COVID-19 and the Rochester Real Estate Market – (Updated 4/10/20)

I have recently been asked by several clients how the Rochester real estate market will be affected by the COVID-19 pandemic. While I am not an epidemiologist, economist, nor do I have a crystal ball, I felt I have a duty as a Realtor and Broker to share my professional opinion. My goal is to give perspective, transparency and hope by looking at facts and trends in the Rochester, MN real estate market. I am also including some great resources for further review.

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Supply & Demand for Homes in Rochester, MN

Before I dive into this post, I thought talking about what drives home prices would be a great place to start: supply & demand. If you ever took an economics class in high school or college, this should hopefully be a familiar topic. Essentially, the supply and demand curve serves as the most fundamental concept of economics; it’s the backbone of a market economy. In this case, supply is the number of homes for sale and demand is the number of people looking to buy a home.

Prior to COVID-19 we had a HIGH demand and EXTREMELY LOW supply of homes. This has been a consistent trend for the last several years and the main driver for increasing home prices in our area. It’s important to mention that the housing fundamentals have been strong and this year was trending to be another strong year in the local real estate market.

People’s biggest concern with buying a house is that home prices will significantly decrease. This is definitely a valid concern and one that will have a different answer depending on the real estate market you are considering.

Based on supply and demand, there are three main scenarios that would cause home prices to go down:

  1. Demand for homes decreases while the supply of homes remains the same.
  2. Supply of homes increases while the demand for homes remains the same.
  3. Demand for homes decreases while the supply of homes increases.

What could decrease demand for homes?  

  • Fear/uncertainty for the future of the economy.
  • Buyers losing their jobs/income preventing them from qualifying for a home.
  • Buyers going into too much debt and/or damaging their credit.
  • Government restrictions preventing buyers from seeing homes.

What could decrease the supply of homes?   

  • Fear/uncertainty for the future of the economy.
  • Seller’s who are also are looking to buy not being able to find their next home.
  • Fear of COVID-19.

Professional opinion on the real estate market and COVID- 19 in Rochester, MN

One challenging aspect of predicting the COVID-19 effect on the Rochester real estate market is that there are many changes happening weekly and daily that affect the economy making this a very fluid situation. Therefore, my thoughts below are as of Friday, March 27th, 2020.

Short-term (3 months – 6 months) 

The best case scenario is that you will see some softening of home prices. This isn’t necessarily a bad thing since home prices have been increasing for the last several years. Most sellers will still have a nice amount of equity because of the home appreciation the previous few years. This may give buyers an opportunity in the way of less competition when submitting offers, and potentially being able to afford a house that they otherwise may not have been able to.

The worst case scenario would be a significant reduction in home prices. The number of foreclosures could increase and we could see less buyer demand and possibly more homes for sale in the market.

I think we will be somewhere in the middle depending on how long the effects of COVID-19 last. It is very hard even for economists and scientists to predict the long-term effect, so I will keep my predictions short-term.

Hope – This too shall pass

I am optimistic. Things may get worse before they get better overall, but there is definitely an end date to this pandemic.

Rochester has the best hospital and health care system in the world. I believe that Rochester is one of the best places to be right now. We are in small city where homes are nicely spread from one another and we don’t have an overwhelming population. We have been pretty pro-active in taking actions such as social distancing, closing of schools, restaurants etc.

A large portion (around 1/3) of the population in Rochester is employed at Mayo which means that their jobs are pretty secure. This also may suggest that many households may have at least one income coming from a secure source.

The number of buyers looking at homes may go down and so may the number of houses for sale. This is what will cause home prices to stay relatively close to where they are now. As of February 2020, the median home price in Rochester was $250,000 compared to $218,000 in February 2019.  This highlights the high demand we have seen in the Rochester market during a month of the year that is historically slower, and where homes sell for a lower median sale price. Just to add one last comment on this, June and July of 2019 had the highest median prices, $255,000, for two months in a row.

The biggest factor that could affect the Rochester, MN home prices will be how long the COVID-19 pandemic lasts. Unfortunately, no one really knows the answer to that, and the longer it continues, the more negative effect we will see.

Buying & Selling during this COVID-19 Spring

Some great news: we will be able to keep helping you buy and sell homes! Realtors, lenders, appraisers, title companies etc. are considered essential businesses during this “stay at home” order from Gov. Tim Walz. We will be taking special precautions to keep everyone safe during this pandemic. This is what you may see:

As a buyer:

  • Online lender approvals
  • Video showings
  • Digital meetings
  • Remote signatures
  • Drive-thru closings

As a seller:

  • Virtual tours
  • Remote Signatures
  • Digital meetings
  • Drive-thru closings

This can all be done while providing a safe and healthy environment for buyers, sellers and everyone involved in the real estate transaction.

Challenges & Opportunities for buyers and sellers during COVID-19

There will be both challenges and opportunities for buyers and sellers.

Buyers: 

           Challenges

  • Getting pre-approved if you have, or are expecting, a loss of income
  • Sellers being more picky with offers (picking an offer that is “guaranteed” to close)

           Opportunities

  • Less competition when making an offer
  • More negotiating power when making an offer
  • Price reductions on properties

Sellers

            Challenges

  • Potential decrease in buyer demand
  • Possible deal not closing due to buyers loss of income

            Opportunities

  • Possibly less competition when selling your home
  • Many sellers can still profit when selling at a lower price due to equity cushion

Current stats in the Rochester market

The graphic show a weekly look at the current Rochester market. It highlights the number of new listings, pending homes, closed homes and price improvements. This is a good snapshot to help you keep a pulse on the market. Check out more  up-to-date statistics.