If you’ve seen headlines about the housing market in recent months, you likely have noticed gloom and doom reports about higher interest rates and lower pending sales. And while it’s true that increased interest rates are impacting the buying power of would-be purchasers, Edina Realty president Sharry Schmid says there’s no reason to fret about the lower sales numbers or to begin talking about a housing downturn.
“The sky is not falling,” Schmid said in a recent interview. “In fact, once you put the news and data points into context, it shows that we — especially on a local level — are in a better position than many think. And current market dynamics are much different from the housing crisis of 2008.”
Telling the local story
First, Schmid said, it’s important to take note of a few national trends, and then focus squarely on what’s happening in our market of Minnesota and western Wisconsin.
She cites three important stats:
- Nationally, homeowners gained an average of $64,000 in equity between the first quarter of 2021 and 20221.
- Locally, Minnesota homeowners gained an average of $29,000 between Q1 of 2021 and 2022; Wisconsin homeowners gained $28,000 in equity in that same timeframe1.
- Minnesota currently has the lowest unemployment rate of any state in the country, ever2. (And they’ve been keeping these records for more than 50 years.)
“It’s easy to compare equity gains on the coasts — which in some cases have reached $100,000 or more1 in the last year — to equity gains in Minnesota or Wisconsin and think, ‘This is a problem, our prices aren’t rising as fast.’ But in fact, we are showing a healthy level of appreciation when you consider the cost of housing here. We have our extremely strong job market, driven by a diverse range of major employers,” said Schmid.
“Volatility is a key ingredient for both housing bubbles and recessions, so our strong and stable position should provide homeowners, sellers and buyers with some peace of mind.”
How are rising interest rates impacting buyers?
After historically low rates in the 3-percent range for the last several years, the Fed has been increasing rates in 2022 as a way to attack inflation.
When interest rates rise, it brings down the buying power of house hunters. This means that buyers may have to lower their budgets in order to afford a home. But before assuming that buyers will be priced out of the market, it’s important to look into the details, said Schmid.
Locally, buyers who are purchasing a median-priced home, with an average mortgage rate on a 30-year loan and 10% down would pay about $2,200 for their mortgage principal, interest, taxes and insurance3.
“Home prices are rising, but rental costs are, too,” said Schmid. “So while it’s true that buyers may have to lower their home budgets, they can take comfort in knowing that they’re making a monthly payment one way or another. It will benefit them greatly if, in the long run, their housing payments are going to a home they own.”
What else should buyers know about the market?
Buyers can finally exhale, Schmid suggests, as the market’s frenetic pace should slow down in coming months. “While homes won’t lag on the market for months at a time, buyers should be able to take more time looking at homes, and have more options to choose from. Overall, they should feel a bit less stress as they find the right home for their future.”
How are interest rates impacting sellers?
When a homeowner has a lower interest rate on their existing mortgage than they would receive for a new mortgage, they may be unsure about selling their home and re-entering the market as a buyer. Recent headlines have indicated that if enough homeowners decide not to sell, it could exacerbate the already low-inventory market.
But that is also an unlikely outcome, said Schmid. In addition to interest rates, sellers have a number of factors to consider, including their equity position and loan options. “Many sellers are in a great position to use their earned equity for a down payment and to buy down interest rates with mortgage discount points,” said Schmid.
“Furthermore, not all homeowners have a 3% interest rate right now; there’s a significant portion of homeowners who are locked in at higher rates.” In Minnesota and Wisconsin, she said, more than 50% of homeowners have a mortgage interest rate of 4% or above. That makes them unlikely to consider rates as an obstacle and to put their plans on hold.
“While buying and selling a home is a financial decision, it’s also an emotional one. There will always be people who need more space, less space, or to move to a town that’s a better fit for them. Interest rates may impact some homeowners’ plans, but it won’t be a primary driver in seller behavior in the long term,” said Schmid.
What else should sellers know about the market?
Sellers should scrap what they heard at the height of the market in 2020 and 2021, said Schmid. Homes will be less likely to sell in one day in multiple offers, or to sell to buyers, sight-unseen.
Still, said Schmid, “Many sellers will see their homes go for over asking, even if they shouldn’t expect that outcome. And most importantly, your home will sell, and it will sell for a good and fair price. It’s still a great time to be a seller in Minnesota and Wisconsin.”
Need some help navigating this market?
At Edina Realty, we understand that it’s easy to get wrapped up in national headlines about the housing market. But we also know that real estate is local — and no one knows more about the local housing market than we do.
For help buying or selling, or one-to-one insights on the best path forward for you and your family, reach out to Edina Realty or your agent today.
1. Keeping Current Matters
2. Star Tribune
3. Minneapolis Area Association of REALTORS® and RMLS, Inc. Data pulled in July 2022 using current rates and median-priced homes for the 13-county Twin Cities metro area.