For Twin Cities home buyers, the waning days of summer are typically a time for browsing. Not this time around. With house listings in short supply, sellers are in the driver’s seat and buyers are on edge.
“It was much tougher than we expected,” said Mike Takalo, who, with his wife, last month closed on a house that was the seventh one they offered to buy since February. Among the six rejections was one in which they offered more than $30,000 over the listed price. “The emotional roller coaster was hard to handle,” he added.
The imbalance between buyers and sellers grew in the metro area last month, new data showed Monday.
Home sales increased 7.8 percent, but new listings were flat, causing the total number of houses for sale by end of the month to fall nearly 14 percent, according to the Minneapolis Area Association of Realtors.
“Buyers are starting to feel a lot of pressure,” Marcy Wengler, a sales agent for Edina Realty, said. “They are more inclined to want to run out and see houses the day they hit the market, even if they are not meeting their criteria.”
A tighter rental market, the return of positive home equity and anticipation of future interest rate increases “all helped fuel the summer selling season,” said Bob Clark, president-elect for the St. Paul Area Association of Realtors.
Last month, the average market time in the Twin Cities was 64 days — just a day short of the fastest pace in a decade. Price gains were far less dramatic. The median price of all sales last month was $224,900, a 2.7 percent increase over last year, and houses sold for 99.3 percent of their final asking price.
That’s not true in every case or in every corner of the metro area. Houses that are overpriced and in need of work aren’t selling as quickly.
“Although buyers in certain areas and specific price points are feeling pressure, they are also very knowledgeable about home values and will not overpay,” Wengler said. “If you are in a hot area or price point, and the home sits on the market because it is overpriced, sellers will experience longer market time and be forced to work through price reductions.”
House listings in the Twin Cities region have been constrained for years. That’s in part because there’s been a dearth of new housing construction, but the primary problem has been would-be sellers haven’t been able to list because they had a mortgage that exceeded the value of their house.
After the 2008-09 economic crisis, nearly half of all homeowners with a mortgage in parts of the Twin Cities were in a negative equity situation. Today, only one in eight is, according to a recent analysis by Zillow.
However, nearly one-third of all homeowners with a mortgage in the Twin Cities still don’t have enough equity to pay for closing costs, fees and to make a down payment on their next house, leaving them effectively underwater and less likely to make their home available in the market. That’s more likely to be the case among owners of the least expensive houses, or those that would be attractive to first-time buyers.
Takalo and his wife, Rena Kraut, however, had been in position to sell their house and move up to a new one for some time. Their biggest motivator to move was the prospect that interest rates would soon begin to rise from their record-low levels.
The Minneapolis couple were willing to spend up to $330,000 and they wanted to stay in the Longfellow neighborhood, where they bought a house in 2005. They wanted more space, including three legitimate bedrooms and either a finished basement or one that could be finished.
After starting their house hunt in February, they first offered to buy a house at the beginning of March and quickly got outbid. That happened five more times, even when one bid was $21,000 above list price and another was $30,000 above.
Takalo said they were devastated to miss out on at least two of those houses.
In the end, they wound up being able to stay in the neighborhood with an offer on a house that was just slightly above asking price.
“Sometimes it was OK to lose out, or even a relief,” Takalo said. “The market was so crazy we made bids we probably shouldn’t have and afterward were glad we didn’t get it.”