Interest rates were 3% in August of 2021; today, it’s hard to find a rate below 7%.
To a lot of people, that is the whole story. The thinking goes like this:
a) That rise in interest rates has made it difficult for first time buyers to afford “these high prices;” and
b) Nobody wants to sell if they will be trading a 3% mortgage rate on their current home for a 7% rate on whatever they choose to buy. Even if you are downsizing, you are likely to pay a higher monthly mortgage for a smaller house – so why not stay?
And thus: We have low inventory, and the market has stalled. True enough.
Note (in the top graph at right) that closed sales were steady for almost three years, then there was a steep increase in sales during that last year of record-low interest rates. Note also: the doubly steep decline in closed sales started in August of 2021, virtually the same instant that rates started to double.
Interestingly, however, as you see in the graph (middle at right) covering exactly the same period of time, that inventory actually rose from 2018 to September 2020.
While the steepest increase in price-per-square-foot occurred during that time of ultra-low rates and increased closings per year, our home values appreciated at virtually the same rate whether inventory was increasing, or inventory was decreasing.
In these wildly different interest rate environments, values appreciated as much during the time of increasing inventory as they appreciated during the last year of drastically decreasing inventory.
Whether inventory was high, or inventory was low, prices increased at the same rate – regardless of interest rates.
This is a surprise, and perhaps a profound realization. But what does it mean? It means that we are not overpriced in Southwest Minneapolis.
People always want to know: What’s about to happen? Are we in a bubble? When are prices going to go down?
Again, my answer is: Not for a long time.
Global warming is making Minnesota more attractive to buyers all over the country. Minneapolis is a wonderful place to live. We live in the most beautiful and cultured city around. And whether inventory is high, or inventory is low – whether interest rates are high, or interest rates are low –values in Southwest Minneapolis continue to rise.
By the way – Public Service Announcement – Here are things to notice when you interview listing agents:
• What are their methods of pricing?
Not “what amount” do they say your house is worth, but what methods did they use to get there? Can they explain why they came to their number?
• When is the right time for you to sell? Seasonality does affect pricing strategies – if not pricing results.
• What staging work does the agent recommend you do to prepare the home for sale? How much can they get done for you, and at what prices?
• What are their negotiating strategies? Can they articulate which strategies are better for which specific situations? Would their style and strategy be the right one for your most likely situation?