Des Moines metro home sales fell in 2023, but could falling interest rates revive market?
The boom times are definitely over in the Des Moines metro home sales market.
But if you squint at the numbers long enough, you can see a few positive signs, according to area real estate agents.
Des Moines metro home sales drop for a second year
Home sales in the Des Moines metro fell by more than 12% in 2023 after a decline of 16% in 2022, according to the Des Moines Area Association of Realtors' annual report.
The main driving factors, of course, were higher home mortgage rates and prices. Thirty-year mortgage rates peaked at 7.79% on Oct. 26, according to Freddie Mac, the government-sponsored mortgage buyer, up from a modern record low of 2.65% in December 2021.
More: See the 10 most expensive homes sold in Des Moines area in 2023
High mortgage interest rates are big culprit in reducing home sales
A rate between 7% and 8% isn't historically high on the American mortgage market. Thirty-year mortgages became the standard in the early 1960s, and records kept by Freddie Mac since 1971 show average rates for them dipped below 7% only for a brief period between then and 1998. For most of the 1980s, they were in double digits.
More: Housing market predictions: Six experts weigh in on the real estate outlook in 2024
But a newer generation of buyers became accustomed to the sub-5% rates that set in after the 2007-09 Great Recession and endured until spring 2022.
At the same time, a workforce homebound by COVID-19 was looking for houses with more space, and had buying power bolstered by the federal stimulus checks that helped turn the 2020 pandemic-caused recession into one of the briefest ever. Record-setting metro home sales in 2021 had real estate agents scrambling to keep up with the demand. The average home was on the market just 28 days.
Just how much more does a mortgage cost now?
The average time homes are on the market is one of the starkest contrasts since mortgage rates began their climb. Des Moines metro homes in 2023 lingered for an average of 72 days, the Realtors' data show.
And higher interest rates aren't the only reason. Home prices have soared. From January 2019 to January 2024, the median home price rose almost $100,000, to $295,000. That means the monthly principal and interest payment on a mortgage for a home at the most recently reported median price, with 20% down and financed at the average interest rate in the final week of January 2024, is a staggering 88.5% higher than it was for a median-priced home at the prevailing rate at the same time in 2019.
More: Purchase a Victorian-inspired farmhouse on 32 acres of Urbandale land for $1.8 million
"It filtered out a lot of buyers on the fence," said Jay Avant, a Realtor at Clarkson Realty Group in Ankeny.
People have a hard time reconciling themselves to the much higher cost of homeownership. And homeowners who have low-interest mortgages are reluctant to put their homes on the market and face higher costs for a replacement, leading to an inventory shortage that keeps prices rising ― a median of 9% in 2023, according to the Realtors association.
"When supply is low, demand is high," Avant said. "Low inventory had a big impact."
More: A rare chance in Sherman Hill to own a Victorian home built for a wealthy local merchant
Will new construction add more homes to sell?
Currently, most homes sold in central Iowa are resale properties, said Les Sulgrove, a former president of Des Moines Area Association of Realtors and a licensed Realtor. Newly constructed homes make up 20% of sales, Sulgrove said.
"That’s up a little bit from the last couple of years," he said. "So they are increasing their inventory."
Axios reported that national home developer D.R. Horton built and sold 600 homes in the Des Moines metro area last year. Those homes help, Sulgrove said, though he said it's the speed at which Horton can crank out homes, rather than the price it charges, that make a difference between it and some legacy homebuilders like Des Moines-based Hubbell Homes.
Few homes for first-time homebuyers
Sulgrove said there's still a severe shortage of homes priced under $300,000, an amount middle-class and first-time buyers generally can afford. Simply building more homes doesn't seem to be the answer because the prices for them are out of reach for most first-time homebuyers, he said.
"New construction pricing is higher than the market pricing that we need the inventory in, which is that low-to-entry level first-time homebuyer market," Sulgrove said. "It’s hard to build them for under $250,000. That’s just the reality of the matter with all the zoning and permits and land costs."
More: Development news: East Village project breaks ground; city seeks developers for parcel
The market is stuck and its gears need to be greased, Sulgrove said. But finding the "big ol' gallon of WD-40" to do it is the trick, he said. If somehow 300 to 500 new, entry-level homes were built and came onto the Des Moines market, "that would make a difference," he said.
"But that’s just not the reality of what can happen in real estate with new construction today," he said.
Investors eating up lower-price inventory of homes for sale
Compounding the problem, investors are buying up what little inventory there is for first-time homebuyers and turning most of those homes into rentals, Sulgrove said.
There used to be a lot of homes priced below $100,000, he said; now, "there's hardly any inventory under $100,000."
"Everything has to start at the bottom and work its way up," Sulgrove said. "With investors making a lot of purchases and putting rentals in there, that keeps a lot of the would-be first-time-homebuyers still in apartments because there’s nothing that they can buy."
Des Moines metro homes remain affordable compared to national prices
Still, the Des Moines market's affordability makes it a relative bargain compared to the country as a whole. The metro's median home sale price in December was $274,945 as compared to the U.S. median of $382,600 ― 28% less ― despite the fact it's the fastest-growing major metro in the Midwest, has an unemployment rate about a percentage point below the national average and has a median household income a tad above the nation's, according to the St. Louis Federal Reserve.
"Des Moines has got some of the most affordable housing in the United States," said Rick Wanamaker, a Des Moines agent who specializes in high-end homes. Wanamaker and his wife Marcia began tracking the $1 million-plus market in the Des Moines metro since 2004. "I know of a case where someone lived in a 1,000-square-foot condo in New York City and they bought a very large home here for the same price."
More: Developers Tim and Chloe Bratvold are building Des Moines neighborhoods and life together
Wanamaker noted that while the number of homes sold for $1 million or more in the core Des Moines metro market ― Polk, Dallas and Warren counties ― decreased slightly in 2023, the total for the year, 72, was still far higher than in 2020, when 29 homes sold at or above that price level.
What's the chance for improvement in Des Moines' housing market?
So what reason is there for optimism?
Mortgage rates, the real estate agents like to point out, are headed in the right direction, along with the declining rate of inflation. The current average rate nationally for a 30-year mortgage is 6.67%, Freddie Mac reports ― more than a percentage point below where it was in October.
"With interest rates coming down, I think that there will be more homes on the market," said Avant, the Ankeny Realtor.
Could Des Moines area see a warmer housing market ahead?
Avant said he expects the overall market to pick up if, as expected, rates drop in 2024.
This year started on a hopeful note. January is traditionally a slow month for home sales. But until Des Moines had back-to-back major snowstorms in mid-January, the market was busy, Avant and Wanamaker said.
More: Market Experts Share Six Tips for Navigating Challenging Real Estate Markets
"January was looking up," Avant said. "I think as interest rates come down, we're gearing up for a great warmer season."
His advice: "If you don't have to move and you're willing to wait for (interest rates) to come down, be patient, be persistent and just wait for the right time and opportunity."
Sulgrove, on the other hand, said there's no time like now.
"Just buy something," he said. "If you get a high rate you can refinance. If you get a low rate, laugh at your neighbors who have to pay an extra percent higher. Home values are still probably going to go up regardless."
Philip Joens covers retail, real estate and RAGBRAI for the Des Moines Register. He can be reached at 515-284-8184, pjoens@registermedia.com or on Twitter @Philip_Joens.
This article originally appeared on Des Moines Register: What caused the decline in metro Des Moines home sales in 2023?
