Across Minnesota, rising mortgage rates weigh on home sales and listings

The doubling of mortgage rates over the past year is beginning to weigh on home sales across Minnesota.

This week, mortgage rates rose above 6% for the first time in 14 years, as lenders continue to price in expected hikes in the main rate set by the Federal Reserve.

A new report from Minneapolis-area real estate agents on Friday showed the lowest monthly August sales number in eight years and the lowest August listings in at least a year. decade.

“We are seeing a less competitive landscape as the market has slowed given current interest rates,” said Denise Mazone, Twin Cities realtor and president of Minneapolis Area Realtors. “But the silver lining is that a less frenetic market could mean more inventory and opportunity for persistent buyers.”

A similar story is playing out across the state. Saint-Cloud saw the largest drop of any region in home closures, a 26% year-over-year drop.

Home prices continue to rise, sales are happening quickly, and sellers are still closing in on their asking prices. At the same time, entry-level and working-class buyers are having to stretch their budgets as they search for a dwindling number of listings.

The move to a mortgage rate of 6% from 3% a year ago is having a bigger effect on monthly payments than most people realize, said Chris Galler, chief executive of Minnesota Realtors.

“In most people’s minds, they’re like, ‘Oh, that’s only 3%,'” Galler said. “It’s not. You really have to look at the impact, which is to say it’s 100% more interest.”

For this reason, monthly payments on a $270,000 home today are the same as for a $310,000 home purchased a year ago. “It’s about $40,000 that they’ve lost in terms of buying ability,” Galler said.

In the Twin Cities last month, buyers signed 4,981 purchase agreements, down 24% from a year ago and the lowest August figure since 2014, according to Minneapolis Area Realtors. Closures, a reflection of agreements signed two to three months earlier, also fell by about the same amount.

The median price for those sales rose 5.6% to $369,750, the lowest annual gain since the summer of 2020.

There were also significantly fewer home sellers last month. In the Twin Cities, there were just 6,186 new registrations, nearly 20% less than last year and the least for an August in a decade.

The trends were similar statewide, according to Minnesota Realtors. The group said closings were down 17% as the median selling price rose 4.4% to $330,000. New listings are down 19%. St. Cloud saw a 32% drop in registrations.

The market downturn isn’t all bad for potential buyers. In this market, sellers are likely to spend more time and money making sure their home is in good condition, Galler said. And because there will be fewer multiple-offer situations, buyers may insist on home inspections — a practice some buyers skipped to improve their offer at the height of the year’s home-buying frenzy. last.

“I wouldn’t call it a buyer’s market yet,” said Shawn Hartmann, a Twin Cities sales agent. “But it tends towards a balanced market.”

Most of Hartmann’s clients are buying homes priced below $500,000, and those buyers have been hit the hardest by the higher rates.

Top-tier sales are still strong. While home closings under $500,000 are down from last year, home closings over $500,000 are up nearly double digits over last year.

This is partly because there are fewer options for first-time buyers, but also because these buyers are the most affected by higher mortgage rates. Redfin said Friday that cash purchases remained above pre-pandemic levels, with a quarter of all homes in the Twin Cities being purchased with cash in July.

Hartmann said properties that are competitively priced, in excellent condition and in good locations are always in high demand. He recently received a dozen offers well above the asking price for a mid-century modern home near Como Park in St. Paul.

It sold for $120,000 above its asking price of $535,000 at the end of last month.

The deal was something of an anomaly, Hartmann said. Housing demand typically slows in the fall, but the decline is more pronounced this year. He said that as mortgage rates rose, he began to hear more potential sellers than buyers.

“When we have more people talking about selling than buying, that gives me an indication that the market might change a bit,” he said. “And right now more people are interested in selling.”

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