The doubling of mortgage rates over the past year has begun to affect home sales across Minnesota.
This week, mortgage rates exceeded 6% for the first time in 14 years as lenders continue to jump ahead of expected increases to the key rate set by the Federal Reserve.
On Friday, a new report from Minneapolis Realtors showed the lowest monthly sales number of any August in eight years and the lowest number of listings for any August in at least a decade.
“We are seeing a less competitive landscape where the market has slowed due to current interest rates,” said Dennis Mazon, a real estate agent at the Twin Cities and president of the Minneapolis real estate district. “But the bright side is that a less crazy market can provide more inventory and opportunity for regular buyers.”
A similar story unfolds across the state. St Cloud saw the largest drop of all regions in home closings, posting a 26% year-over-year decline.
Home prices are still on the rise, sales are happening quickly, and sellers are still getting close to their asking prices. At the same time, novice and working class buyers have to expand their budgets while shopping for a dwindling number of listings.
Moving to a 6% mortgage rate from 3% a year ago has a greater impact on monthly payments than most people think, said Chris Galler, CEO of Minnesota Realtors.
“In most people’s minds they say, ‘Oh, that’s only 3 percent,'” Galler said. You really have to look at the effect, which is that it increases the interest 100 percent.”
Because of that, the monthly payments on a $270,000 home today are the same as the monthly payments on a $310,000 home purchased a year ago. “That’s about $40,000 they lost in terms of purchasing power,” Galler said.
In the Twin Cities last month, 4,981 buyers signed purchase agreements, 24% less than a year ago and the lowest number for any August since 2014, according to Minneapolis-area real estate brokers. Closes, a reversal of deals signed two to three months ago, also fell by roughly the same amount.
The median price of those sales increased 5.6% to $369,750, the lowest annual gain since the summer of 2020.
There were also far fewer home sellers last month. In the Twin Cities, there were just 6,186 new listings, nearly 20% less than last year and the lowest in any August in any decade.
The trends were similar statewide, according to Minnesota Realtors. The group said closings fell 17% with the average sales price increasing 4.4% to $330,000. New listings are down 19%. saw St. Cloud 32% decrease in listings.
A slowdown in the market isn’t entirely bad for potential buyers. In this market, Galler said, sellers are likely to spend more time and money making sure their home is in good shape. And because there will be fewer multiple-offer stands, buyers can insist on home inspections — a practice that some buyers overlooked as a way to improve their offerings during the height of last year’s home buying frenzy.
“I wouldn’t call it a buyers market just yet,” said Shaun Hartman, Twin Cities sales agent. But it is heading towards a balanced market.
Most of Hartmann’s clients shop for homes under $500,000 and these are the buyers who are most affected by the higher rates.
Top tier sales remain strong. While closing prices for homes under $500,000 are down from last year, closings for homes over $500,000 are up nearly double digits from last year.
This is partly because there are fewer options for entry-level buyers, but also because these buyers are the ones most affected by rising mortgage rates. Redfin said Friday that cash purchases remain above pre-pandemic levels with a quarter of all homes in the Twin Cities purchased with cash during July.
Hartmann said properties that are competitively priced, in first-class condition and in good locations remain in high demand. He recently landed a dozen over-priced bids for a mid-century modern home near Como Park in St. Paul.
It sold for $120,000 more than the asking price of $535,000 at the end of last month.
Hartmann said the deal was a bit of an anomaly. Housing demand usually slows down during the fall, but that decline is more pronounced this year. He said that with mortgage rates rising, he’s starting to hear more potential sellers than buyers.
“When we have more people talking about selling than buying, it gives me some indication that the market could change a bit,” he said. “Now more people are interested in selling.”