Mortgage interest rate hikes hit the home buying market; even so, the Mankato region is relatively stable | Local News

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While home buying trends have slowed significantly in many parts of the United States due to rising mortgage interest rates, the market is holding up in the Greater Mankato area.

“It definitely made some people pause a bit,” Habib Sadaka of CrossCountry Mortgage tells Mankato. “But I believe the rate hike is going to be temporary.”

The pause could allow buyers to better level out a market that has more recently favored sellers, often sparking bidding wars, which have boosted average home prices here and across the country, Sadaka said.

“But there’s not a lot of inventory either,” he said, which also tends to keep average home sales up.

That average home price in Mankato during October sales was $380,930, according to figures compiled by Sonja Zoet of The Zoet Group/True Real Estate. That’s down from a high of $463,860 in March, but still above a November 2021 average of $318,070.

Midway through the year in July 2022, demand for homes was still well above supply in Minnesota, according to the Minnesota Realtors group, with the state’s median selling price rising 7.9% to $339,900.

Mankato’s strong regional economy and tight housing market have managed to keep average house prices fairly stable, Sadaka said.

“Southern Minnesota seems to be a bit isolated,” he said, adding “it’s very situational.”

Sadaka added that several factors are at play in today’s home buying market, including three-bedroom rental rates exceeding $2,000 per month. This continues to make home ownership a financially attractive perk, he said.

Donna Killion of Edina Realty in Mankato reports single-family housing construction has simply not kept up with demand, citing national figures of just 5.9 million new homes built in the 2010-19 decade, the number the lowest since the 1930s.

Killion agrees with Sadaka that there could be a slowdown in home buying in the last quarter of 2022.

“I saw a few people stop,” Killion said. “I’ve had about half a dozen people say they’re waiting until next year to see if rates can come back down.”

Past sales that Killion has serviced indicate that mortgage rates are rising. A pre-pandemic homebuyer settled with a mortgage rate of around 2.75%; a Sale in May and the mortgage rate was 5.5%. And a major mortgage lender in Mankato, US Bank, announced a 30-year fixed annual rate at 7.652% and a 15-year fixed rate at 6.992% on Thursday.

According Bankrate.com, which monitors national trends. With a credit score above 700 and a decent down payment, a 30-year fixed rate could be as high as 7.757%, according to a Bankrate.com analysis.

Lowering this mortgage to a 15-year fixed rate, Bankrate announced a potential rate of 6.679%. But it will increase his monthly mortgage payment.

But Killion noted there will always be families who need to move out and buy a home, despite rising mortgage rates. Some may need to make larger down payments to qualify.

“It’s just a little difficult for some right now,” she added.

Rental of construction spikes

Mankato’s strong regional economy has further enabled a myriad of housing construction projects. But most of the units under construction or planned are on the rental market. With a total of 1,383 housing units planned in the Mankato area, most are apartments or townhouses. According to a Free Press analysis, only 96 of the units are lots for single owner-occupied homes.

“We see rents continuing to rise,” Sadaka said.

A decrease in purchases by home buyers could possibly maintain this trend. Low housing vacancy rates in Mankato and neighboring Saint-Pierre, well below 2%, also play a role in keeping monthly rents at historically high levels.

Rising supply costs also continued to slow construction of single-family homes across the region, as economies of scale compelled developers to target more apartments and townhouses. And housing remains a critical issue in many regional communities.

In St. Peter, the city’s last planned subdivision, Traverse Green, began in 2017. Five years later, 34 of the original 59 single-family lots remain available for sale, according to St. Peter’s director of community development. , Ben Baker, with 25 lots now with homes. The most recent construction, like several before, are two Habitat for Humanity homes.

Juliann Wiersma, communications director for Habitat for Humanity in south-central Minnesota, said most of their projects are unaffected by rising mortgage rates because customers generally qualify for low-cost packages. or without interest. But she said the Mankato-based Habitat office also gets calls from potential buyers who aren’t eligible for a Habitat home project and are looking for advice.

Take the difference in lot prices between St. Peter’s Traverse Green, which is priced as low as $21,900, and a more expensive neighborhood on the south side of Mankato, where lot prices are listed at $130,000. Traverse Green was developed as an affordable housing development, a partnership between the city and the Southwest Minnesota Housing Partnership. The Mankato South Subdivision is priced to market, with single-family home prices exceeding $600,000.

Fed rate hike

Federal Reserve Chairman Jerome Powell on Wednesday announced another “jumbo” hike in interest rates of three-quarters of a percent, the Fed’s fourth consecutive hike and sixth overall in 2022, the series of hikes the largest since the 1980s. In an effort to rein in inflation, Powell also said another interest rate hike could come before the end of the year.

“The inflation picture has become increasingly difficult over the course of this year,” Powell said.

Targeting a 2% inflation rate has been difficult to achieve, he admitted, acknowledging as early as August that the cost of borrowing would cause “households and businesses to suffer”.

The nation’s leading secondary mortgage lender, the Federal Home Loan Mortgage Corporation – commonly known as Freddie Mac – is among industry players wondering how rising interest rates could affect short-term and long-term purchase plans. .

Freddie Mac’s press release on Thursday announced a slight drop to 6.95% for a 30-year fixed rate mortgage.

“Mortgage rates continue to hover around 7% as momentum from a once-hot housing market has waned significantly,” said Sam Khater, chief economist at Freddie Mac. “Uncertain buyers navigating an unpredictable landscape are keeping demand down while other potential buyers stay away from an affordability perspective.”

But stay tuned. At least in Mankato, the market for owner-occupied housing is relatively stable. Sadaka says: “Marry the house and date the tariff”. Even if one is stuck with a high mortgage interest rate, he believes today’s homebuyers should have the option to refinance in the not so distant future.

“Things are changing very quickly,” Sadaka said. “It’s definitely softening a bit though.”

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