Home prices rose slightly in September, as reported by the Saint Paul Area Association of REALTORS® and Minneapolis Area REALTORS®, which jointly share housing market reports with local media each month. Both buyer and seller activity were lower compared to last year but there were important differences across areas and market segments.
Sellers, Buyers and Housing Supply
Many homeowners are feeling incentivized to stay put—particularly those with sub-4.0% rates who would face much higher payments given the increase in prices and stubbornly high mortgage rates. As a result, new listings were down another 6.4% after a 17.2% decline last September. Buyers face a similar set of considerations, but first-timers don’t have the benefit of equity from previous home ownership, and many struggle to amass a downpayment given the rising cost of living. Closings were down 17.1% but pending sales were down a more modest 7.3%—perhaps offering a glimpse of what’s to come. Millennials now in their prime homeownership years and Boomers looking to downsize are finding limited options. More buyers are choosing to deploy cash instead of paying near 8.0% interest, but that’s difficult for many.
The reason the market still feels so “tight” and why prices continue to rise is because both buyer and seller activity have downshifted in tandem. In the past, we’ve seen housing supply levels rise as demand falls, and that usually results in softening prices. But that’s not the case here. Both supply and demand levels are down, so the relative balance hasn’t changed as much as some anticipated. In addition, sellers don’t appear eager to list their homes any time soon. “Many homeowners not experiencing a major life or job change aren’t quite as motivated to make a move,” said Jerry Moscowitz, President of Minneapolis Area REALTORS®. “Many qualified buyers are finding success purchasing a home now and plan to refinance when the interest rates are lower.”
Prices, Market Times and Negotiations
The downshift on both sides of the closing table has also kept market times relatively brisk and negotiations are still leaning in the seller’s favor. Half the homes went under contract in under 17 days compared to 19 days last September. Last month sellers accepted 99.3% of their original list price compared to 98.9% last year. Those two indicators reflect the surprisingly strong position in which many sellers still find themselves.
Despite softer demand, sluggish seller activity has also kept prices elevated. There has been just one month of year-over-year price declines since February 2012. That was in May of this year. There have been some flat months this year as well as modest gains, but it appears prices could be up slightly for the year. For September, the median home price rose 2.2% to $370,305. “Sellers who locked in low interest rates are reluctant to give them up,” said Brianne Lawrence, President of the Saint Paul Area Association of REALTORS®. “That’s kept inventory low and prices strong, but it still feels quite different from the last few years.” We have 8,700 active listings. That listing number needs to be closer to 20,000 to have a balanced market.
Affordability, Rates and Payments
Even as the Federal Reserve paused and left their target rate unchanged at the September meeting, the 30-year fixed mortgage rate reached its highest level since 2000. The Housing Affordability Index, as expected, hit its lowest level since at least 2004. Given rates, incomes and prices at the time, affordability was better in 2006 than it is today. Using some assumptions around taxes and insurance, the monthly payment on the median priced home stands at $2,650 so far this year compared to $1,600 in 2020.
Location & Property Type
Market activity varies by area, price point and property type. New home sales rose while existing home sales fell. Single family sales were down more than townhome sales. Closings were down around 17.0% in both Minneapolis and St. Paul. Cities such as St. Anthony, Orono, Richfield and Golden Valley saw among the largest sales gains while New Hope, Robbinsdale, Eagan and Andover all had notably lower demand than last year.