Learn more about the housing market in South Dakota

South Dakota homes are unique when it comes to the real estate market. That’s why it’s critical to understand the market you live or operate in. Whether you’re renting, buying, or selling, it will impact many aspects of your life. 

South Dakota Housing Market Overview  

South Dakota may not be as popular as California or New York, but its steady population growth and market appreciation has been something to watch in current years. 

Buyers may be attracted to South Dakota’s natural beauty and low cost of living. Not only are median home prices in this area much lower than the nation’s average, but the typical South Dakota family can expect to pay 17% less than the average American family. In fact, South Dakota has the second lowest cost of living in the U.S. 

The median household income in South Dakota also contributes to the affordability of the housing market, making it an attractive option for both businesses and individuals. 

The South Dakota housing market is also relatively slow compared to the rest of the nation, which could hint at a market that doesn’t favor sellers as heavily as many other markets do today. 

There are a few other helpful facts that you should consider before buying a home in South Dakota, including supply trends, population growth, and mortgage rates, among other things. If you have any other questions, it would be a good idea to consult a real estate expert or financial consultant to see exactly how you can navigate South Dakota’s current market. 

South Dakota Housing Market Trends  

To understand the South Dakota real estate market, it’s important to keep up with trends. Let’s look at some key ones in South Dakota: 

Note: These statistics are based on Redfin’s monthly housing data from May 2024. 

Median Home Price  

South Dakota’s median home price in May 2024 was $328,700, according to Redfin’s monthly housing market statistics. Year-over-year, this price increased by about 3.8% from $319k last May. In some areas of South Dakota, the price of homes can be slightly higher, like in Sioux Falls where the average price is around $335,000, which is above the market value for many other regions in the state. 

Number of Homes Sold in April 2024 

The number of homes for sale significantly impacts the housing supply and market trends, with fluctuations indicating whether homes are lingering on the market or being sold faster than sellers are listing them. 

912 homes sold in South Dakota this May, which is a 9% increase since last year. However, it’s important to keep in mind that this number might be inflated compared to other months since nationally speaking, sales usually peak during the spring and summer months and slow considerably in the winter. In fact, the National Association of Realtors (NAR) predicts that in February and March alone, sales activity increases by as much as 34% and prices by 3%. 

Remember also that local auctions can significantly impact the number of homes sold, especially when it comes to distressed properties. Repossessed homes often end up at local auctions, providing real estate investors with opportunities to purchase properties below market value. 

Median Days on Market (DOM) 

Days on market (DOM) is a measure of the average length of time a home remains listed on the market before being put under contract. A lower DOM signals a highly competitive seller’s market with more pressure on buyers to make higher offers and remove contingencies. A higher DOM signals a buyer’s market as sales are slower and sellers have less leverage. 

The current median DOM in South Dakota is 55 days. The United States average is around 32 days, so SD is well above the country’s median. In fact, only New York City and Hawaii have higher DOM rates. South Dakota’s slower market could point towards buyer advantage, a change from most of the nation’s seller-dominated markets. 

New Supply Statistics 

Per every 1,000 South Dakota residents, there were 8.84 new residential construction permits issued in 2021. This rate is well above the average for the country, potentially easing some of the strains caused by very low supply. 

Additionally, there were 1,140 newly listed homes in May 2024, which is down 2.5% from last year. The number of newly listed homes can hint at how confident home sellers are in their listing and how it will fair in the current market—right now, many homeowners are hesitating to list their current homes for fear that the mortgage rate they’ll get with a new home will be more than they’re paying now. 

Increased home prices in South Dakota has also significantly impacted supply trends, making it challenging for potential homebuyers and affecting the overall market dynamics. In the real estate space, months of supply refers to the amount of time it would take for all the currently listed homes to sell if no new homes hit the market. Theoretically, five to six months is considered a “stable” market where it neither leans towards favoring buyers or sellers. The lower this number gets, the closer it gets to favoring sellers since supply will go down and buyers have less choice in the market. Currently, South Dakota is at a three-month supply—although supply is still low, South Dakota is in a better spot than many states. 

Property Tax Rate 

The average property tax rate in South Dakota is 1.17%. This makes South Dakota the state with the 35th lowest property tax rate, with the highest being New Jersey at 2.23% and Hawaii being lowest at 0.32%.  However, it is important to keep in mind that this statistic reflects the average of a lot of data in a populous state with significant geographic and economic diversity. Tax rates are likely to vary depending on the value of a home and its location in the state.   

Foreclosure Rate in Q1 of 2024 

South Dakota’s foreclosure rate is the lowest in the nation, according to recent data by ATTOM. In the first quarter of 2024, there was one foreclosure filing per 7,561 housing units in South Dakota. 

However, certain South Dakota counties, such as Minnehaha and Pennington, have higher distributions of foreclosed homes. These areas are significant for real estate investors due to their distressed property rates and potential impact on the housing market. 

Hottest Local Markets in SD  

1. Brookings

Brookings County, SD is one of the hottest markets in the state. Brookings is the fourth largest city in South Dakota with 24,312 people, and it’s known for its numerous parks and recreational areas. 

Brookings has a median sale price that is over $100k more than the median sale price for the state at $438,000. This marks an increase of almost 16% since last year. 

Homes in this market go pending in 46 days on average, which is significantly higher than the nation’s average of 32 days. However, Brookings’s DOM rate is lower than North Dakota’s DOM average, which is 55 days, making this a hot market relative to the rest of the state. 

2. Watertown

Watertown is known for its gorgeous Lake Kampeska and various attractions like its Bramble Park Zoo and Redlin Art Center. It’s also known for its affordability. 

Watertown’s median sale price is $307,500, an impressive increase of 33.7% from last May. Watertown is very affordable compared to the nation’s average and the rest of South Dakota. 

Watertown properties do take longer than normal to sell—homes here on average go pending after 57 days. However, this could be a positive sign for prospective buyers. A fast-paced market can mean more competition and the potential to pay above list price for the home you want. Watertown does not have as much competition, and most buyers pay below asking. 

3. Sioux Falls

Sioux Falls is the capital of South Dakota and is home to one of the best city parks in the nation, Falls Park. Sioux Falls is the center for South Dakota entertainment, culture, and food. 

Sioux Falls’s housing market is heating up. The median sale price is up 3.7% compared to last year, selling for $335,000. There was also an increase in the number of homes sold in May, up to 293 homes from last year’s 269. 

The median days on market has gone up to 55, an increase of 7 days from last May. The hottest homes can go pending in around 34 days. 

4. Rapid City

Rapid City is becoming a key area of interest for Millennials seeking affordable housing options. With the growing work-from-home trend, many are looking for cheaper alternatives to larger cities. Rapid City offers a more affordable cost of living compared to major urban centers, making it an attractive option for those looking to buy homes in the South Dakota real estate market. 

Economic Factors Impacting the South Dakota Housing Market  

A holistic view of South Dakota’s housing market requires a basic understanding of the main economic drivers affecting the market. Let’s look at a few critical ones below: 

Mortgage Rates 

South Dakota’s current average mortgage rate is 7% for a 30-year fixed mortgage. The national average is 7.11%, so SD is slightly below the nation in this metric. Mortgage rates are a common cause of concern for would-be homeowners across the U.S. in 2024. As previously mentioned, national averages have dipped from last fall’s record highs, and South Dakota is no different.  

Inflation, Cost of Living, and Median Household Income 

Mortgage rates are tied to inflation, another massive contributing factor to the affordability of housing and the state of housing markets in general. Inflation has increased the cost of living for many across the U.S., including in South Dakota. This means fewer people can truly afford to limit housing costs to less than 30% of their monthly income.    

Population Changes and Demographics 

Interestingly, South Dakota grew over 1.5% from July 2021 to July 2022, making it the fifth in the nation for population growth for that period, behind only Florida, Idaho, South Carolina and Texas.   

The population in South Dakota has steadily grown each year, reaching a high in 2022. In fact, South Dakota’s growth rate has exceeded the national rate every year since 2010. The Dakota Institute attributes this growth to domestic migration, saying they have succeeded in drawing more residents in than it loses.  

However, South Dakota’s May 2024 unemployment rate is 2%. This is well below the nation’s average of 4%. Some experts say that the state’s dominant financial and community banking industries benefitted from the eliminated interest rate cap and its location as the site of Citibank’s headquarters, employing many South Dakota residents and bringing some employees from other states.   

South Dakota Housing Market Forecast  

Experts considered the appreciating housing market South Dakota faced in 2023 and predicted that prices would continue to rise throughout the year. The expected rise in median sales price is seen as a favorable condition for sellers and a sign of growth in the real estate sector. This has proven true over the year, though steady interest rates and a hope for increased supply in the housing market signified by an increase in sales may indicate a slowing growth in prices.  

Likelihood of South Dakota Housing Market Crash

A South Dakota housing market crash due to rising interest rates is unlikely. There are many reasons for this, including a very healthy economy signified by a low unemployment rate, interest rates that have significantly settled from last year, and a growing number of people who are moving to the state. South Dakota’s strong job market will continue to attract buyers, making a housing market crash unlikely. The market seems poised to continue appreciating, but it is unlikely to reach any significant or worrying threshold in the near future.  

Forecast for The U.S. Housing Market  

Now that we’ve looked at South Dakota’s housing market, let’s zoom out a little bit. What about the U.S. housing market? What do you need to keep an eye on in the coming years?  

The United States’s current median existing-home sale price is around $384,500 per the National Association of Realtors. The inventory, though, remains low. A balanced market typically has a 5-to-6-month supply, but the current figure is 2.9.  

We’re currently in a seller’s market with buyers looking at continued rising house prices. The same trend can be seen with renters. Housing continues to appreciate, in general.   

Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research, National Association of Realtors, believes the housing market will appreciate 15 to 25% over the next five years. He thinks that the seller’s market will continue because housing inventory will remain low. In five years, however, he predicts a more balanced market, in which neither party has a built-in advantage. Thus, the market will shift to a case-by-case basis to determine what kinds of deals people can get.  

Hybrid work also impacts the housing market. This shift in work culture means suburbia will continue to grow. States like Texas, the Carolinas, Tennessee, and Florida should see continual growth.  

The number of single-family homes built decreased over the past couple years while the number of multi-family homes increased due to lower prices and a demand for affordable housing. Higher mortgage rates and inflation (affecting price of materials) were the main causes.   

Lower income households continue to struggle in the current housing market. This trend appears likely to continue into the foreseeable future. Without enhanced supply or helpful subsidies, the outlook is that many Americans will still wrestle with housing affordability in the years to come.   

South Dakota Rental Market  

The rental and buying market are obviously closely linked. When home prices fall, landlords are more likely to buy properties to rent out. Home prices and rental prices are correlated as well because a hot market means prices rise.   

Rents were more unaffordable than ever in 2021 and 2022. In 2022, 22.4 million households paying rent said it was unaffordable, which is the highest that figure has ever been, according to a January report from the Joint Center for Housing Studies at Harvard University. The study found that half of all renters in the United States spent over 30% of their income on rent and utilities.   

The markets cooled in 2023, though, due to new units and decelerating demand. But a serious problem persists: Rent increases are still outpacing income gains.   

Moreover, high interest rates are keeping borrowing and transaction activity down. Over half the banks surveyed by the Federal Reserve reported that demand for multifamily loans decreased year-over-year.  

The pandemic caused a housing disparity that isn’t going away anytime soon. Unaffordable housing is a serious issue across America. Whether high rents or low income is the main cause doesn’t change the fact that this problem is widespread.   

This short summary leads directly into South Dakota’s current rental market, with key trends from Zillow:

South Dakota Rental Market Key Trends 

• Median Rent: $1,200  

• Month-Over-Month Rent Change: $0  

• Year-Over-Year Rent Change: $0  

• Available Rentals: 838  

Conclusion  

The housing market in South Dakota may not seem as exciting as the markets on the east coast or in California, but in this national market, competition is fierce everywhere. If you are looking to move to South Dakota, be sure to do further research into the neighborhoods you like and see how much you can expect to spend on a home there. Pay attention to interest rates and mortgage rates—if you find that you can’t feasibly afford something in this kind of housing market, take a step back, save up some money, and build your credit.