Nancy and Dan Lynch, who became empty-nesters this summer, looked at the changing market for houses and decided to sell their Chanhassen home of 25 years.
As interest rates rise, some Twin Cities area home sellers wait to buy again
Timing a market in any investment is risky, but a growing number of home sellers are taking a pause before the next plunge.
October 16, 2022 at 10:17PM
The house sold quickly and for far more than they were asking, but the couple decided to move into a rental rather than immediately look for another one.
"Our biggest motivation was wanting to capitalize on the hot housing market before things slowed down," said Nancy Lynch. "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 other places because the cost of renting is much closer to the cost of owning here, said Rick Tucker, chief economist for Zillow.
And because house inventory in the Twin Cities is so tight, any price declines are likely to be small and short-lived.
"There are likely other buyers waiting on the sidelines for this same scenario, so it's very possible if prices fall to a certain point then bidding wars would return, pushing prices back up for most buyers," Tucker said. "This price dip is about buyers pulling back given the high cost, not excess inventory hitting the market."
Meanwhile, the uncertainty about mortgage rates is likely to last through much of next year. Policymakers at the Federal Reserve have signaled they don't 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 appears higher inflation and tight monetary policy will be with us longer than many hoped this summer."
And rates keep rising. On Thursday, Freddie Mac said the 30-year fixed-rate mortgage increased to an average 6.92%, the highest in two decades.
At the end of September there were just 8,934 houses for sale in the Twin Cites metro, 73 fewer than last year at the same time, according to the latest data from the Minneapolis Area Realtors. New listings are up only slightly compared with last year.
House prices are still on the rise, but at only about half the pace they were increasing earlier this year. During September, the median price of all sales in the seven-county metro was $365,000, 4.7% higher than last year, according to the Minnesota Realtors.
Zillow rates the Twin Cities as one of the least likely metro regions in the nation to see a price correction over the next 12 months. Cities that saw steeper price growth in the pandemic, like Boise, Idaho, Austin, Texas, and Raleigh, N.C., are most likely to cool the fastest.
Though closings were down 24% while houses sold in just 29 days, slightly slower than last year, sellers still got 99% of their list price, according to the September sales report from Minnesota Realtors, the statewide organization.
Confidence in the housing market is at the lowest level since 2011, according to Fannie Mae, which said that just 19% of those surveyed during September said it was a good time to buy a home. That's down from 22% during the previous month.
The Lynches' decision to sell this summer, they said, was motivated in large part by the astonishing bidding wars and over-asking price offers they were hearing about.
"We recognized how quickly and for how much the houses in our neighborhood and community were going for and we anticipated at some point that the market would level out," said Nancy Lynch. "We didn't want to be the buyer that ended up paying over 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 cusp of price declines. From start to finish it took them just 88 days to clear out most of their belongings, sell their house and move into a two-bedroom apartment not far from the house they sold.
"We will most likely buy again, probably within the next 12 to 36 months, depending on what happens with the real estate market," said Nancy Lynch.
Their sales agent, Jim Schwarz, and several others in the Twin Cities say many other sellers are doing the same.
"Sellers are cashing out and then moving into rentals so they have 100% flexibility on their next move," Schwarz said.
While rising mortgage rates have reduced the pool of first-time buyers, higher borrowing costs are also reducing the number of qualified buyers, especially empty nesters, who are using the equity from the recent sale of a home to trade up to a larger, more expensive one.
Zillow said that in 2021, 55% of all sellers bought a more expensive home than the one they sold. So far this year, only 44% of those sellers spent more. That's likely because higher mortgage rates forced them to get a smaller loan, or they paid cash with the proceeds of their sale.
Of course, if rates do fall, refinancing is always 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 hoping to catch the peak of the market, but it didn't work out quite that way.
Though the house sold quickly, they didn't get their full asking price. But they did get an offer that waived the inspection contingency and they even got to pick the closing date.
"A neighbor sold the year before and they got a couple offers," said Julie Burrows. "I was expecting that. This time that's not what happened."
Rather than invest the profit they'd earned from that house into another one, they moved into a rental in the North Loop neighborhood in Minneapolis. That gives them flexibility to spend several months with their son, who lives in France, and to evaluate their next move.
After meeting four other U.S. couples who bought real estate in France, the Burrows are now exploring that option for themselves. In the Twin Cities, renting in the neighborhood where they eventually might want to buy also lets them explore their options and decide what building is best for them.
In the meantime, they're paying close attention to what's happening in the housing market.
"It can't be as hot as it's been," said Julie Burrows. "We want to stay flexible while we decide what's next."
The Minnetonka-based health insurer says the new contract “ensures continued, uninterrupted network access” to hospitals and clinics at the Bloomington-based health system.
