When it comes to forecasting the prosperity and growth of our economy, many of the area’s economists, analysts, and local business people turn to Rochester’s real estate market.
So what is the forecast for that real estate market in 2021?
Well, more of the same.
Or, in other words, a strong real estate market that is keeping real estate professionals on their toes.
“Rochester and the immediate surrounding areas historically are not prone to large value fluctuations that would be common in other parts of the country,” says Ron Wightman, real estate agent with Wightman-Brock Real Estate Advisors. “Inventory levels of available homes are low and inventory is especially limited in the median and lower price ranges.”
Nita Khosla, of Edina Realty, agrees with the positive market forecast.
“I think that the 2021 real estate market in Rochester will be at least as strong as the very strong 2020 real estate market, provided that the COVID situation does not get even more horrible than it has been so far,” says Khosla.
Everyone points to that low inventory of available homes as a driving force for 2021. And the need for buyers to be ready to make an offer as soon as they find something they like.
“My prediction is that 2021 will have a low inventory of houses with a strong number of buyers,” says Kimberly Groteboer with RE/MAX Results Rochester. “For buyers, the interest rate is pretty low right now. But buyers need to understand that inventory is low, and they should be pre-qualified prior to looking for a home. Sellers should be ready for multiple showings and multiple offers.”
Khosla, though, urges sellers not to get complacent.
“Even though inventory is very low, sellers who have properties that have been priced accurately and properties that not only look good but have also been maintained well and are in good condition have the best sale results,” she says.
Industry professionals anticipate that home buyers will continue looking for some key amenities in 2021—including homes with space for “work at home” and “distance learning” scenarios.
“We have already seen some indication that many buyers are prioritizing office space or extra bedrooms that can be converted into office space,” says BJ Pederson, realtor at RE/MAX Results. “This trend should continue as less and less employees are actually returning to the office place.”
It’s also important to understand the demographics of today’s potential home buyers within the Rochester region. As Wightman explains, there are two vastly different buyer groups: Those who want new or almost new, and those who want charm and/or established neighborhoods.
“Because of the lower inventory levels and competition for lower price point homes, the low cost ‘fixer upper’ market has evaporated,” Wightman says. “New construction continues to thrive in all areas, but the price point (cost to build new) does keep some clients in the pre-owned market.” (The average price for new construction in the Rochester area is $450,000.)
While the real estate market is projected to remain robust in 2021, the ongoing pandemic will continue to impact the real estate process. But as Jennifer Mitchell, real estate agent with Edina Realty, points out, the real estate industry is now well-versed in pandemic procedures and accommodating individuals and families—no matter what their circumstances.
“We have the ability to pivot fairly quickly for the most part, but first and foremost we are focusing on what we need to do to take care of our clients at their comfort levels,” Mitchell says. “People are spending more time at home in the past nine months than they ever have. They are taking a long look at their homes and determining if they fit their needs and wants. 2020 has proven to us that having a safe, comfortable place to call home is very important.”
Like Wightman, Mitchell doesn’t foresee a significant change in the interest rates. And she also doesn’t think that the real estate industry in Rochester will see a large shift in consumers’ interests in properties or trends compared to the past year.
“We have a very robust new construction arena in and around Rochester. And we have seen many existing homeowners also doing remodels and renovations of their existing homes to get what they want,” Mitchell says.
Many things factor into this decision, including equity positions in the current home; prices of land, lumber and labor in new construction; and being familiar with and comfortable in the current location.
“Some enjoy the excitement and thrill of building new and having great new concepts and technologies, while others enjoy the comforts of the ‘familiar’ and not having to make a lot of selections,” Mitchell says.
Because of the strong real estate market, some Rochester home buyers are exploring the idea of purchasing a second home in other areas of the state. Lisa Janisch, broker/realtor with Janisch Realty, a Tower, Minn.-based company that specializes in northern Minnesota homes and cabins, says their team saw increased sales in recreation properties, investment properties, or second homes in 2020.
“In 2021, I think we will continue to see people buying property ‘up north’—not only because of COVID and social unrest, but because they have realized that they can buy the ‘someday’ property this year,” Janisch says. “I think the biggest driving force ‘up north’ will be diminishing inventory of properties for sale.”
It’s also important to remember the housing market is a commodity. Like other commodities, it will fluctuate up and down over time.
That said, Pederson, from RE/MAX Results, does believe the biggest driving force in real estate for 2021 will continue to be historically low interest rates—while vaccine availability and distribution will also have an impact on consumer confidence.
Pederson points out that Rochester should continue to see about 5% to 10% growth in the housing market, fueled by a recovering economy, low housing inventory, and continued low interest rates.
“The second half of 2021 could be record breaking as the COVID vaccination is expected to be readily available by this time,” Pederson says. However, with nearly 10 million Americans behind on rent or mortgage payments, COVID’s biggest impact could be in the default and foreclosure rate.
“Real estate in Rochester and the surrounding area continues to be a very good long-term investment in all price ranges,” Wightman says. “Coupled with low interest rates, it is the most opportune time to invest in your primary home or consider investment property. We remain very optimistic about the future of the housing market.”