ST. CLOUD — Rising home prices and mortgage rates in central Minnesota are creating a lopsided market where potential homebuyers are being priced out of the houses they could have afforded last year.
The average interest rate for home loans in the U.S. rose above 6% this week for the first time since 2008, and is more than double what it was a year ago.
Meanwhile, the median sales price for central Minnesota — which includes Stearns, Benton, Sherburne and Wright counties — increased 6.4% year-over-year to a new record high of $330,000 as of August, according to the most recent report from Minnesota Realtors. That now matches the statewide median sales price of $330,000, an increase of 4.4% over last August.
"Prices are getting up there and at the same time, interest rates are way up. In most people's minds, they go, 'Oh, that's only 3%,'" said Chris Galler, chief executive officer of Minnesota Realtors. "It's not. You really have to look at the impact, which is that it's 100% more interest."
The increased mortgage rates mean a homebuyer on the market for a $310,000 house last year can only afford a $270,000 house this year, Galler said.
"That's about $40,000 that they lost out on as far as buying capacity. That is two different houses in the marketplace," he said.
The number of new listings in central Minnesota dropped 19% this year over last August. The decline is even steeper in the St. Cloud metro, which saw the number of new listings drop 32% over last August.
"That's pretty intense to see that when we still know that there's a housing shortage going on," said Kelly Schepers, an agent with Premier Real Estate Services and president of the St. Cloud Area Association of Realtors.
Following a decline in new listings comes a decline in closed sales due to the shortage of available houses, Schepers said. In August, the central Minnesota region saw the steepest decline of all regions in the state for home closures, with a year-over-year decline of 26%.
But the market slowdown and less frantic pace of homebuying isn't all bad for potential buyers: In this market, sellers will likely spend more time and money making sure their house is in good condition, Galler said. And because there will be fewer multiple-offer situations, buyers can insist on housing inspections — a practice some buyers skipped as a way to improve their offer during the height of the homebuying frenzy last year.
Local experts predict the inventory will eventually rebalance and the rapid increase in home prices will slow — but when that happens is anyone's guess.
"We're waiting to see what the Federal Reserve is going to do but with the inflation rates running high again in August, it appears the Federal Reserve is going to increase rates again, which will increase mortgage rates," Galler said. "And that will make it that much harder for first-time homebuyers to get in."
