With the economy in a coma and most open houses closed, homebuying in the Twin Cities slumped last month. During April homebuyers signed 20% fewer purchase agreements compared with last year, according to the Minneapolis Area Realtors, as sellers fretted about letting strangers into their homes and buyers worried about paying too much.
“Emotions are all over the place,” said Pat Paulson, manager of Exit Realty Metro.
Before COVID-19, home sales in the Twin Cities were on track to outpace last year. During April, home closings — a reflection of deals signed mostly during February and early March — increased 4% over last year, and the median price of those sales increased nearly 9% to a record $305,000. That was the biggest annual gain in more than a year and the first time the median price exceeded $300,000 in the metro.
But with unemployment rates soaring and the prospect of a recession looming, buyers and sellers are now struggling to make decisions.
During the last half of March, home showings in the Twin Cities slowed dramatically and bottomed out in early April, but have accelerated steadily through the remainder of the month.
“Showings are a leading indicator for purchase activity and they’ve reached new highs for the year,” said Linda Rogers, president of the Minneapolis Area Realtors, in a statement.
Despite economic uncertainty, low mortgage rates have also been a powerful incentive for many buyers. Rates fell to a record low of 3.23% at the end of April. And on Thursday, Freddie Mac said the 30-year fixed-rate mortgage averaged 3.24%.
Low rates have helped drive demand, especially for first-time and move-up buyers in the market for move-in ready houses priced at less than $500,000.
With those listings in short supply, multiple offers haven’t been uncommon. In early April, Ben Ganje of Lakes Sotheby’s International Realty, listed a house in the Desnoyer Park neighborhood in St. Paul for $480,000. He immediately received several above-list offers from people who had yet to view the house in person. By the first day the house was available for in-person tours, he had seven offers and 24 showings. The deal closed on May 10 for $29,000 more than the asking price.
Still, buyers are facing a more challenging lending environment as banks assess the effects of mortgage forbearance programs and the ability of borrowers to make their payments. Wells Fargo and JPMorgan Chase, two of the nation’s largest mortgage lenders, both said recently they were temporarily limiting the types of mortgages they offer and are requiring bigger down payments and higher FICO credit scores.
Though mortgage applications across the country declined during much of April, they’ve increased in recent weeks.
Joel Kan, a Mortgage Bankers Association economist, said in a statement that it’s unclear whether the increase represents growing confidence — and demand — or a short-term recovery that’s simply satisfying pent-up demand.
In the Twin Cities, home buyers are also being dogged by a shortage of options as would-be sellers wait on the sidelines. Last month new listings fell 20%, led by houses priced at less than $250,000.
The top end of the market has also been deeply affected. For houses priced at more than $1 million, listings were down nearly 45% last month.
“You’re kind of in limbo,” said Dick Bottorff. He and his wife, Nancy, listed their Queen Anne-style house on a shady street in the Linden Hills neighborhood in Minneapolis for $1.349 million in early March.
At first they had many showings and packed open houses, but as the month wore on and the virus spread, interest in the 4,340 square-foot house waned. Not long after listing the house, they got an offer, but it “didn’t meet our expectations,” said Bottorff.
Sensing a lull in the market and weary of keeping the house is tiptop showing condition, the Bottorffs changed the status of the listing to “not available.”
Given its price — and the fact that it’s a historic house on a double lot, they expected it to take at least six months to sell. So they’re being patient.
“The market is in a cautious phase right now,” he said. “There are a lot more important things happening in the world than selling our house.”