The Volume Problem Nobody Wants to Talk About
If you’ve been watching the national headlines, you might think the housing market is loosening up. NAR just reported existing-home sales at their strongest pace in nearly three years. Rates have come down a bit. Sentiment has improved.
But zoom into the Twin Cities, and January 2026 tells a more complicated story. Prices are still rising. Affordability actually improved. But buyer activity fell off a cliff—and not in the way seasonal patterns explain away.
Let’s dig in.
Prices Are Still Moving. Appreciation Is Decelerating.
The price story remains positive, but the momentum has clearly downshifted from where we were mid-2025.
• Median Sales Price: Up 1.4% year-over-year to $375,000.
• Price Per Square Foot: Up 0.8% to $206.
• Average Sales Price: Up 1.8% to $444,997.
• ShowingTime Housing Value Index: Up 0.8% to $311,584.
The Takeaway: Compare this to November’s 2.9% median price growth and you can see the deceleration. We’re still in positive territory, but barely. The Housing Value Index—which adjusts for seasonality and segment bias—confirms it: real appreciation is running under 1%. That’s not a crash. But it’s not the comfortably healthy 2–3% range we saw through most of 2025 either.
If you’re a seller banking on aggressive price growth to bail out an ambitious list price, this data says you’re wrong.
The Volume Drop Is the Real Story
Here’s where January gets uncomfortable.
• Closed Sales: Down 17.7% to 2,003.
• Pending Sales: Down 12.9% to 2,275.
• New Listings: Down 10.8% to 3,909.
The Takeaway: A 17.7% decline in closed sales is not a rounding error. Yes, January is always slow. Yes, weather matters. But last January had its own headwinds and still posted 2,435 closings. This is a meaningful pullback.
And it’s not just demand—supply contracted too. New listings dropped nearly 11%, which is the first significant year-over-year decline in listing activity after months of modest gains through 2025. The lock-in effect hasn’t gone away. Homeowners sitting on sub-4% mortgages are still doing the math, and the math still says stay put.
The result: fewer buyers AND fewer sellers showed up. The market didn’t crack—it just got quieter.
Supply Is Still Tight, But the Math Changed
Despite the volume drop, inventory metrics tightened further.
• Inventory: Down 3.0% to 7,356 homes.
• Months Supply: Down to 1.9 months.
The Takeaway: This is actually tighter than November’s 2.4 months. But context matters—months supply dropped because pending sales fell less than inventory did on a trailing 12-month average basis. It’s mathematical tightening, not demand-driven tightening.
Don’t mistake a low months-supply reading for a strong market. It’s a supply-constrained market with weakening demand. Those are different things, and they require different strategies.
Days on Market: Moving Faster, Surprisingly
• Days on Market: 63 days, down 4.5% from 66 days last January.
The Takeaway: This seems counterintuitive given the volume decline, but it actually reinforces the “selective buyer” thesis from November. The buyers who are in the market are serious. They’re not browsing—they’re acting when they find what they want. The good inventory is still moving. The mediocre stuff is either sitting or never getting listed in the first place.
The Negotiation Gap Widened (Slightly)
• Percent of Original List Price Received: 96.8%, down from 96.9%.
• Median List Price: Down 2.4% to $400,000.
The Takeaway: Two things are happening here. First, sellers are actually listing at slightly lower prices than a year ago—the first time we’ve seen that in a while. The median list price dropping from $410,000 to $400,000 is sellers reading the room, whether consciously or through agent guidance.
Second, even at those lower asks, buyers are negotiating a little harder. Not aggressively—96.8% is still a strong number—but the direction matters. For buyers, this means your leverage has improved, especially on homes that have sat. For sellers, the message is the same as November but louder: price it right from the start, because the market will not chase you.
Affordability: The Bright Spot
• Housing Affordability Index: 131, up 5.6% from 124 last January.
The Takeaway: This is the best affordability reading since late 2024. The combination of modestly lower rates and slightly lower list prices has given buyers real breathing room. An index of 131 means the median household income is 131% of what’s needed to qualify for the median-priced home. That’s not cheap, but it’s a meaningful improvement from the sub-120 readings we saw through much of mid-2025.
This is the quiet foundation that keeps the market from truly stalling. People can buy. They’re just being choosy about when and what.
Mortgage Mix: Cash Is Creeping Up
From the mortgage utilization data, conventional financing still dominates at 67.8%, but cash purchases are sitting at 17.1%. FHA is at 7.9%.
The Takeaway: Cash at 17% is worth watching. It suggests investors and equity-rich move-up/move-down buyers are a larger share of the shrinking transaction pool. When financed buyers pull back (as they clearly have), cash buyers become a bigger piece of the pie. That has implications for pricing at the lower end of the market, where cash offers compete directly with FHA buyers.
What Should You Do?
For Sellers: Your window of leverage is still open, but it’s narrower than it was six months ago. Months supply at 1.9 protects you from meaningful price drops, but the 17.7% decline in closings means your buyer pool is thinner. Prep matters more. Pricing accuracy matters more. If you overshoot, you won’t bleed time—you’ll bleed the entire spring season.
For Buyers: You’re in the best position you’ve been in since 2023. Affordability is up, competition is down, days on market give you time to think, and sellers are coming to you on price. Don’t get greedy—this isn’t a buyer’s market. But it’s a market where discipline and patience are finally being rewarded.
For Developers & Private Lenders: The structural undersupply thesis is intact—1.9 months of supply and declining new listings continue to support new construction demand. But the 17.7% decline in closed sales and 12.9% drop in pendings is a flashing yellow light. Absorption cycles are extending. Underwrite for longer hold periods, build in real reserves, and don’t assume spring will magically fix the volume problem. If rates don’t improve materially, this is what the new normal looks like.
This is not a market that rewards aggression or optimism. It rewards preparation and realism.
How We’re Positioned
At Carpathian Capital, we invest in residential development projects in structurally undersupplied markets around the country—markets that look a lot like the Twin Cities. We often do it on a preferred equity basis, which matters in an environment like this one.
Preferred equity sits ahead of common equity in the capital stack, which means meaningful downside protection if a project doesn’t hit its rosiest projections. And because our returns are structured as a preferred return, our IRR doesn’t erode when a project takes a few extra months to sell out. In a market where absorption cycles are stretching and we’re telling developers to underwrite longer timelines, that’s not a theoretical advantage—it’s the whole point.
If you’re a developer or sponsor looking for capital that’s built for real-world conditions rather than PowerPoint conditions, let’s talk.
Data Source: Minneapolis Area REALTORS® | January 2026 Monthly Indicators
