A sold home in St. Paul in June 2021. Photo by Max Nesterak/Minnesota Reformer.
Soaring interest rates, driven by the Federal Reserve’s efforts to tamp down inflation, are sending costs skyrocketing for new homebuyers in the Twin Cities region. With a 20% down payment, the typical home purchase in the area now comes with a nearly $2,000 monthly price tag, almost doubling since 2021 — and that’s before you add on taxes and insurance.
According to Minneapolis Area Realtors, the median home in the 13-county Twin Cities region sold for $369,750 in August, up nearly 6% from the prior year. But mortgage rates are driving the lion’s share of the increase in out-of-pocket expenses: The national average 30-year fixed rate is well above 6%, the highest level since at least 2008.
The monthly principal on the typical new Twin Cities mortgage is only $30 higher than it was this time last year. But the interest on that payment has more than doubled, rising from $420 to $1,100.
Another way to think of these numbers: A person who purchased a $450,000 home last July when interest rates stood at 2.8% has the same monthly mortgage payment (about $1,500) as someone buying a $300,000 house today.
These factors influence the rental housing market as well, although prices there have been more stable. According to HousingLink, a Twin Cities nonprofit aiming to broaden access to affordable rental housing, the median rent of a Minneapolis two-bedroom has crept up from $1,215 in 2018 to $1,375 this year. For the first time in many years, that two-bedroom apartment is now cheaper, on a month-to-month basis, than the typical Twin Cities home.
While the prices of gas and groceries have garnered more attention in the fall election campaign, the rapidly rising costs of shelter are more likely to erode people’s take-home pay.
At some point, those skyrocketing interest rates are going to put a damper on home prices, however, bringing payments back closer to their historic norms. But in the Twin Cities at least it hasn’t happened yet, and there’s reason to suspect any adjustments may only be minor. According to Minneapolis Area Realtors, the inventory of homes for sale in the Twin Cities in August this year stood at around 8,500.
That’s well below the level of August 2019, prior to the pandemic, when closer to 14,000 homes were on the market.
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