Mortgage

Residence patrons in Twin Cities are driving properties in Duluth

It was a busy Saturday for Mike and Chelsea Brandon, who had traveled from Eagan to find their next home.

After seven viewings, the couple made a charmer with an offer that checked all the boxes: garage for two cars, a deck, and space for two-year-old Lochlann to play.

"We only live outside and that's how we want to raise our son," said Chelsea.

"We like camping, the nature, the geography of the north coast here," added Mike. "Just out of the cities."

You'll be back this weekend – not to move in, but to keep looking.

"We competed with three other offers and the winning offer was submitted without inspection," said her agent, Susan Dusek of Edina Realty. "And their house was sold this weekend, so they'll be very ready to buy."

More and more buyers from twin towns and other metropolitan areas are moving to Duluth as the options for working from home become permanent and the appeal of nature attracts younger buyers. Not to mention the rock bottom interest rates.

"There has been a tremendous influx of people from urban areas across the country as so many people now work from home," said Doug Kman, chairman of the board of directors of Lake Superior Area Realtors. "Other people are concerned about climate change and we have some kind of refuge in Lake Superior."

All of this adds fuel to an already hot real estate market that has become more competitive year on year since 2012, Kman said. Median home sales hit a record high in Duluth this summer – $ 210,000 – as demand continued to grow and the number of homes in the market remained low, causing some out of town buyers to submit home offers before they entered.

This despite higher unemployment rates than in decades after layoffs in various industries and a slowly recovering tourism sector. Even so, local property activity is expected to continue its unprecedented surge into the fall. Many are hoping that more houses will hit the market before the snow falls.

"I wonder if there are some salespeople who have held out because of the pandemic," Kman said. "I think this winter has the potential to be the hottest winter real estate market ever."

Difficult to buy

It's and will remain a sellers' market, local brokers say.

"With the pandemic, there is a shortage of inventory in a market where we were already short of inventory," said Gage Hartman of Real Living Messina & Associates. "It's difficult for buyers. I consult with them and say there is a high chance you will find a home you love and your offer may not be accepted."

According to data from Lake Superior Area Realtors, the Duluth area had fewer homes in the market in at least 15 years than any other previous summer.

At the same time, the number of closed sales reached a 15-year high in July.

"Some Minneapolis customers can't get to Duluth early enough," Hartman said. "Sometimes they make an offer they don't see and see it for the first time during the home inspection."

It's not all bad news for buyers. With interest rates at all-time lows, buyers can be approved for larger loans without the monthly costs rising sharply.

On the flip side, this will increase house prices while wage growth is expected to remain unchanged.

Difficult to build

Working from home is expected to remain an option for many companies after the pandemic subsides, according to the Harvard Business Review. A Gallup survey found that nearly 60% of employees who worked remotely this year would prefer to continue.

Buyers looking for the perfect work-from-home setup will find plenty to love in Duluth's aging housing stock, much of which was built before open space became the norm.

"I've been doing this for 25 years and until now everyone wanted to be open, open, open," said Dusek. "Now it's too loud, we need more defined space for Zoom calls – Duluth is full of old houses that are more divided."

About half of the Duluth houses were built before 1950, more than twice the national average.

Hardly 2% has been built in the last ten years.

Duluth is an expensive place to build new homes, in part because so many small plots have already been built and because the old rocky slope it sits on presents unique challenges. There are also few speculative developments in fast growing markets like Fargo-Moorhead and St. Cloud.

"Larger lot sizes, topographical obstacles and the lack of demand for large-scale developments lead to direct and indirect price increases in residential buildings, which in turn drives up the cost of new houses," concluded a study by the Northspan Group of housing costs in 2018 A nonprofit business development organization where Duluth charges significantly higher fees compared to other cities roughly this size.

New houses in Duluth usually cost $ 300,000 and more, which is way above the prices for older houses of a similar size or for new buildings in parts of the twin cities.

The Rebuild Duluth initiative, in which the city provides creative design for infill projects, was launched last year to reduce the cost of new houses.

The first round was considered a success and more properties are being collected to give away for the next round of the project.

To ease the burden on home buyers in Duluth, realtors agreed that new homes must be part of the answer, especially when the city's population is growing again for the first time in decades.

"We just don't have any inventory," said Dusek. "So where are you going?"

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