Price cuts are becoming more common in homes for sale in the metro area, and it’s a sign that higher interest rates are cooling one of the most important parts of the Twin Cities economy.
In June, about 14% of active sellers lowered their home price at least once, according to Zillow.com. That’s still below the national average, but up from 10% in May and 7.6% in April.
Since the mid-2010s, residential properties in the Twin Cities have become a sellers’ market, and have been more balanced in favor of sellers during the pandemic.
But with the jump in mortgage rates starting early this year, buyers, sellers and agents have been watching as the market begins to swing in the buyers’ favour. Data on sales activity in May and June suggests that it did – but only slightly.
“Sure, things are rebalancing in a way that we hope will ease the landscape for buyers, but we are still a long way from becoming a buyers market,” said David Arpt, director of research for the Minneapolis District of Realtors.
While more sellers are offering discounts, few are cutting prices. The average price drop on the metro in June was only 3%. Meanwhile, buyers are also dealing with the diminishing purchasing power brought about by high mortgage rates. The number of homes for sale is still near historic lows.
“For what we wanted, it felt like there was little choice,” said Gina Gerlach of Denver, who monitors the market closely. She and her husband, Mike, want to move to the Twin Cities this fall.
“Looks like there’s less stock and we don’t know what’s going on [mortgage] rates,” Gerlach said.
Prices were volatile, which put potential buyers on edge. Despite the Federal Reserve raising its key interest rate again on Wednesday, mortgage rates fell a bit last week.
A weekly survey released Thursday reported that the 30-year mortgage averaged 5.30% with an average of 0.8 points. This is lower than the previous week, when it averaged 5.54%. A year ago at this time, the 30-year average was 2.80%.
The jump in prices means that fewer people are able or willing to buy a home in the Twin Cities. During June, 20% fewer buyers signed purchase agreements than last year. During the first three weeks of July, the decline appeared to be even more severe.
On average, people who listed their homes in June received an offer within just 21 days. That was one day faster than the previous year and the fastest pace in nearly a year, according to MAR.
“The pace is still historically fast and still half the market time in 2018, 2019 and 2020,” Arbit said.
This is because even though buyers had more options at the end of June than last year, there is still a huge shortage of listings. At the current sales pace, there were only enough homes on the market during June to last 1.6 months. While that’s up from 1.3 months last year at the same time, it’s still well below the five to six month supply that’s evenly balanced between buyers and sellers.
This imbalance is the reason why the market is still relatively competitive and many sellers are still getting more than the asking price. On average, sellers in June earned 103.3% of list prices. While this is down from 104.1% the year prior, it is still the second strongest June in 20 years.
“This still leaves us in a strong seller market, but not as strong as it was last June,” Arbit said.
On a national level, the slowdown in the housing market is more pronounced. The Mortgage Bankers Association reported that mortgage applications fell last week for the fourth consecutive week. The National Association of Realtors said last week that its pending home sales index fell about 9% in June.
Cath Hammersing, a Twin Cities area sales agent and former president of MAR, said buyers are becoming more reluctant. Some are assessing the interest rate situation and the impact of rising home prices. In the past month, the average price of all closes has risen nearly 9% to a record $380,000.
She said the housing market looks the same as it did in 2018 and 2019, when buyers had more time to make decisions and sellers had to work harder to get their homes ready for sale.
“More than ever, homes that are not fully delivered or at competitive prices… remain,” she said. “Sellers who are overconfident don’t see the results they think they will. On beautiful sellers, buyers are still competing and it’s the same multi-offer situation.”
Arbit said that while the market adjusts, it is unlikely to pivot quickly into a more buyer-friendly market.
“It doesn’t happen overnight or even in a matter of months,” he said. “We have been in short supply and short supply for so long that it will take time to rebalance even towards a balanced market, let alone a buyer’s market.”
Gerlax wasn’t willing to wait. They had planned a buying trip to the Twin Cities in September, but like many first-time buyers, the threat of price hikes made them more eager to buy sooner rather than later. Friends who shopped in the area warned them that the best homes still sold out quickly, sometimes for more than asking price.
In addition, they were somewhat surprised when one of the first homes they looked at remotely checked all the items on their wish list.
So immediately after doing several hypothetical reviews this month, the Gerlachs offered home sellers in Maple Grove a slightly over-asked price despite no other offers. The couple learned that homes in the area were selling quickly and wanted to avoid a competing bid.
“It didn’t feel like we were in the driver’s seat,” said Gina Gerlach. “It definitely felt like a seller’s market.” “I didn’t want to be in a situation where we had to make an offer and be content with a house we didn’t want.”
At the top of her wish list was a fireplace and a large yard for their boxers. Less than a day after the house was listed, the seller quickly accepted his offer. Girlax gets ready to move.