How dramatically higher interest rates have reshaped Minnesota's housing market

house for sale
The housing market is tight, but first-time homebuyers are still out looking for real estate.
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There are still many more buyers than sellers, but conditions have improved for those looking for a home.

Bidding wars are rarer than they were a couple of years ago and prices are more stable. MPR News reporter Mark Zdechlik has a look at the market.

Use the audio player above to listen to the full conversation.

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Audio transcript

CATHY WURZER: Let's talk about the housing market right now. Dramatically higher interest rates have reshaped the housing market. There are still many more buyers and sellers, but conditions have improved for those looking for a home. Bidding wars are a bit more rare than they were a couple of years ago, and prices are more stable. Mark Zdechlik has a look.

MARK ZDECHLIK: Kristin Stead and her husband want to become homeowners. And they know making that work within their budget will be challenging.

KRISTIN STEAD: We're hoping for something under 300,000. But we haven't really been able to find anything that's not a major fixer-upper in that price range. It's been a little discouraging because the stuff that looks like it's in our price range online, you go see it, and you're like, oh, there's big cracks in the foundation in the basement. There are these big problems that are more than just a little fixing up.

MARK ZDECHLIK: The Steads rent in South Minneapolis. They've only been on the hunt for a house for a couple of weeks and were already outbid on their first offer. Higher interest rates have made buying homes more expensive. According to federal government statistics, the average 30-year mortgage currently stands at nearly 7%. It has not been below 3% since the fall of 2021. Emily Green, the head of Minnesota Realtors, says higher interest rates are a big concern among many house hunters.

EMILY GREEN: It really did change your calculation on a payment substantially for a buyer. If you were qualified for a $300,000 house, you had that payment factored in. And if the interest rates made a percentage jump, that's a very different payment. So people had to rethink, that were actively looking. They had to reassess.

MARK ZDECHLIK: According to the latest Minnesota Realtors statistics, year-over-year home sales are down by more than 17%. Fewer homes are for sale now. And homes up for sale are not getting snatched up as quickly as they were. An industry statistic that's called days on the market is up more than 20% from a year ago. Still, Green and others say it remains a seller's market. More people are looking to buy property than to sell. But the higher interest rates have slowed down what had been a real estate feeding frenzy for several years.

Even though rates are much higher than they had been for some time, they are closer to average rates over the past several decades. Andrew Babula directs the real estate program at the University of Saint Thomas. He says the return to more normal interest rates following a several-year run of historic lows is not just causing reluctance among prospective buyers.

ANDREW BABULA: What's also happening is that supply is declining. So people who are already in homes and have low mortgage payments, they don't want to move. So as a result, not only do you have demand slowing down, you've got supply slowing down as well.

MARK ZDECHLIK: Michelle Scrivner and her family just put their South Minneapolis home on the market and have already had several showings. They plan to move to Chicago and trade home ownership to become renters. Scrivner says she and her husband were concerned about the market at first.

MICHELLE SCRIVNER: I feel like from people that weren't in the market, they were just like, oh no, now's a horrible time. And when I spoke to two different realtors because I wanted different opinions, and both of them were like, you know what, the market's still pretty great. People are still looking.

MARK ZDECHLIK: Real estate industry analyst Andrew Babula from Saint Thomas says realtors encouraging people to buy despite higher interest rates are correct in telling customers who really want a house not to let interest rates keep them out of the market. Home prices continue to increase with demand outpacing supply. And he says if interest rates go back down, those who buy now can simply refinance down the road.

ANDREW BABULA: You marry the house, you date the mortgage.

MARK ZDECHLIK: But Babula says don't count on interest rates plunging again to those historic lows that fueled the real estate market for so many years. I'm Mark Zdechlik, MPR News, Burnsville.

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