest rates.

During August, house values throughout the metro rose 7.64% over last year compared with a 13.1% gain for the 20-metro composite, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.

The closely watched index shows steady deceleration of house prices across the nation as higher mortgage rates erode affordability.

Craig Lazzara, managing director at S&P Dow Jones Indices, said price gains decelerated in every one of the 20 cities tracked by the group in August.

"The growth rate of housing prices peaked in the spring of 2022 and has been declining ever since," he said in a statement. "Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to decelerate."

The index is a trusted measure of what's happening in the housing market because it tracks repeat sales of same houses on a monthly basis. There's a bit more of a lag between the latest Case-Shiller report — the latest report has data from June, July and August — and local sales reports, such as those from the Minneapolis Area Realtors.

The Case-Shiller report tracks the value of individual single-family homes while local reports track the median and average price of homes that have closed within a particular month.

Moderate price gains are one of the reasons the Twin Cities is likely to see smaller price declines than cities where home prices climbed steeply, market watchers say. That was true during the 2006-07 housing meltdown that led to the 2008 recession, and it's likely to be true if another downturn is headed our way.

"Historically, our peaks and troughs tend to be less pronounced than other cities," said Andrew Babula, director of the real estate program at the University of St. Thomas and the Shenehon Center for Real Estate. "We can expect, even if the country as a whole sees prices decline, Minneapolis would not see as significant declines."

For much of the past couple years, the index increased by double digits, even in the Twin Cities, which closely mirrored the national average. In January, for example, prices were up 0.5% from the previous month but 11.8% over the previous year. Nationwide, the index increased 19.2% during that time.

Babula said that that demand for housing in the Twin Cities remains strong, but higher mortgage rates have made it difficult for many to buy. Still, there are plenty of people who need to buy but for whatever reason have decided to put the decision on hold.

"What we're seeing is a little bit of a market reset, but there's also market uncertainty that's driving that," he said. "People are pulling back and waiting to see what's happen."