Price reductions are becoming more common on homes for sale in the metro area, a sign that higher interest rates are cooling down one of the hottest parts of the Twin Cities economy.
In June, about 14% of active sellers reduced the price of their home 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 has become more lopsided in favor of sellers during the pandemic.
But with the jump in mortgage rates beginning earlier this year, buyers, sellers and brokers have been watching for the market to start turning in buyers’ favor. Sales activity data for May and June suggest so, but only slightly.
“Sure, things are rebalancing in a way that hopefully makes things easier for buyers, but we’re still a long way from becoming a buyer’s market,” said David Arbit, director of research for Minneapolis Area Realtors.
While more sellers are offering discounts, few are cutting prices. The reduction in the average price on the metro in June was only 3%. Meanwhile, buyers are also grappling with declining purchasing power that higher mortgage rates have brought about. And the number of homes for sale remains near record lows.
“For what we wanted, I felt like there were small gains,” 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.
“There seems to be less inventory and we don’t know what’s going on with [mortgage] fees,” Gerlach said.
Rates have been volatile, making potential buyers nervous. Although the Federal Reserve raised its key rate again on Wednesday, mortgage rates eased slightly last week.
A weekly survey released Thursday said the 30-year fixed-rate mortgage averaged 5.30% with an average of 0.8 points. That’s down from the week before, when it averaged 5.54%. A year ago at this time, 30-year-olds averaged 2.80%.
The jump in rates means fewer people are able or willing to buy a home in the Twin Cities. During June, almost 20% fewer buyers signed purchase agreements compared to last year. During the first three weeks of July, the drop seems even more pronounced.
On average, people who put their home up for sale in June received an offer in just 21 days. That was a day faster than the previous year and the fastest pace in nearly a year, according to MAR.
“The pace is still fast historically and is still half the time to market from 2018, 2019 and 2020,” Arbit said.
That’s because even though buyers had more options at the end of June than they did last year, there’s still a dramatic shortage of listings. At the current rate of sales, there were only enough homes on the market during June to last 1.6 months. While that’s up 1.3 months from last year at the same time, it’s still well below the five-to-six-month supply that’s seen as balanced between buyers and sellers.
That imbalance is why the market remains relatively competitive and many sellers continue to get more than their asking price. On average, sellers in June received 103.3% of their list price. While that’s 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, but not as strong as it was last June,” Arbit said.
At the national level, a slowdown in the housing market is clearer. mortgage applications decreased last week for the fourth week in a rowreported the Mortgage Bankers Association. 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 president of MAR, 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 for all closings rose nearly 9% to a record $380,000.
He said the real estate 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 get their homes ready for sale.
“More than ever, houses that are not ready to use or that are not competitively priced … persist,” he said. “Sellers who are overconfident aren’t seeing the results they think they’re going to see. In pretty ones, buyers are still competing and it’s the same multi-bid situation.”
Arbit said that while the market is tightening, it is unlikely to quickly change to one that is more favorable to buyers.
“That doesn’t happen overnight or even in a matter of months,” he said. “We’ve built ourselves up and been short of supplies for so long that it will take time to tip the scales back even toward a balanced market, let alone a buyer’s market.”
The Gerlachs were not willing to wait. They planned a shopping trip to the Twin Cities area in September, but like many first-time shoppers, the threat of rising rates made them a little more eager to shop sooner rather than later. And friends who had bought in the area warned them that the best homes still sold fast, and sometimes for more than asking price.
Plus, they were a bit surprised when one of the first houses they remotely viewed checked almost every item on their wish list.
So, almost immediately after holding several virtual tours this month, the Gerlachs offered sellers of a Maple Grove home a little more than the asking price, though there were no other offers. The couple knew that houses in the area are selling quickly and wanted to avoid a competing offer.
“It didn’t feel like we were in the driver’s seat. It definitely felt like a seller’s 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 large patio for her boxer. Less than a day after putting the house up for sale, the seller quickly accepted his offer. The Gerlachs are preparing to move.