As the Federal Reserve has continued to ramp up tough talk on inflation and rate hikes, bond yields and mortgage rates have continued their historic rise. The bond market is now pricing in 9+ quarter point rate hikes for 2022. Mortgage rates are now up 65% YTD and up 93% from their cycle lows in January of 2021 which is the fastest rise in mortgage rates on a rate of change basis, ever.
Despite rising rates, home prices for most Twin Cities' market segments continued to rise for closed sales in March (as expected) but on lower sales volume as rising mortgage rates and historically low inventory have put a damper transactions. The segments that have performed the best in terms of price inflation YTD have been water front properties, luxury homes in the suburbs (especially homes built in 2010 or after) and single family homes under $600K in the suburbs. The segment with the least amount of price inflation has been the condo/loft segment of Minneapolis where prices have for the most part been neutral to marginal gain, YTD.
The Median Home Price: The median home price in the Twin Cities moved up 4.1% in March to $354,000 which is up 8% YOY and is a new record high. Despite dramatic increases in the cost of capital, we expect home prices to continue to rise through June or July this year. The suburb market segments for both single family and townhouse/condo/lofts continue to outperform the inner city segments.
Home Inventory: The home inventory level in the Twin Cities moved up 11% in March to 5,278 units which is down 7.2% YOY but remains a seasonally adjusted, record low. Historically low and falling (in rate of change terms) inventory has been a primary theme of this now 10 year bull market in U.S. home prices. We expect inventory to chase demand into the spring market and then peak sometime between late summer and early fall.
Pending Home Sales: 5,257 homes came under contract in the Twin Cities in March. That is up 36% MOM as expected but remains down 7.2% YOY as low inventory and rising interest rates continue to impact overall sales volume.
New Listings: 6,527 new homes, condos and townhouses hit the Twin Cities market in march. That is up 44% MOM but down 3.1% YOY. We expect new listings, in pursuit of rising prices, to continue their seasonally dramatic incline through May or June.
Mortgage Rates: Mortgage rates have moved up another 22% in the past month and are now up 65% YTD and up 93% from their cycle lows back in January of 2021. From a ROC (rate of change) perspective, that is the most aggressive rise in mortgage rates, ever. The bond market is now pricing in 10 (quarter point) rate hikes for 2022 as the Fed continues to talk about "getting tough" on inflation.
Lumber Prices: Lumber prices have dis-inflated 25% over the past month but remain a little more than double their pre-pandemic price levels.
Home Builder Confidence: The NAHB housing market index in the US fell to 77 in April of 2022 from 79 in March, which was in line with market expectations. The index fell for a fourth straight month to the lowest level since September of 2021, as dramatically rising mortgage rates, persistent supply chain disruptions, elevated housing prices and construction costs continue to destabilize the housing market.
This concludes my Twin Cities housing market insight for April of 2022. Please don't hesitate to call us at 952-222-SOLD if you would like to go more in depth on a particular market segment or dive into the current fair market value of a property that you currently own or manage.
Sources: NorthstarMLS, Infosparks Data, Hedgeeye Risk Management, FreddieMac.com, Nasdaq.com, TradingEconomics.com, fred.stlouisfed.org
By Nick Leyendecker, Co-Founder | Broker | REALTOR®