What’s happening in the Twin Cities housing market following Fed rate cut?

A month of steadily falling mortgage rates in August did little to rev up house listings — or prices — in the Twin Cities.

Instead, sellers retreated, and shoppers took a little more time to buy.

And contrary to what many buyers and sellers had been anticipating, mortgage rates increased this week after the Federal Reserve’s quarter-point shave to its key interest rate. On Thursday, the average 30-year fixed-rate mortgage rose slightly to 6.3%, according to a weekly Freddie Mac survey.

Relatively low rates are helping drive sales, but current homeowners are benefiting the most. Purchase applications nationwide increased 18%, but refinancings increased twice as much, Freddie Mac said.

In the Twin Cities, many buyers and sellers are more wary.

“People seem to be taking their time a little bit,” said Patti Jo Fitzpatrick, a Twin Cities sales agent and president of Minnesota Realtors. “I do think that the market has stalled a little.”

While sellers in some parts of the metro are still fielding multiple bids and selling their houses for more than the asking price in just days, agents said there’s been a notable shift in buyer confidence in recent weeks.

Some attribute it to the unmet expectation that the Fed’s reduction in its key interest rate would lead to lower mortgage rates. That’s not the case. Mortgage rates are tied to long-term bond yields, which rose last week.

During the first two weeks of September, the latest data available, new listing gains outpaced the increase in pending sales.

“Buyers aren’t going over list price nearly as much,” said Frank D’Angelo, president of Minneapolis Area Realtors, in a statement. “And they’re moving more slowly and cautiously.”

Ever since mortgage rates fell to record lows during the pandemic, sellers have been in control. That’s still true, but the balance of power is slowly shifting.

At the end of last month, there were only enough houses to last 2.7 months at the current sales pace, according to local Realtors groups. The market is considered evenly balanced when there’s a five- to six-month supply of listings, but it’s been years since there has been any equilibrium in the market.

Fitzpatrick said August is always a more challenging time to sell because of end-of-summer vacations, back-to-school checklists and the distraction of the Minnesota State Fair.

“I cringe when I have to put a house on the market in August,” she said.

Last month, houses in nearly every price took longer to sell, but upper-bracket sellers had to wait the longest. It took about twice as long to sell a $1 million-plus house than one priced between $250,000 and $500,000, according to data from the St. Paul Area Association of Realtors.

Across all price ranges, houses sold on average in 48 days, nearly a week more than last year, according to a 12-month rolling average.

The most severe shortage of listings are ones that are affordable to first-time and entry-level buyers, especially those priced from $120,000 to $350,000.

There’s another problem: Many of those least expensive listings need considerable repair, making it difficult to finance them. And many buyers simply don’t have the cash to fix them.

David Arbit, director of research for Minnesota Realtors, noted many of the least expensive listings are condos, which are taking longer to sell in part because rising homeowners association fees make them less affordable to cash-strapped buyers.

Of the 763 active listings priced at less than $200,000, 555 of them are condos, Arbit said. But among the 2,149 listings priced from $300,000 to $400,000, only 134 of them are condos.

The move-up market faces a different challenge. Luxury listings are increasing at a double-digit pace, forcing those sellers to offer bigger price discounts than last year.

Still, there have been more upper-bracket home sales than last year, in part because those buyers are less sensitive to increases in mortgage rates.

In many places across the country, sales and prices have declined because of a glut of inventory. That hasn’t happened in Minnesota.

Real Estate firm Redfin said last week the Twin Cities is one of only about 10 metros in the nation considered evenly balanced between new listings and pending sales.

During August, pending sales in the metro increased 5.2%. And while sales gains are far lower than they were two years ago, home prices are still rising, though at a lower pace than this spring. The median price of all sales in the metro during August was $399,999, a 2.8% increase from last year.