Rising mortgage rates have yet to put a lid on home prices in the Twin Cities, but they're starting to influence sellers as well as buyers, agents say.
Cost-conscious buyers for several months adjusted their budgets as mortgage rates rose quickly. Now, agents are noticing that sellers are being a little less aggressive about prices. And more prospective sellers are asking agents about listing, sensing that price and bargaining power may soon shift away from them.
"The fear of the unknown is happening," said Angela Schliinz, chief operating officer at Kris Lindahl Real Estate. "They want to take advantage of what the market is presenting right now."
During April, the median price of all home sales in the Twin Cities metro increased 10% to a record $370,000, according to a monthly report from the Minneapolis Area Realtors.
That gain comes after several months of single-digit percentage price increases and at a time when rising mortgage rates are adding to the complexity — and expense — of being a buyer in one of the most competitive markets on record.
The 30-year fixed-rate mortgage averaged 5.3% last week, up from 2.94% a year ago. Even so, houses are still selling faster in the Twin Cities than they did last year and listing inventory continues to decline.
Data is still catching up, but an observable shift in the market is underway, Schliinz said. By the end of April, new listings were up 11% over last year. Inquiries from people who are thinking about selling their home had increased far more, she said.
The majority of the listings that are hitting the market right now are priced at more than $350,000, so that's also the segment of the market that's seeing the biggest increase in sales.
"There is a scarcity vibe out there," Schliinz said.
With buyers outpacing sellers in some parts of the metro, there were just 5,758 houses, condos and townhouses for sale in the metro at the end of last month, a 9.2% annual decline and the 25th consecutive month of annual declines.
With fewer houses on the market, the Twin Cities saw a 9% decline in both pending and closed home sales during April. Those declines were driven largely by a lack of houses priced at less than $350,000. Upper-bracket sales increased double-digits as did listings in those price ranges.
Nearly the exact same trend played out across the state last month. Minnesota saw a nearly 10% decline in pending sales and a $340,000 median sale price, which was 11.5% higher than last year, according to a separate report from the Minnesota Association of Realtors.
There were dramatic variations in pricing and sales velocity around the state. Communities with a high share of second homes, including Cook County in the Arrowhead region and Aitkin County in north-central Minnesota, reported historic shortages of listings and pent-up demand for lakeshore property.
The most robust gains were also in regional metros including Rochester and St. Cloud, where the same forces that are driving sales in the Twin Cities are creating an imbalance between buyers and sellers.
Tracy Feran, a Twin Cities sales agent who tends to focus on the south metro and communities beyond including Rochester and Faribault, said that she's coaching all of her buyers and sellers to adjust their expectations.
Sellers might get fewer offers than they would have several months earlier and many buyers are having to reduce their budget to account for the eroding affordability that's come with higher mortgage rates.
"I definitely think some people are pressing the gas, but there are some who are hitting the brakes," Feran said. "The market is definitely shifting and definitely changing."
For now, it's still a juggling act, especially for people who are trying to sell a house and buy their next one. Feran recently helped Lena Malashenko and Robert Smith sell a townhome in the south metro and buy a single-family house in Isanti County.
"Selling wasn't really an issue," Malashenko said. "But it was pretty discouraging to buy."
They sold the townhouse quickly and for more than the asking price after getting four offers, but they got outbid several times when they tried to buy their next house.
In one case they offered $45,000 more than the asking price and didn't get it. The next time, they offered more than $30,000 over the asking price for a house in Fridley and still lost out. In that case, there were more than 50 other offers.
Those bidding wars were especially frustrating because during the two months they were shopping for a house, mortgage rates kept rising and the urgency to get an accepted offer only got more intense.
"We were getting discouraged," Smith said. "But we were putting our best offers out there and we couldn't offer a penny more."