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MN Housing Market Predictions | 2023

If life has thrown you a couple of curve balls (engagement?! growing family?! new pet?!) you may be in a position to look for a new living situation in the Twin Cities here in 2023, but you have no fricken clue what the market has in store for the year and if it will be a smart decision to buy.

I'm sure you have seen article after article trying to portray a doom and gloom year ahead of us with major fears of a housing market crash... Well I am here to set the record straight and give you true, local housing market information.

No B***S***, no fear. Just info.


In this blog, I will be covering your most asked questions concerning the market.

  1. Where are home prices headed?
  2. What should we expect with mortgage interest rates?
  3. Will the inventory of homes increase?
  4. Will we see a bubble burst?

***Before we get into the weeds, I do want to throw a little disclaimer out here. Obviously I cannot predict the future, if I could I would be a billionaire. The predictions in this video are supported by local data, historical trends, and my active experience of practicing real estate in the Twin Cities Region.

#1 - Home Prices

In 2022 we saw the median sales prices of homes grow to $351,400, which was an 8.2% increase over 2021.

For the most part, this growth had to do with dramatically lower interest rates coming out of the pandemic. Prior to 2020, prices increased annually, just not at as quick of a rate. Here you can see the median sale prices of homes dating back to 2005. The last time that we saw prices decrease rather than increase was the 2008 housing market crash, but since 2012, those prices have continuously grown.

With the current supply and demand relationship, I expect this upwards trend to continue, with pricesincreasing between 4-6%in the Twin Cities. To put that into perspective, that $351,400 house will cost $17,570 more by the end of 2023 assuming a 5% increase projection.

#2 - Interest Rates

Now a big part of the reason why we do not expect homes to increase as much as 8% like last year is due to mortgage interest rates. In 2022 we saw the fastest growing interest rate that we have ever seen in history. Here you can see interest rate trends since 2009 for a fixed 30 year loan.

If we zoom in, February of 2022 is when we broke that 4% mark and then saw continuous increases through the rest of the year. You might be wondering why the heck did interest rates increase so quickly The answer to that is inflation.

The Federal Reserve intentionally increased rates to slow the markets on a national scale. Inflation rates and mortgage interest rates have a dance and balance. Inflation goes up, so do mortgage rates. Here you can see the balance between the CPI and rates. We are starting to see inflation cooling and we should expect mortgages rates to follow.

However, if you are sitting on the sidelines waiting for that 2.6% interest rate again It isnt going to happen. Those historically low rates were set into to motion to jump start the economy during the pandemic and it worked. Now they are looking to hit a maintenance level, NOT a jump start. For 2023, rates are projected to hit closer to the 5% mark come this spring market.

#3 - Inventory

Now another big piece of the puzzle that we need to discuss is the overall inventory, because the whole relationship with real estate revolves around supply and demand.

Here you can see that total homes for sale in the Twin Cities is historically low. I am expecting inventory to remain tight throughout this next year for two major reasons.

  1. New construction cant keep up buyers and demand in the market. New builds dipped in 2020 and are just slowly starting to recover now. Several new construction companies were unsure where the market was headed with the pandemic and they were also faced with numerous supply chain issues so they were having a more difficult time turning homes over quickly. Heck the garage door back order timeline was up to almost 9 months.
  2. A ton of home owners were able to refinance to interest rates as low as 2.5%. Many are going to be willing to stay longer in a home that they likely would have sold simply because of the affordability and interest payments.

#4 - Buble Burst???

Now we are finally getting to one of the most anticipated questions headed into the new year Will we see a bubble burst?

In short, the answer is no.

Sorry to all the folks out there hoping for a steal of a deal on a home, but realistically we dont want to see a burst because it wrecks the conomy. There are several signifiers that show the current market is much stronger than it was leading to 2008, highlighting the fact that the current housing situation is in fact not a bubble.

Buyers can actually afford the homes they are purchasing Here you can see the number of loans that were given to buyers with less than a 620 credit score. Lending practices are much much tighter than before the crash.

Here you can also see the number of foreclosures in the Twin Cities since 2005. We could see an issue was on the horizon dating back to 2006. After that bubble popped, we have seen far fewer home owners foreclosing on their homes. Additionally, short sales (where an owner has to sell the home for less than they bought it) is at historic lows.

In December of 2022, only 19 of the 6,093 homes for sale were short sale and 67 were foreclosures, making up less than 2% of the total inventory. Back in January 2009, 37% of the inventory were foreclosures and short sales.


So there you have it! My predictions for the market are:

  • at least a 4-6% increase in home prices
  • interest rates to hover right around 5% headed into the spring market
  • very limited inventory making it a sellers market even with higher interest rates.

Visit my YouTube Channel for more Buying series

Twin Cities Living | Bailey Beckman Realty

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