When Andrew and Heidi Stevens decided to upgrade from their $289,900 starter house in Crystal last month, they expected an offer within days, maybe even hours. Instead, it took two weeks and a $10,000 price cut before they found a buyer, leaving them to wonder: What happened to the red-hot market?
"Are buyers just worn out because they're sick of losing out?" Andrew Stevens said, after an open house attracted only three shoppers. "Are buyers getting squeamish?"
By most measures it's still one of the most competitive housing markets in decades. But a new report shows there are subtle signs that the housing market is in the midst of a normal seasonal slowdown or a slight correction.
During June there were 6,738 pending sales or signed purchase agreements in the metro area, a slight decline compared with the previous month and 2.5% fewer than last year, according to the Minneapolis Area Realtors (MAR). It is the first annual decline in monthly pending sales in more than a year.
Michael Lane, president of Chicago-based ShowingTime, which tracks house showings throughout the country, said that while there's no evidence of a housing crash in the offing, rising prices and dizzying competition might finally be cooling sales at a time when higher home prices are drawing more listings into the market.
Closings during June, a reflection of deals that were signed two to three months earlier, were up nearly 20%, and hit the highest monthly total in more than a year.
The median price of those closings rose nearly 15% to a record $350,000. While that gain was the second-highest in more than a year, it was slightly lower than the month before.
"Buyers just can't afford the prices, but it could also be a little seasonality," said Lane. "But I am not among those who are predicting a burst of the bubble."
In the Midwest, where buyers tend to be most active before summer vacations begin and school starts in the fall, home shopping tends to peak in June. This year, Lane said, that appears to have happened earlier than normal. During May there were 34 showings for every house listing for the Twin Cities, the third-highest showing ratio in the country. During June, that ratio fell to 28.
Lane said that with prices on the rise, more new listings are likely to follow as homeowners cash in their equity and take advantage of the lowest mortgage rates in a generation.
In the Twin Cities, that's already happening. Last month, according to the MAR report, there was nearly an 11% increase in new house listings in the Twin Cities during June. But with demand outpacing supply in some parts of the metro area, buyers still had nearly 36% fewer options at the end of the month.
Lane said the effects of the pandemic and the possibility of remote work for more buyers has upended the needs of buyers and sellers in innumerable ways, making it more difficult than ever to predict the market.
"It could simply be a supply-and-demand anomaly," he said.
Todd Walker, MAR president and a Twin Cities-area real estate agent, said in a statement that the decline in pending sales could be a result of the stiff competition buyers are facing.
"Reasonably increasing home prices are a good sign for our industry," he said. "Frequent bids over asking price will naturally incentivize some buyers to wait out the busy season for when they have more opportunity."
Despite the economic turbulence of the pandemic and growing concerns about the prospect of a price bubble, home buying continues to be fueled by low mortgage rates. Though rates have fallen each of the past three weeks, mortgage originations across the country have fallen slightly.
On Thursday, Freddie Mac said the 30-year fixed-rate mortgage averaged 2.88% after peaking at 3.18% in April — a full percentage point lower than a year ago. That has provided a bit of relief for buyers who are struggling to keep pace with rising prices.
Freddie Mac predicts that rates will rise only slightly next year, withan average 30-year rate of 3.7%. The agency also expects house price growth to slow from an annual 12.1% this year to 5.3% in 2022, when home sales are expected to remain flat compared with this year.
Like many homeowners who have been tempted to trade up to a more expensive house by rock-bottom rates, the Stevenses were concerned about selling their house before they'd found a new one. But given they'd be selling a starter house — a hot commodity — they were confident they'd sell quickly with plenty of time to find their next one.
They had encountered swarms of other buyers when they went to open houses in early May. So after looking at nearly a dozen houses, they offered significantly more for the house in Champlin than the sellers were asking, and offered to buy it even if they hadn't sold the house they already owned.
Now, as the couple await the closing on their house in Crystal, they're settling in with their 2-year-old at the roomier place in Champlin. Andrew Stevens is aware they might have overpaid slightly for their new house.
Although they fretted about whether they'd missed the peak of the market, the couple ended up getting competing offers, including one that will net them close to their original list price, despite the price reduction.
"Had it not been for the run-up on prices on 'starter homes' — if they can even be called that anymore — it wouldn't have been possible,' he said.
