Inflation and higher rates may cool the hot home seller's market
Feb. 11—ROCHESTER — After years of shopping for homes in Washington D.C., and Minneapolis during a very hot seller's market, a house in her hometown of Rochester caught Laura Ahmed's eye.
"In October, I was doing that very Millennial thing of scrolling through Zillow and I thought, 'Whoa, this house is really cool,'" she said while watching her husband Axe Ahmed play with their 7-month-old daughter, Leya, in their northwest Rochester home. "I'm a very emotional shopper."
The couple, who grew up in Rochester, had been looking for a house since the summer of 2020. The Ahmeds are both professionals in their early 30s who work remotely, so they have a lot more flexibility and more capital than most traditional first time home buyers.
At the end of December, they closed on a large 1969 mid-century modern home just blocks away from Leya's doting grandparents.
"Being near the grandparents is key," said Axe Ahmed, though having the space for two home offices and a backyard for dogs and Leya was also important.
They had looked in Washington D.C., where Laura's employer is, as well as in the Twin Cities. In early 2022, they were seeing many homes with multiple bids as prospective buyers raced to close on a property.
"It was just that the buyers really had no time to even have any thoughts on the house that they were gonna purchase. They had to just go. They didn't have the opportunity to have a home inspection or anything like that," said Owatonna Realtor Michelle Jandt, who is the president of the
Southeast Minnesota Realtors
, of the market at the start of 2022.
SEMR recently issued its annual report about 2022 home sales in the organization's seven-county region. With a low inventory of houses and rising prices, the year started on a track similar to the past few years.
All of that changed as inflation rose, spurring the historically low interest rates to climb up. There were still not enough homes and prices were still high, but the buyers who remained in the market had more leverage than at the start of the year.
"It seems we're at the start of a new cycle with more of a balanced market where you have more 'win-win' situations for both buyers and sellers," said Adam Howell. " A neutral market is a great market for everyone."
For the Ahmeds, the market changes meant interest rates were higher than at any point of shopping experience, when they started pursuing the house that Laura loved on Zillow. However, they did have a little more leverage as homes were taking longer to sell in late 2022.
"With no one else at the table, we were able to negotiate in a way we couldn't earlier in the year," said Axe Ahmed. "With the help of our Realtor, Tim Nela, and our lender, Deon Oden of Coulee Bank, we were able to get the house we wanted at a good price."
He and his wife both credit the guidance professionals working with them provided.
"Education for home buyers is really needed. We didn't know about anything about how to get better interest rates," said Laura Ahmed.
Real estate professionals say that education is even more important than in the past as the number of homes on the market remains low as the prices climb to historic rates.
In 2022, just 5,799 homes were sold in SEMR's region. That is down 11.8% from the 6,549 homes that sold in 2021. It's even more of a drop from the 6,587 closings in 2020.
The Rochester area tallied 1,959 home sale closings in 2022. That is 440 fewer than 2021 and 418 less than in 2020.
In the past, drops in Rochester sales meant people were shopping in nearby communities and commuting into the Med City for work, shopping and entertainment.
Home sales in Stewartville edged up from 100 in 2021 to 214 in 2022. Byron sales went from 174 in 2021 to 194 in 2022. Zumbrota climbed by 17.4% from 92 to 108 home sales in 2022.
While St. Charles and Hayfield also marked increases, most of the area communities that surround Rochester also showed similar declines in home sales.
Kasson dropped from 148 closings in 2021 to 131 in 2022. In Owatonna, 384 homes sold in 2022, which is down from 434 in 2021. Home sales in Pine Island dropped by 15.9% to 69 from 82 in 2021.
While the number of deals dropped, the prices of those homes unsurprisingly climbed to new levels.
The median sales price for homes in Rochester, Kasson, Pine Island and Zumbrota all topped $300,000 for the first time in 2022.
Meanwhile, the Oronoco area, which has long been at the top end of the local price scale with its high-end rural homes, climbed by 14.5% from a median sales price of $440,000 in 2021 to $503,750 in 2022. For context, that median price was calculated on the sale of 25 houses in 2022, which was up from 21 houses the previous year.
Median prices in Austin and Albert Lea also climbed. However, homes in those areas were on the opposite end of the scale from Oronoco. The median price of a house in Albert Lea was $146,000 in 2022 and $163,750 in Austin.