Local industry observers agree: the Twin Cities rental market is humming along smoothly with all the usual health indicators still flashing go. High rental and investor demand continues to fuel the market. Sales prices are at record highs in well-located areas, and lenders are awash in capital. The downtowns remain the hot spots for new supply and high rents, but the metro market overall remains a top contender nationally as it has for the past few years.

How long will this last? Reports vary about specific timing and to what degree, but a gradual cooling of the market is anticipated sometime this year and through 2016.

"What goes up usually comes down," quips Tom Cooper, MBG's founder and principal broker. "The tax reform of 1986 and the 2008 housing crisis are major market corrections still vivid in our minds.”

No one expects a crash landing, but some atmospheric changes in the metro market are becoming increasingly palpable says Cooper.

Interest rates are poised for adjustment. Interest rates affect property demand and prices. After close to six years of historically low rates, and with an economy growing every year, the Federal Reserve is expected to allow modest increases to the rates to achieve a more normalized level. Mortgage lenders in a recent Forbes article predict a range from 4.5 percent to 5 percent rate by year end.

Apartment construction is slowing. Development has been one of the strongest indicators of the health of the Twin Cities multifamily market, especially in the urban areas. Lower new unit projections for 2015 suggest that pent up demand might be easing. Last year, close to 5,000 new units were built in the Twin Cities metro. Total new units predicted this year are considerably lower at 3,500 (Marquette Advisors).

Property taxes rising with higher values

A valuation increase is the most common factor affecting a rise in property taxes. In the past three years, new apartment assessments in Minneapolis jumped to more than $600 million an increase of 7.5 times. The apartment market value in Minneapolis grew 27.8 percent in 2014 compared to 2013.

“A change in any one of these market factors influences the others.” Cooper says. The mood in the market is still highly optimistic, but with some slowdown expected, now might be the best time to buy or sell, which means it’s a good time for brokers as well.”

Source: Minnesota Brokerage Group.

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