Housing Market in Minnesota Cools, Challenges Remain

The housing market in Minnesota is finally slowing, after the recent years of record levels of demand. This is due in part to the rise in interest rates, an action the Federal Reserve has taken to combat inflation. The 30 year fixed rate for mortgages has risen to an average of 6.7% nationwide, which is a huge leap from the 3.3% interest rate available at the start of 2022. Nationally, prices are still up 13.1% from a year ago, but the large increase in mortgage rates have and will certainly put downward pressure on purchasing demand. The effects were already seen in August, where new building permits in the Twin Cities were down 28% compared to August 2021.

In the Minnesota Metro, housing values have increased 9.4% from September 2021 according to one estimate. Sales and listings, however, began to slow in July and August. According to the Minneapolis and St. Paul Area Association of Realtors, closed sales were down 20.3% between August 2021 and August 2022. The Associations still report that home inventories are still very low, meaning it may take months before the market reaches equilibrium. In south central Minnesota, home sales fell almost 20% between July 2021-2022 according to a report by Minnesota Realtors.

Source: Redfin

While the housing market in the metro and greater Minnesota remains at historic levels for the time being, many Minnesotans continue to struggle with homeownership. According to Attom, a data research agency, foreclosures in Minnesota rose 268.5% between the first half of 2021 and the first half of 2022. This was an increase from 577 foreclosures to 2,126.

Zooming out to view the complete picture, we see a fluctuating market. For one segment of housing, interest rates may bring more efficiency to an overheated market, which has been overdue for correction. For another segment, many Minnesotans are still recovering from losses sustained during the pandemic. Cities and counties aim to strike a balance between investing in new rentals and affordable housing, while at the same time reducing undue burden among current homeowners.