Many of us at some point in our lives will find ourselves navigating the ever-changing worlds of buying or selling a home. In this month's "A Closer Look", WCCO's Laura Oakes dives into the market forces at play right now, and the twists and turns of one local couple's journey.
It’s the American Dream, right? Home ownership. For some who have the resources, it’s as easy as making a decent income in order to afford a house payment, hooking up with a realtor to find the right fit, and bam, you’re in.
But for others, it can be a frustrating and sometimes deflating maze of confusion when the market is tight and the competition is fierce. For those who do own their first—or some would call, “starter’ home—maybe they’ve outgrown their space, have a few kids now, and a bigger income that affords them the house they really want.
In recent months, the local real estate market hasn’t exactly been cooperating for those people. Interest rates on a 30-year fixed mortgage have been hovering in the six percent range after going as high as eight percent, which is tough to swallow when you've been used to a much cushier rate.
THE STATE OF MORTGAGE RATES
President-elect of the Minneapolis Area Association of Realtors Frank D'Angelo says, however, that’s a pretty narrow mindset:
"They're now settling into normal ranges when historically, the interest rates have been in the sevens," says D'Angelo. "However, we've experienced interest rates where 70% of current homeowners are below four percent. And so if they only look at those two limiting factors of interest rates and housing prices, and not put in the factors of higher income earning and higher affordability, then I think they might feel trapped and I don't think that's an accurate condition."
Since the Federal Reserve cut its benchmark interest rate for borrowing by a half-point in September—the first such cut in more than four years— local loan officers say applications have been increasing, but Realtors say they haven’t seen the flurry of activity everyone was hoping for when the rate drop was announced.
Sometimes Federal Reserve decisions impact mortgage rates, sometimes they don't. Bigger factors typically involve things like inflation, the unemployment rate, the bond market, and the broader economy.
INVENTORY CONTINUES TO BE AN ISSUE
Brian Glendenning is a Realtor with Edina Realty. He says with more interested buyers than there are homes on the market, conditions are still less than ideal, and the problem is a lack of inventory.
"We need more houses on the market," Glendenning explains. "We need more things for sale for people to buy. And that's been an issue for many years. For many years. And it's gotten worse and worse. And again, different areas are different. But you know, what we see here in St. Paul in mainly Highland Park and Macalester-Groveland is there isn't a place for downsizers to go. They don't have an option of places to move that are in the city, in the neighborhoods that they know and are comfortable with. So they're either moving out to townhomes in the suburbs, which is not where they want to be, or they're staying in homes that really should be on the market. And so that has got us in a bind."
Glendenning says even for those move-up buyers who are having success, sometimes they find themselves in unexpected predicaments. Maybe they have the money for their new larger house payment, but other necessities can leave them stretched thin.
"A million dollars used to be an amazing amount of money where you could get these grand houses and it just doesn't stretch as far right now," says Glendenning. "You're still finding space, but those spaces have projects. And so the other piece of it is, even if you can get into that house, finding somebody to do the work and at a reasonable cost and on a reasonable timeline is extremely difficult."
RE/MAX Results Realtor Marti Estey couldn't agree more.
"I mean, I have lost, you know, a furnace guy, I've lost a plumber, I've lost a roofer, I've lost two handymen," Estey explains. "The amount of people that you can get to do stuff is less, so there are a lot of my clients that say they don't want to deal with getting contractors. And maybe they would have done it to get a higher price. But now too, I think for some people, the prices are beyond what they would have ever thought they would have sold their house for. And while I don't want to say that makes people give up, I think it makes people not necessarily want to invest to get top dollar because they think they might just get lucky and get top dollar anyway."
MORE: See all of Laura's "A Closer Look" stories here.
Yet here we are, the fall market coming to a close, with stagnant rates in the six's and the traditionally slow winter buying and selling months about to set in. It remains to be seen if another predicted Fed cut by the end of the year will have any kind of a trickle down effect on mortgage rates. If it does, it's possible it could spring a few more possibilities loose for potential buyers who have been sitting on the sidelines for awhile.
Regardless, Estey says it's not a market for the faint of heart right now.
"When the market is just very weird and dramatic, it can be hard and it's not just one thing, right? It's not just rates, it's not just inventory, it's not just everything being dramatic, but you tie all those things together and it doesn't make - for some people - a fun process," says Estey. "Especially if you're not the type of person that can deal with a lot of punches. There are a lot of punches to be able to make all these things happen right now."
A STRESSFUL JOURNEY INTO THE MARKET
After renting for nine years, new homeowners Cristin Callahan and Luke Rodriguez know that dramatic market well.
"We made three or four offers," says Cristin.
"Yeah, yeah, three or four and that process was really, it was like a roller coaster," Luke chimes in. "Because we would picture ourselves in the house and then we would lose out. Or we would decide not to bid because one place had 14 offers and it got bid up how much?"
"Oh my gosh, like $90,000 over asking or something," answers Cristin.
"You know, they priced it a little too low," Luke said.
"That one was a steal," remembers Cristin. "But we did see a couple other ones. So that was the first house we saw, I think, and then the first offer that we made was a place in south Minneapolis. And the same thing happened. It wasn't 14 offers, but I think it went for 60 (thousand) over asking price. So then that was kind of a reality check of, 'ok, we're going to be making offers that we aren't going to be getting.' And then it became this weird game of feeling like you have to make an offer, but are we just making an offer because we don't want to miss out or is this really the right place? And how do you know?
After all that, Cristin and Luke finally found the right fit when the market cooled a bit.
"We're actually really happy that all four of our offers fell through because we're really happy with this place and we couldn't imagine ourselves living in those houses in those neighborhoods," says Luke. "So I don't know if it was just meant to be or what."
Cristin and Luke did end up boosting their budget a little, but say it was worth it to finally find the right fit. They've been in their new, old, 1928 bungalow since August, and couldn't be happier.
And as we move closer to a new year, the cycle continues. More homes will turn over, and more house hunters will realize their dream.
"Life is about what you make of it and life is about your friends and life is about your job," explains Estey. "But really, at the end of the day, if you think about it - and it doesn't matter who you are - I don't care if you're a celebrity, you name it, whatever job you do, your home is your thing."