Home-buying in Grand Forks slower than usual; interest rates and house costs the most likely causes

Nov. 25—GRAND FORKS — Dylan Gonser had been looking for the right home since August and planned to close on a condo this month — but his quest for a single-family home with an attached garage wasn't easy.

Gonser said price was a factor in his home-buying decisions. So was the current interest rate.

"When I purchased my (current) home, the interest rates were a lot lower," he said. "So, what I thought I could afford with that interest rate was very different from what I could afford with the current interest rate. ... And just finding homes that had, say, an attached garage or the right numbers of bedrooms or bathrooms was kind of hard unless you were in at least the $300,000 range, which I definitely was not."

With home prices rising and interest rates at 20-year highs, the rate of home-buying appears to be slowing in the Greater Grand Forks region. According to data from the United States Census Bureau, 43.7% of housing units in Grand Forks are owner-occupied, with 56.3% occupied by renters. The state average is 63% and 47%, respectively.

Deputy City Planner Ryan Brooks said UND and its student population is a major contributor to Grand Forks' higher-than-average renter-occupied rate.

"We're definitely a college town, so I would say you're going to see a higher percentage here versus other cities," he said. "The university still remains one of the higher areas for rentals — any college student is looking to get as close to the university as they can."

In addition to a large population of student renters, Brooks said rising home prices and interest rates have created a seller's market, which is incentivizing some homeowners to return to renting.

"As we've seen interest rates climb, there has been a trend of renting other units throughout town," he said. "I have heard a trend of some empty-nesters selling their single-family home as prices have become more favorable for them, and are deciding to rent so they don't have to do the maintenance. Maybe they don't want to move to a stacked-style apartment building, but they're renting a townhome or single-family home where somebody else does the maintenance."

Brooks' observations appear to be backed by economic data. According to the Federal Reserve Bank of St. Louis — one of 12 regional reserve banks making up the U.S. Federal Reserve system — the average interest rate on a 30-year fixed mortgage in August 2023 was 7.18%, up from 5.66% a year prior and the highest figure since December 2001. This also represents a marked increase from a 50-year low of 2.66% in December 2020.

Rates have decreased in the last month and a half, said Emily Hills Boyle and Eric Stringer, both of whom are mortgage lenders from Grand Forks' Gate City Bank. The rate dropped from 8% to 7% from mid-October to November, and was down to 6.5% to 6.75% as of Tuesday, Nov. 21.

"I think that it's still a good time to look at purchasing, especially for first time homeowners," Hills Boyle said. "We're seeing those rates are really good with some of the programs that (North Dakota Housing Finance Agency) offers."

Though interest rates are seeing a recent decline, Brooks also said a lack of affordable homes has kept some would-be home-buyers on the sidelines.

"I think there are people out there that are definitely looking," he said. "Monthly payments are definitely going up on a lot of homes, and that does obviously affect affordability. It's tough to find a home for under $150,000, or even $200,000, which most people would consider affordable."

For Gonser, the condo he's chosen fits within his wants for a home, but he does think the process would have been easier with a home that fit better into his price range.

"I think it might have been a little bit easier just because then I knew I would've been able to pre-approve, because the one I got was pretty much right at the top of my budget," he said. "It was kind of a little bit like, 'Do I want to? Because I'm not sure if I can fully afford it.' But, fortunately, I was approved for it."

While he's comfortable with the decision to move, he thinks other people might not be.

"I feel like there could be a lot of people trying to get a house before they get any higher," he said. "I think my interest rate is double what it was from my current house, so I could see a lot of people might not be willing to give up their current interest rate, even if that means they have to stay with a home that they're not necessarily enthused about."

Meanwhile, the number of homes on the market is increasing, mainly due to reduced demand as a result of high interest rates, said Mike Opp, owner of Grand Forks-based Oxford Realty.

"The supply of homes is climbing — better than it has been in the past six months," he said.

However, there are some residents who are holding onto the houses they live in. Hills Boyle said many homeowners redid their finances during COVID, when interest rates were low, and aren't keen on giving up that rate to move to a new house.

Opp has seen a trend of some homeowners turning their properties into short-term rentals, something he considers positive for the market.

"It's a good thing for affordable housing, because renting is more affordable," he said. "I would say it adds finance and liquidity to the market, which probably stabilizes price. Any time there's more money in a market, the market works better. If investors are going under, that's going to have the opposite effect."

"I would say percentage-wise — relative to the number of properties available north versus south — I would say inventory is equal," he said. "There's more total properties for sale in the south end, but it's a bigger area."

Not everyone is happy with the uptick in short-term rentals, though.

In a previous Herald story

, longtime homeowners in areas where houses are being turned into rentals complained that these houses aren't available for purchase by young families, and that college-aged renters can be disrespectful neighbors.

Opp also said he is noticing homes remaining on the market longer than in previous months.

When it comes to the decision to buy versus rent, Hills Boyle and Stringer said to remember three key factors: equity, predictability and enjoyability.

"When you rent, your money really isn't going toward anything," Hills Boyle said. "Whereas if you own, each payment, assuming that your home is appreciating, you get a little bit more ownership."

For predictability, rent can increase at any time, while interest rates can't change for a homeowner. Enjoyability also matters, as a homeowner has more privacy and control over their home and can make it their own.