H
ome prices in the Twin Cities have reached a new milestone, with the median price of all home sales breaking $400,000 for the first time. This is a far cry from when Matt Baker started selling real estate four decades ago, where a $100,000 sale was considered a big deal and a $1 million sale was unimaginable. Today, a seven-figure price tag is considered entry-level in some areas.
The steady appreciation of home prices has made it increasingly difficult for buyers to afford homes, especially with high mortgage rates and economic volatility. A closely watched housing affordability index fell to a new low last month, making homeownership unattainable for thousands of would-be buyers. "The big increases we experienced a few years ago have made the cost of purchasing a home a challenge," said Andrew Babula, director of the real estate program at the University of St. Thomas.
Home prices are now rising more slowly, at about the same pace as inflation. In June, prices eked out a 2.8% annual gain, according to data from the St. Paul Association of Realtors. David Arbit, director of research for Minnesota Realtors, agreed that $400,000 is more of an expected benchmark than any sign of resurgence in sales or prices.
The Twin Cities housing market is settling into a new reality after years of double-digit price gains driven by record low mortgage rates. Mortgage rates are now hovering at just under 7%, and price gains have been modest but steady. In less than a decade, home prices have increased about 100%, enabling owners to cash in their equity to buy more expensive homes.
Buyers may have more time and leverage to negotiate as inventory appears to be slowly ticking upward. A slight decline in rates could also encourage current owners to sell and enable building, which would increase supply. According to a new National Association of Realtors analysis, even a modest drop in mortgage rates is likely to improve affordability, with an additional 5.5 million households able to buy a median-priced home if rates fall to 6%.
