As interest rates rise, some sellers in the Twin Cities decide to wait before buying again
Nancy and Dan Lynch, who became empty nests this summer, watched the changing home market and decided to sell their 25-year-old Chanhassen home.
The house sold quickly and for far more than they asked for, but the couple decided to move into a rental rather than immediately look for another.
“Our biggest motivation was to want to capitalize on the booming real estate market before things slowed down,” Nancy Lynch said. “Flexibility is our new mantra.”
Home sales in the Twin Cities are slowing after mortgage rates doubled and the supply of homes for sale fell. Lately more people are selling and then waiting to buy.
It’s a risky move. Timing a market in any type of financial investment – from baseball cards to commodities to stocks – is always tricky.
But the “sell, then rent and wait to buy” strategy is more of a gamble in the Twin Cities than in other places because the cost of renting is much closer to the cost of owning here, said economist Rick Tucker. in chief of Zillow.
And because home inventory in the Twin Cities is so tight, any price drops are likely to be small and short-lived.
“There are likely other buyers waiting on the fringes of this same scenario, so it’s very possible that if prices fall at some point, the bidding wars would return, driving prices up for most buyers” , Tucker said. “This price drop is for buyers pulling out given the high cost, not excess inventory hitting the market.”
Meanwhile, uncertainty surrounding mortgage rates is expected to last much of next year. Federal Reserve policymakers have indicated they do not expect to lower the key rate they control until 2024.
“It’s far from a sure bet that mortgage rates will fall anytime soon,” Tucker said. “It looks like higher inflation and tight monetary policy will be with us longer than many hoped this summer.”
And the rates keep rising. On Thursday, Freddie Mac said the 30-year fixed-rate mortgage rose to 6.92% on average, the highest in two decades.
At the end of September, there were just 8,934 homes for sale in the Twin Cites metro, down 73 from the same time last year, according to the latest data from Minneapolis-area real estate agents. New listings increased only slightly from last year.
Home prices are still on the rise, but at only about half the rate at which they rose earlier this year. In September, the median price for all seven-county subway sales was $365,000, 4.7% higher than a year ago, according to Minnesota realtors.
Zillow ranks the Twin Cities as one of the least likely metro areas to see a price correction over the next 12 months. Cities that have seen stronger price growth during the pandemic, such as Boise, Idaho, Austin, Texas and Raleigh, North Carolina, are most likely to cool the fastest.
Although closings fell 24% while homes sold in just 29 days, a little slower than last year, sellers still got 99% of their list price, according to the September sales report. of Minnesota Realtors, the statewide organization.
Confidence in the housing market is at its lowest since 2011, according to Fannie Mae, who said just 19% of respondents in September said now was a good time to buy a home. That’s down 22% over the previous month.
The Lynches’ decision to sell this summer, they said, was driven in large part by the startling bidding wars and excessive price offers they were hearing about.
“We realized how quickly and for how much homes in our neighborhood and community were selling and we predicted at some point the market would stabilize,” Nancy Lynch said. “We didn’t want to be the buyer who ended up paying more than list price in a bidding war.”
They decided to rent because they didn’t want to end up in a bidding war or pay the seller more than they were asking on the eve of a price drop. From start to finish, it took them only 88 days to empty most of their possessions, sell their house and move into a two-bedroom apartment not far from the house they had sold.
“We will most likely buy again, probably within the next 12 to 36 months, depending on what happens with the real estate market,” Nancy Lynch said.
Their sales agent, Jim Schwarz, and several others in the Twin Cities say many other sellers are doing the same.
“Sellers cash out and then move into rentals so they have 100% flexibility on their next move,” Schwarz said.
While rising mortgage rates have shrunk the pool of first-time home buyers, rising borrowing costs are also reducing the number of qualified buyers, especially empty parents, who use the equity in the sale recent purchase of a house to exchange for a larger, more expensive one.
Zillow said that in 2021, 55% of all sellers bought a home that was more expensive than the one they sold. So far this year, only 44% of these sellers have spent more. It’s probably because the higher mortgage rates forced them to get a smaller loan, or they paid cash with the proceeds of their sale.
Of course, if rates go down, refinancing is still an option for today’s buyers if they reach sufficient levels of home equity.
Like the Lynches, Jeff and Julie Burrows are empty nesters who decided to downsize after their kids left for college. This summer, they listed their house in Edina in hopes of reaching the top of the market, but it didn’t quite work out that way.
Although the house sold quickly, they did not get the asking price. But they received an offer that waived the possibility of an inspection and they even got to choose the closing date.
“A neighbor sold the year before and he got a few offers,” Julie Burrows said. “I expected it. This time, that’s not what happened.”
Rather than invest the profits they had made from that house in another, they moved into a rental in the North Loop neighborhood of Minneapolis. This gives them the opportunity to spend several months with their son, who lives in France, and to assess their next move.
After meeting four other American couples who have purchased property in France, the Burrows are now exploring this option for themselves. In the Twin Cities, renting in the neighborhood where they might eventually want to buy also allows them to explore their options and decide which building is best for them.
In the meantime, they are paying close attention to what is happening in the housing market.
“It can’t get as hot as it used to,” Julie Burrows said. “We want to remain flexible as we decide what’s next.”