Higher mortgage rates are taking some of the froth off the housing market in the Twin Cities, but with more buyers than sellers in some areas house prices are still increasing at a steady clip.
During June, buyers signed 5,544 purchase agreements, 18.4% fewer than the same month last year and the lowest June figure since 2014, according to a monthly report from the Minneapolis Area Realtors. Closings were also down from 2021 but up slightly compared with 2020.
The median price of those sales increased nearly 9% to a record $380,000.
"People [buyers] are relaxing a little more," said Carla Ferrell, a longtime Twin Cities real estate agent. "The sense of urgency has backed off a bit."
On Saturday in Plymouth, Ferrell hosted an open house at a home that she had listed a couple days earlier for $439,900. Though more than a half dozen prospective buyers toured the house, she has yet to receive an offer. She expects one by the end of the week.
She said buyers now have the luxury of a little more time to ponder their purchases as higher mortgage rates temper demand.
"It's quickly shifting to being a more normal market," Ferrell said. "But it's still more of a seller's market than than a buyer's market."
Open houses, which are much more common than they were just a couple months ago when many houses were selling within hours, are just one of many signs that the housing market is shifting. Houses are taking slightly longer to sell, and sellers are much more likely to offer a price reduction than they were just a few months ago.
That rebalancing is happening as higher mortgage rates and house prices erode affordability.
Freddie Mac said Thursday that the 30-year fixed-rate mortgage (FRM) averaged 5.51% with an average 0.8 points, according to its weekly rate survey. That's up from the previous week when it averaged 5.30%. A year ago, the average was 2.88%.
"With rates the highest in over a decade, home prices at escalated levels and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans," Sam Khater, Freddie Mac's chief economist, said in a statement.
The increase in rates — and record high home prices — caused the housing affordability index in the Twin Cities during June to fall to its lowest level since at least 2004.
In another sign of the changing market, buyers have more options than they did last year. At the end of June, 8,020 homes were for sale in the metro, nearly 10% more than at the same time last year and the second consecutive month of year-over-year increases. That gain came despite a small increase in new listings compared with 2021.
Still, at the current sales pace, there were only enough listings on the market to last 1.6 months. That's a 23% gain compared with last year, but well below the four- to six-month supply of listings that is needed for the market to be considered balanced between buyers and sellers.
"It's reassuring to see more homes on the market after a few years of under two months of supply," said Mark Mason, president of the St. Paul Area Association of Realtors. "That said, the gain came mostly from fewer buyers and not more sellers, so we still need more supply and more building activity to balance out the market."
On average, houses sold in 21 days, a slight increase over last year.
The same trends are happening statewide. The Minnesota Realtors said closings during June were down nearly 14% compared with a year ago, while inventory was up 8.2%. The median price of all closings across the state was $345,000, 6.2% higher than last year.
While the shift in the market might have some sellers edgy, it's good news for buyers who have grown weary of being outbid, said Brady Arthur, a Twin Cities sales agent. But for many, the less hectic market comes too late.
Several of Arthur's clients started house hunting when rates were in the 3% range — about half what they are now. With house prices on the rise, they've had to adjust their budgets. In some cases, Arthur said, buyers are able to spend $100,000 less than when they originally got pre-qualified.
For many, that means saving for a bigger down payment and staying longer in their current residences.
"For some, it looks easer to try to wait it out and try to rent another year as they wait for rates to come down," Arthur said. "The biggest roadblock is coming up with that bigger chunk of change for the down payment."
He said that for buyers and sellers, it's all about adjusting expectations. Sellers must be realistic about pricing their homes appropriately, and buyers must know that houses that are in tip-top condition and priced competitively will still draw several buyers.
Arthur recently submitted an offer from one of his buyers, who was competing against at least three other buyers. His buyers were frustrated, but from his perspective, it was a relief compared with the days when sellers were getting dozens of offers.
"It's now more of a realistic and balanced market," he said. "But that depends on which side you're on."