SIOUX FALLS, S.D. (KELO) — John and Jan Schlueter had their Sioux Falls home sold in about 24 hours.
The quick sale didn’t really surprise them.
“Not actually, according to the realtor,” John said.
“He said it would go fast,” Jan said.
According to the Realtor Association of the Sioux Empire (RASE), the sale of previously owned homes has been healthy. From January 2020 through this January, the price of previously owned homes increased by 7.2% to $225,000. Overall, days on the market decreased by 8.2% to 90 days in January.
The Schlueters said their house is in a nice neighborhood, but both of them are nearly 80 and it was time to move into a smaller place.
“We’ve taken very good care of our house,” John said.
Not only did their house sell quickly, it also sold in a slightly unusual way.
“All we know is the people have never been in this house,” Jan said of the buyers.
“Evidently people were looking at it virtually,” John said.
Stories like that and similar can be shared by more than one buyer and seller over the past 12 months as the housing market is hot in the Sioux Falls area.
The market is almost fevered, frenzied hot for sellers.
Anne Nelson of the Realtor Association of the Sioux Empire Inc. (RASE) and the Jamison Real Estate Company in Sioux Falls, said buyers have had five, six or even seven offers on their homes.
Historically, property owners in the Sioux Falls area have gotten almost what they’ve asked for since 2014, according to RASE. In 2014, the price sold was 97.8% of the original price on average in 2014. That increased incrementally to 99.1% in 2020, according to RASE.
But what’s driving all those offers in the past 12 months?
“The strong housing market is currently fueled by the low mortgage rates we have…,” Klaus Beckmann, an economics and finance professor at the University of South Dakota, said.
Buyers have been able to get 30-year loans at a 3% rate during the historic low home loan interest rate period, Beckmann said.
Buyers are able to spend more on a house because of lower interest rates. And in general, the monthly payments pay off more of the principal, the amount actually paid for house outside of interest.
Beckmann said the housing market in Sioux Falls is similar to the rest of the U.S. in which low mortgage rates are driving the market and creating shortages in some price ranges or overall shortages.
Sioux Falls is experiencing shortages
There were 488 homes for sale in January compared to 943 in January of 2020.
Inventory was at 1,467 properties in January of 2020 and decreased to 764 this January. That’s a 47.9% decrease, according to RASE. The 12-month average inventory declined by 13.9% as of this January. The inventory includes single family home, condominiums and others.
As of Feb. 12, there were 310 single family homes for sale, Anne Nelson said.
Jeff Nelson of 605 Real Estate said as of Feb. 12, there were 80 houses in the $70,000 to $2 million price range.
Of those 80, 28 were listed at under $300,000, Jeff Nelson said.
“We used to think 300 was a low number,” he said. “We would love to have 300 now.”
The median price for sold housing is $390,450 as of last week, Jeff Nelson said.
“That’s the median price, which means half of those sold are more than that and half of those sold are less than that,” Jeff Nelson said.
The average sale price as of last week was just over $500,000, he said.
“Neither of those prices is affordable,” Jeff Nelson said.
The $300,000 price is a sort of benchmark for affordable housing purchases. Some may use the terms workforce or accessible housing.
“Certainly the starter homes used to be in the $170,000 to $180,000 range, now are up to $250,000 to $280,000,” Anne Nelson said. Dual-income families and other factors help push the price of starter homes up, she said
“The whole realm (of houses) under $300,000 is the fastest moving,” Anne Nelson said.
Houses in the $200,000 to $250,000 range sold in 76 days, the quickest of all price ranges from February 2020 through January 2021, according to RASE.
Whatever term is used, accessible, workforce or affordable, those houses are in short supply.
But the popularity of houses in the affordable price range is nothing new. A May 16, 2016, KELOLAND News story talked of how houses under “$300,000 were flying off the market.”
A review of KELOLAND News archives since May of 2016 shows a steady housing market since then.
Pending and closed sales have been increasing since 2016, according to RASE data. There has been a substantial jump in pending sales over the past 12 months and in a year-to-year monthly comparison.
Pending sales have increased by 88.1% compared to January of 2020, according to data from RASE. There were nearly double the number of pending house sales this January (427) compared to January of 2020 (227).
In a 12-month average through January 2021, pending sales increased by 20.7% in the area.
The median sale price was lower at $233,310 in January than the $239,250 in October but still $33,000 higher than in February of 2020.
Overall days on the market have declined since 94 days in 2014 but did plateau at 83 for 2017-2019, according to RASE. The average number of days on the market in 2020 was 84.
Other factors putting the high in the housing market
A quick drive around Sioux Falls shows housing developments to the west, north, south and east.
While there was a bump in new construction in December, RASE said that higher material costs, especially lumber, will likely curtail some new construction.
Also, there are builders who have exhausted their available land on which to build, said Beth Meyer with 605 Real Estate.
Adding pressure to the housing market is the growth in the Sioux Falls population.
The Sioux Falls population grew by an estimated 5,000 people in 2020, according to city officials.
“For every 2.5 people who come to Sioux Falls, we need one new housing unit,” Jeff Nelson said. “If 5,000 people come, we need 2,000 units.”
There are not 2,000 units available to buy.
Fewer houses, more people, higher prices and likely less new construction means some potential buyers will need to choose rental housing.
“The rental (market) will be very strong,” Meyer said. “It might be the best option (for some for now).”
How have realtors, buyers, sellers adapted?
Anne Nelson stressed that buyers and sellers need a relationship with their realtor. Both will need to be prepared to respond in a fast-paced market.
“We don’t necessarily schedule four days in advance (tours of) six houses in a day,” Anne Nelson said.
A potential buyer will get a lot less time these days to view a home and make a decision, she said.
Buyers may be looking at a home during an open house or a viewing on a day or night when other potential buyers are doing the same.
“We’re not always getting the opportunity to go back for a second look,” Anne Nelson said
“We have people who are buying a home; $150,000 is a lot of money to a lot of people,” Anne Nelson said. “$300,0000 is a lot of money to a lot of people. So if you are going to spend that after 20 minutes of looking at a house that’s a little scary.”
Buying is a team effort between the buyer, the bank or mortgage company and the lender, she said.
Buyers need to know how much they can spend and how much they want to spend, if they will increase their offer, what items in a home they are willing to concede for a price point and other factors, Anne Nelson said.
Sellers also need a team because they may need to react to multiple offers, contract concessions and other factors, she said.
“We want to make sure people are making good decisions and not acting impulsively or out of fear,” Anne Nelson said.
One trend with realtors is to set a deadline for offers with the seller. The seller has a chance to review the offers at a certain time, she said.
There will be more houses on the market in the coming months, Anne Nelson said.
New listings generally tend to increase in February, March and April, she said.
Although the housing market is strong, “To me it would be much more ideal, have a little more time…,” Anne Nelson said. She’d like buyers and sellers to have more time.
“We will get there,” she said of the weeks ahead.
Spring may bring more traditional listings but so can foreclosures and short sales. A short sale is when an owner in financial difficulty sells a home for less than the mortgage owed.
“We will have to keep an eye on the next stimulus package, with respect to foreclosure,” Beckmann said.
Beckmann said the CARES Act has allowed some homeowners to forgo payments on loans.
The most recent data is from the Third Quarter of 2020.
“We see an increase in that,” Beckmann said. “I read there was around two million of these type of loans.”
Some of those borrowers may have been able to make payments but had lost a job, or had a job change or other issue during the pandemic, Beckmann said.
If required, some borrowers may be able to pay their loans, while others may go into foreclosure, he said.
The Mortgage Bankers Association said on Jan. 5 that as of Dec. 27, an estimated 2.7 million homeowners are in forbearance plans.
RASE said in its February housing report that “a modest increase in short sales and foreclosures at some point this year would not be surprising.”
Back to the future for housing?
While the housing market could shift some in terms of available houses, there needs to be a shift in the long-term vision for affordable housing, Jeff Nelson and Meyer said.
Nelson asks the public to recall the 1970s housing market when many Baby Boomers bought their first house. Those houses were most likely a two bedroom, one bath house with an unfinished basement. If they had a garage, it was a one-stall garage.
That’s the type of affordable single family houses that make sense in the future of Sioux Falls, Jeff Nelson and Meyer said.
“Everybody would love to have had a three-bedroom, three-bathroom house but that’s hard to get at an affordable price point,” Meyer said.
If material and land costs keep increasing, it will mean that future houses need a smaller footprint, Meyer said.
That could mean that garages or houses are closer together, Jeff Nelson said.
It also means working in smaller lots in newer parts of Sioux Falls and within the central part of the city, Meyer said.
Developers may be working with a smaller lot but the city is filled with developers who can do creative designs for single family homes on smaller lots, Meyer said.
Discussions about this back to the future-style vision are happening between realtors, developers, city officials, non-profits and others throughout the city, Jeff Nelson said.
Still, “I don’t think we spend enough time talking about it,” he said.
The vision fits workforce and affordable home needs, Jeff Nelson sand Meyer said.
But as Sioux Falls grows, there has also been an influx of home buyers interested in options such as condominiums and townhouses, Anne Nelson said. Those options include downtown housing, which has become increasingly popular, she said. Housing near Lake Lorraine is another example.
Those options also require using land differently than before for housing, Anne Nelson said.
Whatever course the future housing market takes, the three realtors said those involved are working to meet the needs.
Still, they expect the market to be tight at least for this year.
For sellers like the Schlueters, a tight housing market meant a quick sale and now requires them to wait while construction is completed on their one-level, smaller home in Sioux Falls.