What is the Minneapolis housing market forecast for 2021? What price and supply trends can real estate investors and homebuyers expect? And will Minneapolis investment properties be profitable next year? Here, we’ll take a look at the 2021 trends we can expect for the Minneapolis housing market.
But first, a quick overview of where the market stands today in 2020.
The Minneapolis Real Estate Market Today
The Minneapolis real estate market has definitely grown in the past year and price appreciation is a big indicator of this. Mashvisor’s data suggests that the median Minneapolis real estate price is now $361,965, compared to $294,100 a year ago. The price per square foot is currently $232.
In terms of where the market stands in the face of the coronavirus, it has been a little rocky, according to Realtor.com’s Housing Market Recovery Index for the metro area. The metro first reached the benchmark for recovery in July of 2020. However, it continued to experience ups and downs until finally stabilizing in recovery mode in early September.
6 Minneapolis Housing Market Predictions for 2021
It’s true that Minneapolis has seen some growth when it comes to prices and has now recovered from the coronavirus, but let’s dive into some of the other key trends and predictions for 2021.
#1. The Housing Inventory Shortage Will Continue
Research shows that the housing inventory in the Minneapolis metro area has dropped by 32% year-over-year (YoY), and the days on market have gone down 16% YoY. This means there is currently a strong demand for homes for sale and shrinking supply.
Given the nationwide housing market predictions of a declining supply of properties for sale, exacerbated by the fact that many sellers have decided to wait out the coronavirus, it is unlikely that a large number of properties will suddenly hit the market in 2021. At least, not enough to meet the high demand brought about by low mortgage rates.
#2. Minneapolis Home Prices Will Rise in 2021
We know prices have continued to rise in the market, despite COVID-19. And Zillow predicts a price increase of 7.3% for 2021 in Minneapolis.
#3. Minneapolis Will Remain a Seller’s Market
As mentioned, the days on market is dropping in the metro area, indicating high demand. Rising prices coupled with high demand and short supply indicate a strong seller’s market. Although the Redfin Compete Score for Minneapolis has gone down a bit from 91 to 88, the Minneapolis housing market is far from a buyer’s market. In fact, Redfin reports that over half of the real estate in Minneapolis ends up being sold above list price – 56.6%. That is an increase of 30% compared to last year. On average, properties go for about 2% above the asking price.
With the trends of rising prices, short supply, and high demand all expected to continue next year, the Minneapolis housing market 2021 will remain a seller’s market.
#4. The Minneapolis Housing Market Is Not Likely to Crash
The increasing demand and rising prices disprove any pessimistic predictions of a housing market crash due to COVID-19. It’s clear we won’t see a crash in 2020 and very unlikely that 2021 will bring about any turmoil in this regard based on the previously mentioned Minneapolis real estate market trends.
#5. A Traditional Minneapolis Real Estate Investment Will Be Profitable in 2021
Is Minneapolis a good place for buying an investment property? Will it be in 2021?
The price to rent ratio is a good indicator. A price to rent ratio of 15 or lower means it is a lot more affordable for locals to buy a home than to rent. A moderate ratio between 16 and 20 means it is better for local residents to rent than to buy in most cases. Anything higher usually means it is much more affordable to live in a rental property than to buy a home.
For real estate investors, the price to rent ratio is an indicator of whether there will be demand for rental properties or not. A moderate to high price to rent ratio usually means an investor will enjoy higher occupancy rates in the market.
Mashvisor’s data shows that the price to rent ratio for the Minneapolis real estate market is 18. And indeed, 55% of residents in the Minneapolis housing market do rent a home at the moment. So there is currently a good investment opportunity. With home prices rising, things are unlikely to change drastically in 2021 so rental properties will continue to be in high demand.
If you have decided to invest in Minneapolis real estate, here is what you can expect in terms of income, returns, and competition. This rental data comes from Mashvisor’s real estate database:
- Monthly Traditional Rental Income: $1,689
- Traditional Cash on Cash Return: 2.4%
- Traditional Rental Listings: 952
The Best Neighborhoods in Minneapolis for a Traditional Rental Property
If you are interested in buying rental property in the Minneapolis housing market in 2021, start your search for property in one of the following neighborhoods. These neighborhoods were selected because, currently, real estate investors are generating good cash on cash return.
East Calhoun
- Median Property Price: $314,654
- Price per Square Foot: $242
- Price to Rent Ratio: 11
- Traditional Rental Income: $2,509
- Traditional Cash on Cash Return: 4.9%
Mckinley
- Median Property Price: $177,450
- Price per Square Foot: $146
- Price to Rent Ratio: 13
- Traditional Rental Income: $1,151
- Traditional Cash on Cash Return: 4.8%
East Phillips
- Median Property Price: $198,686
- Price per Square Foot: $146
- Price to Rent Ratio: 11
- Traditional Rental Income: $1,474
- Traditional Cash on Cash Return: 4.5%
Folwell
- Median Property Price: $220,105
- Price per Square Foot: $131
- Price to Rent Ratio: 15
- Traditional Rental Income: $1,234
- Traditional Cash on Cash Return: 3.9%
Columbia Park
- Median Property Price: $268,300
- Price per Square Foot: $184
- Price to Rent Ratio: 15
- Traditional Rental Income: $1,534
- Traditional Cash on Cash Return: 3.8%
#6. A Traditional Rental Will Be More Profitable Than an Airbnb Minneapolis Rental
Let’s look at Mashvisor’s short-term rental data to get a clear comparison of traditional vs Airbnb investments in the Minneapolis housing market:
- Airbnb Daily Rate: $140
- Monthly Airbnb Rental Income: $1,917
- Airbnb Cash on Cash Return: 1.4%
- Airbnb Occupancy Rate: 54%
It looks like traditional renting is more lucrative right now in the Minneapolis housing market. Despite the higher average monthly rental income from Airbnb, the return on investment (represented by cash on cash return) is somewhat lower. This is likely due to the effects of COVID-19 on the Airbnb market as historically, Airbnbs have outperformed traditional rentals in Minneapolis. Because COVID-19 and its impact are still very much present today, we can’t make the forecast yet that Airbnbs will go back to generating more returns than traditional rentals as they did pre-COVID-19. Surely, the tourism industry will be changed, even if a vaccine is introduced into the picture. So for now, we predict that a traditional rental property will outperform an Airbnb property in Minneapolis in 2021. Still, Airbnb Minneapolis rental properties will generate income next year as they are managing to do so now during the pandemic.
Based on data and your preferences, choose your rental strategy. You might not want to rent out long-term for some reason or you might prefer Airbnb in spite of the lower return on investment. If you do go with the short-term rental strategy, be sure to estimate your Airbnb income beforehand to make sure it’s a good investment and to fully understand the local regulations. Let’s quickly review them now:
Minneapolis Airbnb Regulations
As of 2020, no registration or license is needed if the owner lives in the property while hosting Airbnb guests. This means that if you only rent out a room, you can do it freely. If you rent out a whole unit (of a duplex or fourplex, for example) or leave the property while guests are there, you need to register your short-term rental property. If you do not live on the property, you need a full license. Here are the respective fees. All Airbnb landlords pay a 3% local lodging tax on the whole rental income they earn.
The Best Neighborhoods in Minneapolis for an Airbnb Rental Property
If you decide to invest in Airbnb in Minneapolis, here are the neighborhoods where you are likely to get the highest return on investment in 2021:
Bryant
- Median Property Price: $283,929
- Price per Square Foot: $189
- Airbnb Daily Rate: $108
- Monthly Airbnb Rental Income: $2,738
- Airbnb Cash on Cash Return: 5.8%
- Airbnb Occupancy Rate: 61%
East Calhoun
- Median Property Price: $314,654
- Price per Square Foot: $242
- Airbnb Daily Rate: $160
- Monthly Airbnb Rental Income: $2,330
- Airbnb Cash on Cash Return: 5.1%
- Airbnb Occupancy Rate: 69%
Bryn Mawr
- Median Property Price: $392,500
- Price per Square Foot: $166
- Airbnb Daily Rate: $178
- Monthly Airbnb Rental Income: $3,011
- Airbnb Cash on Cash Return: 4.5%
- Airbnb Occupancy Rate: 53%
Regina
- Median Property Price: $277,147
- Price per Square Foot: $198
- Airbnb Daily Rate: $124
- Monthly Airbnb Rental Income: $2,483
- Airbnb Cash on Cash Return: 4.5%
- Airbnb Occupancy Rate: 57%
Linden Hills
- Median Property Price: $621,074
- Price per Square Foot: $288
- Airbnb Daily Rate: $378
- Monthly Airbnb Rental Income: $5,512
- Airbnb Cash on Cash Return: 4.5%
- Airbnb Occupancy Rate: 55%
To Sum Up
The Minneapolis housing market is highly competitive and good properties sell fast. That is why we recommend you start looking for a suitable listing as soon as possible before prices go up even more if you are truly interested in investing in the location in 2021. Use Mashvisor’s real estate investment tools to quickly find and analyze a profitable Minneapolis rental property for sale. Sign up for Mashvisor now and get 15% off.