Price reductions are becoming more common on homes for sale in the metro area, a sign that higher interest rates are cooling one of the hottest parts of the Twin Cities economy.
In June, about 14% of active sellers cut the price of their house at least once, according to Zillow.com. That’s still below the national average, but it’s up from 10% in May and 7.6% in April.
Since the mid-2010s, Twin Cities residential real estate has been a seller’s market, and it’s become more imbalanced in favor of sellers during the pandemic.
But with the jump in mortgage rates that started early this year, buyers, sellers and agents have been watching for the market to start swinging back in buyers’ favor. Data for May and June sales activity suggest it has — but only a little.
“Sure, things are rebalancing in a way that hopefully eases the landscape for buyers, but we are still quite far from becoming a buyer’s market,” said David Arbit, director of research for the Minneapolis Area Realtors.
While more sellers are offering discounts, few are slashing prices. The median price reduction in the metro in June was just 3%. Meanwhile, buyers are also coping with the diminished spending power that higher mortgage rates have wrought. And the number of homes for sale remains near historic lows.
“For what we wanted, I felt like there were slim pickings,” said Jenna Gerlach of Denver, who has been watching the market closely. She and her husband Mike want to move to the Twin Cities this fall.
“It feels like there’s less inventory and we don’t know what’s happening with [mortgage] rates,” Gerlach said.
Rates have been volatile, putting would-be buyers on edge. Even though the Federal Reserve raised its key rate again on Wednesday, mortgage rates dipped slightly last week.
A weekly survey released Thursday said the 30-year fixed-rate mortgage averaged 5.30% with an average 0.8 point. That’s down from the previous week, when it averaged 5.54%. A year ago at this time, the 30-year averaged 2.80%.
The jump in rates means that fewer people are able or willing to buy a house in the Twin Cities. During June, nearly 20% fewer buyers signed purchase agreements compared with last year. Through the first three weeks of July, the drop looks even steeper.
On average, people who listed their house in June received an offer in just 21 days. That was one day faster than the year before and the fastest pace in nearly a year, according to MAR.
“The pace remains rapid historically and is still half the market time of 2018, 2019 and 2020,” Arbit said.
That’s because although buyers had more choices at the end of June than they did last year, there’s still a dramatic shortage of listings. At the current sales pace, there were only enough houses on the market during June to last 1.6 months. While that’s up from 1.3 months last year at the same time, it’s still well below the five- to six-month supply that’s considered evenly balanced between buyers and sellers.
That imbalance is why the market is still relatively competitive and many sellers are still getting more than their asking price. On average, sellers in June received 103.3% of their list price. While that is down from 104.1% a year earlier, it’s still the second-strongest June in 20 years.
“That still leaves us in a strong seller’s market, just not quite as strong as it was last June,” Arbit said.
On a national level, a deceleration in the housing market is more clear. Mortgage applications declined last week for the fourth week in a row, the Mortgage Bankers Association reported. And an index of pending home sales fell nearly 9% in June, the National Association of Realtors said last week.
Kath Hammerseng, a Twin Cities area sales agent and former MAR president, said buyers have become more hesitant. Some are assessing the interest rate situation and the impact of rising house prices. Last month, the median price of all closings increased nearly 9% to a record $380,000.
She said the housing market feels like it did in 2018 and 2019, when buyers had a little more time to make decisions and sellers had to work harder to ready their homes for sale.
“More than ever, houses that are not turn-key or priced competitively … are lingering,” she said. “Sellers who are overconfident aren’t seeing the results they think they’re going to see. On the pretty ones, buyers are still competing and it’s the same multi-offer situation.”
Arbit said that while the market is adjusting, it’s unlikely to quickly pivot to one that’s more favorable to buyers.
“That doesn’t happen overnight or even in a matter of months,” he said. “We’ve underbuilt and been undersupplied for so long that it’ll take time to tip the scales back even towards a balanced market, much less a buyer’s market.”
The Gerlachs weren’t willing to wait. They planned a buying trip to the Twin Cities area in September, but like many first-time buyers the threat of rising rates made them a bit more eager to buy sooner than later. And friends who’d shopped in the area warned them that the best houses were still selling quickly, and sometimes for more than the asking price.
Plus, they were somewhat surprised when one of the first houses they looked at remotely checked nearly all the items on their wish list.
So almost immediately after doing several virtual walk-throughs this month, the Gerlachs offered the sellers of a house in Maple Grove slightly more than the asking price even though there were were no other offers. The couple knew that houses in the area are selling quickly and they wanted to avoid a competing offer.
“It did not feel like we were in the driver’s seat. It definitely felt like it was a sellers’ market,” Jenna Gerlach said. “I just didn’t want to be in a position where we had to make an offer and settle for a house we didn’t want.”
At the top of her wish list was a fireplace and a big yard for their boxer. Less than a day after listing the house, their seller quickly accepted their offer. The Gerlachs are getting ready to move.