Higher mortgage rates have yet to put the brakes on Twin Cities home sales. If anything, they’re revving them up.
There were more sales last month than in any August in nearly a decade, and pending sales — an indication of future closings — also jumped.
“The change in rates, coupled with a little bit more inventory, is spurring consumers to buy,” said Kate Beckman, president of the St. Paul Area Association of Realtors.
Bucking predictions that higher rates would radically slow the market, there were 5,575 closings during August, an 8.9 percent increase over last year and the most since at least 2005, according to a monthly report from the Minneapolis Area Association of Realtors. So far this year, sales have outpaced last year by 10.5 percent.
Prices also posted another double-digit gain because of strong demand, limited inventory and a decline in foreclosure sales. The median price of all closings was $208,000, a 16.9 percent increase over last year.
RealtyTrac said Thursday that foreclosure filings statewide were down nearly 34 percent during August, reducing the drag that those heavily discounted properties can have on home prices. In the Twin Cities, foreclosure sales fell by nearly 35 percent, while short sales dropped 43.5 percent.
“As distressed activity has subsided, prices have rallied,” said Andy Fazendin, president of the Minneapolis Area Association of Realtors. “Sparse inventory has exacerbated this dynamic.”
All signs suggest the trend will continue. Foreclosures represented a dwindling percentage of new listings last month, and buyers continue to outpace sellers. There was a 16.5 percent increase in the number of properties that hit the market last month, but that wasn’t enough to make up for all the homes that sold or were taken off the market. The overall supply of listings was down 9.9 percent.
In Beckman’s office on St. Paul’s Grand Avenue, there were even stronger signs of strength in the market. Office wide, pending sales last month were 33 percent higher than last year, and September is starting out similarly strong.
“The slight rise in rates has definitely not slowed down the market,” she said.
On Thursday, Freddie Mac said fixed mortgage rates were relatively unchanged from last week, with the 30-year rate averaging 4.57 percent for the week ended Thursday. That’s a full percentage point higher than at this time last year.
The rise in rates coincides with growing confidence in the economy and a sense that house prices will continue to rise. In fact, Fannie Mae’s National Housing Survey shows that the percentage of people who were optimistic that prices would continue climbing rose to 55 percent last month, though respondents are feeling less confident about the size of those gains.
Andy Prashad, a sales agent with Counselor Realty, said he’s sensing a typical seasonal slowdown as families take a break from house shopping to focus on getting their kids back to school and preparing for the holidays. “The homes are taking a little longer to sell, and buyers are somewhat more aggressive with their offer price than before when there were multiple offers,” he said.
Prashad said buyers remain extremely sensitive to pricing despite the recovery. Houses that are in move-in condition are the most popular.
“In many cases the quality and the presentation of the home are substandard for the price,” he said.
Hoping to sell her split-level house in Vadnais Heights for $15,000 more than her agent’s recommendation, Kris Peleg spent weeks painting and carpeting in hopes of moving to a house in the country with all the necessary living spaces on one level.
Her agent warned her that only houses in near-perfect condition are fetching multiple offers, or close to the asking price.
“He said, ‘You have to do eight things,’ and was saying ‘You have to make it the best it can be,’ ” she said. “I did most, but not all.”
The strategy paid off. When the house went on the market in early August, it had two showings in one night and received two offers by the next day.
“It’s been an interesting experience,” Peleg said.