The Twin Cities Housing Market: It's Really a Market for Monthly Payments

One of the most important things to understand about the Twin Cities housing market is that it isn't really a market for houses; it's a market for monthly payments.

Let's look at a few key numbers:

• Months supply of inventory: 2.6

• Average 30-year mortgage rate: 6.54%

• Median household income: $80,000

• Median home price: $390,000

  
  

At first glance, 2.6 months of inventory tells us the Twin Cities remains a seller's market. There simply aren't enough homes available to meet buyer demand. (A balanced market is around a 3 month supply. Anything above that is considered a buyer's market)

But there's another side to the story.

With mortgage rates still above 6%, the monthly payment on a median-priced home can be challenging for many households. While inventory remains low, affordability continues to be a major factor for buyers throughout the Twin Cities metro area.

This creates an interesting dynamic:

✅ Not enough homes for sale

❌ Not enough buyers who can comfortably afford today's monthly payments

That's why the market can feel confusing. Some homes attract multiple offers within days, while others take longer to sell. Some buyers are actively searching, while others are waiting for rates or affordability to improve.

One of the biggest reasons for this is what economists call the "lock-in effect."

Many Twin Cities homeowners refinanced into mortgage rates between 2.5% and 3.5% over the past several years. Even if they're considering a move, they're often reluctant to give up those historically low rates for a new mortgage closer to 6.5%.

As a result, fewer homeowners are listing their homes, helping keep inventory levels lower than normal.

The question many economists are asking right now is:

What happens first?

A) Inventory rises from 2.6 months to 5 months

or

B) Mortgage rates fall from 6.5% to 5.5%

Many experts believe mortgage rates are more likely to decline before inventory increases significantly. However, there's an important catch:

If rates fall, more buyers may re-enter the market, creating additional competition for the limited number of homes available in the Twin Cities.

The takeaway?

The Twin Cities housing market is influenced by much more than supply and demand alone. Mortgage rates, affordability, household income, and homeowner behavior all play a significant role in shaping market conditions.

Understanding these factors can help buyers and sellers make informed decisions—and informed decisions almost always lead to better outcomes.

Questions about what these trends mean for your real estate goals in the Twin Cities? I'd be happy to help.