While the numbers won’t be finalized for some time, local county assessors say that the incredibly strong housing market could lead to historic increases in single family home valuations in 2022.
While housing prices have been on the rise locally for close to a decade, Le Sueur County Assessor Shayne Bender said that 2021’s jump is likely to be on a different scale, with average valuations for single-family homes likely to be up as much as 25% to 30% this year.
“It’s the biggest jump I’ve seen in the 20 years I’ve been here,” Bender said. “It seems to be countywide and statewide.”
Bender attributed the sharp jump to a variety of factors, including a strong economy, low interest rates and limited supply. Rice County Assessor Josh Schoen said he was somewhat surprised to see the scale of the increase even with all of the uncertainty surrounding the pandemic.
“With interest rates so low, it’s been a good time to buy,” Schoen said. “We’ve seen a record number of sales in Rice County.”
Bender expects that rising and shifting property values could have significant impacts on local budgets. In addition to providing more money for counties and cities to spend without raising taxes, it could shift the tax burden towards homeowners and renters.
While the housing market is tight nationwide, Minnesota appears to be particularly affected. According to a September report from the Minnesota Population Center, the Twin Cities has the second lowest housing vacancy rate of the nation’s 75 largest metro areas.
According to an analysis produced earlier this year by the Minnesota Housing Partnership, meeting the demand produced by projected job growth and population growth will mean adding an additional 10,000 housing units per year each year for the next decade.
The MHP’s report highlighted lean housing production following the “Great Recession” of 2008-09 as the main culprit in leaving the state with inadequate housing supply, which has in turn led housing costs to be increasingly burdensome for many Minnesotans.
Over the last decade, the MHP’s report shows that home values have already increased at four times the rate of homeowner income. The latest increases could add to that gap, even as significant wage growth has been reported amid a tight labor market.
While the single family housing market may be seeing an especially sharp rise in values, local assessors said that property values are up across the board. That includes an increase in apartment values, though Steele County Assessor Bill Effertz said that robust construction has helped to limit the increase to a relatively modest 7%.
Effertz noted that business at local industrial parks has been brisk, which has been a major driver in boosting the need for housing and thus boosting local valuations. Similarly, agricultural land has enjoyed an increase of around 8% in valuation.
Effertz did note that local office and commercial spaces have been an unfortunate outlier, at least in Steele County. He attributed slower sales and flat valuations in that area to impacts from the COVID-19 pandemic, including increased interest in working from home.
Another factor likely damaging commercial sales has been COVID’s devastating impact on the local hospitality industry. Driven by the region’s leading tourist attraction, Cabela’s in Owatonna, Steele County has traditionally had a robust hospitality industry.
Still, Effertz noted that the commercial and office market has been stronger in select areas, such as Owatonna’s Central Business District, which has seen a significant amount of new housing development as well.
“Any time you’re speaking in generalities, there’s going to be exceptions,” he said.