What the highest mortgage rates in 14 years are doing to Twin Cities real estate
Rising mortgage rates put a lid on home buying and selling last month in the Twin Cities.
This week, mortgage rates topped 6% for the first time in 14 years. The 30-year fixed-rate mortgage averaged 6.02 %, according to Freddie Mac. That was up slightly from the previous week and more than double the rate offered a year ago.
On Friday, a monthly sales report from the Minneapolis Area Realtors showed the housing market in the Twin Cities inching toward a more balanced market, albeit much more slowly than in some parts of the country.
“We’re seeing a less competitive landscape as the market has slowed given current interest rates,” said Denise Mazone, a Twin Cities real estate agent and president of Minneapolis Area Realtors. “But the silver lining is that a less frenzied market could spell more inventory and opportunity for persistent buyers.”
House prices are still rising, sales are happening quickly and sellers are still getting closer to their asking prices. At the same time, entry-level and working-class buyers are having to stretch their budgets as they shop for a dwindling number of listings.
Last month, buyers signed 4,981 purchase agreements, 24% fewer than last year and the lowest figure for any August since 2014, according to the data from Minneapolis Area Realtors. Closings, a reflection of deals signed two to three months earlier, were also down by about the same amount.
The median price of those sales increased 5.6% to $369,750, the smallest annual gain since the summer of 2020.
There were also far fewer home sellers last month. During the month, there were only 6,186 new listings, nearly 20% fewer than last year and the least for any August in a decade.
That left buyers with only 8,552 homes for sale at the end of the month — nearly flat compared with last year.
Fewer buyers meant less competition, but houses still sold relatively quickly. On average, houses sold in just 26 days. And at the current sales pace there were enough listings to last 1.7 months. The market is considered evenly balanced between buyers and sellers when there’s a four- to six-month supply of listings.
The trends were similar statewide during August, according to a report from Minnesota Realtors. The group said closings were down 17% with the median sales price increased 4.4% to $330,000. New listings were down 18% while houses old in 29 days, two days slower than last year.
“I wouldn’t call it a buyer’s market yet,” said Shawn Hartmann, a Twin Cities sales agent. “But it’s ranging toward a balanced market.”
Most of Hartmann’s clients are shopping for houses priced at less than $500,000 and those are the buyers who have been most affected by higher rates.
Upper-bracket sales are still strong. While closings of houses priced at less than $500,000 are down compared with last year, closings on homes priced at more than $500,000 have been up nearly double-digits compared with last year.
That’s in part because there are fewer options for entry-level buyers, but also because those buyers are most affected by higher mortgage rates. Redfin said Friday that cash purchases remain above pre-pandemic levels with a quarter of all homes in the Twin Cities being bought with cash during July.
Hartmann said properties that are competitively priced, in top-notch condition and in good locations are still in high demand. He recently got a dozen offers for way more than the asking price on a midcentury modern house near Como Park in St. Paul.
It sold for $120,000 more than the $535,000 asking price at the end of last month.
The deal was something of an anomaly, Hartmann said. Demand for housing typically slows during fall, but that decline is more pronounced this year. He said that as mortgage rates increase he’s starting to hear from more would-be sellers than buyers.
“When we have more people talking about selling than buying it gives me some indication that the market could be changing up a bit,” he said. “And right now more people are interested in selling.”
