Price cuts are becoming more common for homes for sale in the metropolitan area, a sign that higher interest rates are cooling one of the hottest parts of the Twin Cities economy.
In June, about 14% of active sellers cut the price of their home at least once, according to Zillow.com. It is still below the national average, but is up from 10% in May and 7.6% in April.
Since the mid-2010s, Twin Cities residential properties have been the market for sellers and during the pandemic they have become more biased in favor of sellers.
But with the jump in mortgage rates that began earlier this year, buyers, sellers and agents waited for the market to swing in buyers’ favor. The data for sales activity in May and June suggest yes, but only minimally.
“Sure, things are rebalancing in a way that hopefully eases the landscape for buyers, but we’re still a long way from becoming a market for buyers,” said David Arbit, director of research for the Minneapolis Area Realtors.
While more sellers offer discounts, fewer cut prices. The median reduction in metro prices in June was just 3%. Meanwhile, buyers are also facing the decline in spending power caused by rising mortgage rates. And the number of homes for sale remains close to historic lows.
“For what we wanted, I felt like there was little profit,” said Jenna Gerlach of Denver, who watched the market closely. She and her husband Mike want to move to the Twin Cities this fall.
“There seems to be less inventory and we don’t know what’s going on [mortgage] rates, “Gerlach said.
Rates have been volatile, putting would-be buyers in crisis. Although the Federal Reserve raised its key rate again on Wednesday, mortgage rates fell slightly last week.
A weekly survey released Thursday said the 30-year fixed-rate mortgage averaged 5.30% with an average of 0.8 points. It’s down from the previous week, when it averaged 5.54%. A year ago at this time, the 30-year average was 2.80%.
The rise in rates means fewer people are able or willing to buy a home in the Twin Cities. In June, nearly 20% fewer buyers signed purchase contracts than last year. During the first three weeks of July, the decline seems even steeper.
On average, people who put their home up for sale in June received an offer in just 21 days. According to MAR, it was a faster day than the year before and the fastest pace in nearly a year.
“The pace remains fast historically and is still half the time to market in 2018, 2019 and 2020,” Arbit said.
This is because, although shoppers had more choices at the end of June than last year, there is still a dramatic shortage of listings. At the current pace of sales, there were only enough homes on the market in June to last 1.6 months. While it is up from 1.3 months last year at the same time, it is still well below the five to six month supply considered equally balanced between buyers and sellers.
This imbalance is why the market is still relatively competitive and many sellers still get more than the asking price. On average, sellers received 103.3% of their list price in June. While it is down from 104.1% the previous year, it is still the strongest second June in the past 20 years.
“This still leaves us in a strong sellers market, but not as strong as it was last June,” Arbit said.
At the national level, a deceleration of the real estate market is more evident. Mortgage applications fell last week for the fourth straight week, the Mortgage Bankers Association reported. And a pending home sales index fell nearly 9% in June, the National Association of Realtors said last week.
Kath Hammerseng, a Twin Cities area sales agent and former president of MAR, said buyers have become more hesitant. Some are evaluating the interest rate situation and the impact of rising house prices. Last month, the median price of all closings rose nearly 9% to a record $ 380,000.
He said the housing market looks like it did in 2018 and 2019, when buyers had a little more time to make decisions and sellers had to work harder to put their homes up for sale.
“More than ever, homes that aren’t turnkey or competitively priced … are persistent,” he said. “Sellers who are overconfident don’t see the results they think they see. On the nice ones, buyers are still competing and it’s the same multi-offer situation.”
Arbit said that while the market is adjusting, it is unlikely to quickly shift to a more buyer-friendly one.
“This doesn’t happen overnight or even within a few months,” he said. “We have been underpowered and under-supplied for so long that it will take time to even tip the scales towards a balanced market, much less a buyer’s market.”
The Gerlachs were unwilling to wait. They had planned a shopping trip to the Twin Cities area in September, but like many first-time buyers the threat of a rate hike has made them a little more eager to buy sooner than later. And friends who had shopped in the area warned them that the best homes were still selling quickly, and sometimes at a price above the asking price.
Plus, they were somewhat surprised when one of the first houses they looked at from a distance checked almost every item on their wish list.
So, almost immediately after doing several virtual guided tours this month, the Gerlachs offered sellers of a house in Maple Grove a little more than the asking price even though there were no other offers. The couple knew that homes in the area were selling quickly and wanted to avoid a competing offer.
“It didn’t feel like we were in the driver’s seat. It was definitely like it was a vendors’ market,” said Jenna Gerlach. “I just didn’t want to be in a position where we had to make an offer and settle for a home we didn’t want.”
At the top of his wish list was a fireplace and a large yard for their boxer. Less than a day after putting the house up for sale, the seller quickly accepted the offer. The Gerlachs are preparing to move.