To better understand how the current housing market compares to what we’ve seen in the recent past and what that means for those looking for a new home, we at the University of Minnesota Duluth’s Bureau of Business and Economic Research (BBER) looked at recent trends for five key housing metrics—average listing price, number of active listings, mortgage rate, median days on the market, and the median home size—for the Duluth metropolitan statistical area (MSA), which includes St. Louis, Lake, and Carlton counties in Minnesota and Douglas County, Wisconsin. Together, this information provides a clearer picture of how the housing market has changed over the past few years and what we might expect to see in the future.
Mortgage rates
When interest rates go up, mortgages become more expensive as the interest rate on mortgages also increases. This makes it more costly for consumers to purchase a home. In January of 2021, mortgage rates were at near-record lows, at just 2.7%. Since then, the mortgage rate has increased about 5%, reaching its peak (7.8%) in October 2023 (Figure 1).
The good news for home buyers is that mortgage rates have begun to decline in recent months. Between October and December of 2023, rates have fallen to 6.6%— higher than many would hope to see but still a move in the right direction.
Active listings
One helpful measure of housing supply is the number of active listings. While this measure tends to move seasonally, with more houses listed during the summer and fewer in the winter, there’s been a sizable decline in active listings in Duluth MSA since 2017. In July of 2017, there were roughly 1,800 active listings, but as of December of 2023, there were only 443 homes on the market (Figure 2). For reference, in the Duluth MSA there were just 2.2 homes on the market per 1,000 residents in the first quarter of 2023, compared with the national average of 4.6 homes per 1,000 residents.
Average listing price
When there is a lack of houses available, it leads to a competitive housing market and higher listing prices. Since 2017, the average listing price in the Duluth MSA has increased by roughly $170,000—from roughly $230,000 in January of 2017 to more than $400,000 in December 2023 (Figure 3).
In fact, in the five months from October of 2021 to March of 2022, the average listing price increased more than $100,000. On the bright side, there has been a slight decline in the average listing price over the past few months.
Median home size
Between 2017 and 2022, the median size for homes listed on the market in the Duluth MSA typically ranged between 1,400 square feet to 1,600 square feet. Then, in March of 2022—around the time that mortgage rates began to increase—median home size of those on the market jumped. Since that time, the median size for homes on the market has ranged from roughly 1,500 to 1,750 square feet. (Figure 4) This information—coupled with the previous graphs showing fewer active listings and higher listing prices—suggests that there are fewer small, affordable homes on the market, which presents challenges for first-time home buyers especially.
Median days on the market
Another important measure of housing supply is the number of days a house remains on the market before selling. Fast-moving housing markets place a lot of pressure on homebuyers to find a home and make an offer quickly. As shown in Figure 5, this measure—median days on the market—also tends to move seasonally, peaking around January or February and falling in the summer.
In the Duluth MSA, the median number of days on the market has declined since 2017, from about 90 days to roughly 50. Nationally, values less than 50 reflect a very competitive housing market.
Conclusion
These graphs, when taken together, present a difficult housing market in the Duluth MSA. The number of active listings has been gradually decreasing since early 2020, and it appears there are fewer small, affordable homes available for sale. These trends, combined with rising mortgage rates, have substantially increased the average listing price for homes on the market. Yet despite higher prices, homes are selling faster than ever.
Even with the challenges facing home buyers, there is some potentially good news on the horizon. Mortgage rates have fallen from their peak last October, and most analysts predict further declines in the coming year. If mortgage rates continue to fall, it is likely that we’ll begin to see more homes on the market and—hopefully—lower prices. Another piece of good news is that the city of Duluth has completed 17 multi-family housing units since 2018 and have 13 more currently under construction or planned. These new units will increase the available housing supply and may alleviate some of the pressure on the local housing market.