Discounts on homes for sale in the metro area are becoming more common, a sign that higher interest rates are cooling one of the hottest parts of the Twin Cities economy.
According to Zillow.com, about 14% of active sellers lowered the price of their home at least once in June. That’s still below the national average, but it’s up from 10% in May and 7.6% in April.
Since the mid-2010s, Twin Cities residential real estate has been a seller’s market that has become more unbalanced in favor of sellers during the pandemic.
But with mortgage rates starting to rise earlier this year, buyers, sellers and brokers have been waiting for the market to turn back in favor of buyers. Data for May and June selling activity suggests that is the case – but only slightly.
“Sure, things are being rebalanced in a way that will hopefully ease the landscape for buyers, but we’re still a long way from becoming a buyer’s market,” said David Arbit, director of research for Minneapolis Area Realtors.
While more and more sellers are offering discounts, few are cutting prices. The average price reduction on the subway in June was only 3%. Meanwhile, buyers are also having to cope with the reduced purchasing power caused by higher mortgage rates. And the number of homes for sale remains near historic lows.
“For what we wanted, I felt like there wasn’t much choice,” said Jenna Gerlach of Denver, who has been watching the market closely. She and her husband Mike plan to move to the Twin Cities this fall.
“It feels like there’s less inventory and we don’t know what’s happening with it [mortgage] prices,” said Gerlach.
Prices have been volatile, making potential buyers nervous. Although the US Federal Reserve raised interest rates again on Wednesday, mortgage rates fell slightly last week.
A weekly poll released Thursday showed the 30-year fixed-rate mortgage averaged 5.30% with an average of 0.8 points. That’s down from the previous week, when it averaged 5.54%. A year ago at this point, the 30-year-old average was 2.80%.
The rise in rates means fewer people are able or willing to buy a home in the Twin Cities. Almost 20% fewer buyers signed sales contracts in June compared to the previous year. The decline looks even steeper in the first three weeks of July.
On average, people who listed their home in June received an offer in just 21 days. That was a day quicker than the year before, according to MAR, and the fastest pace in nearly a year.
“The pace remains historically high and is still half the market time of 2018, 2019 and 2020,” Arbit said.
Because even though shoppers had more choices at the end of June than they did last year, there’s still a dramatic shortage of deals. At the current pace of selling, there were only enough houses on the market in June to last 1.6 months. While that’s up 1.3 months from the same time last year, it’s still well below the five- to six-month supply that’s seen as balanced between buyers and sellers.
This imbalance is why the market is still relatively competitive and many sellers are still getting more than their asking price. On average, sellers received 103.3% of their listing price in June. While that’s down 104.1% from a year earlier, it’s still the second strongest June in 20 years.
“So we’re still in a strong seller’s market, just not quite as strong as last June,” Arbit said.
At the national level, a slowdown in the housing market is more evident. Mortgage applications fell last week for the fourth straight week, the Mortgage Bankers Association reported. And an index of pending home sales fell nearly 9% in June, the National Association of Realtors said last week.
Kath Hammerseng, an area sales agent in Twin Cities and former MAR president, said buyers have become more hesitant. Some assess the interest rate situation and the impact of rising property prices. Over the past month, the median price of all closures rose nearly 9% to a record $380,000.
She said the housing market feels like it did in 2018 and 2019, when buyers had a little more time to make decisions and sellers had to work harder to prepare their homes for sale.
“Homes that aren’t turnkey or not competitively priced are sticking around more than ever,” she said. “Sellers who are overconfident don’t see the results they think they will see. With the pretty ones, buyers are still competing and it’s the same situation with multiple offers.”
Arbit said that as the market adjusts, it’s unlikely to reorient quickly to a more favorable market for buyers.
“It doesn’t happen overnight, or even in a matter of months,” he said. “We have underbuilt and been undersupplied for so long that it will take time to even tip the scales back towards a balanced market, let alone a buyer’s market.”
The Gerlachs didn’t want to wait. They were planning a shopping trip to the Twin Cities area in September, but like many first-time buyers, the threat of rising interest rates made them a little more eager to buy sooner rather than later. And friends who had shopped in the area warned her that the best homes still sell quickly, and sometimes for more than the asking price.
Also, they were a bit surprised when one of the first houses they looked at checked almost every item on their wish list remotely.
For example, almost immediately after several virtual tours this month, the Gerlachs offered sellers a home in Maple Grove slightly more than the asking price despite no other offers. The couple knew that homes in the area sold out quickly and wanted to avoid a competing offer.
“It didn’t feel like we were in the driver’s seat. It definitely felt like a seller’s market,” said Jenna Gerlach. “I just didn’t want to be in a position where we have to make an offer and settle for a house that we didn’t want.”
A fireplace and a large yard for her boxer were high on her wish list. Less than a day after the home was listed, the seller quickly accepted the offer. The Gerlachs prepare to move.