November 2024

As we enter the fourth quarter of 2024, it is an ideal time to reflect on what has happened this year and consider what might lie ahead in 2025. This year began with unusually high mortgage interest rates which led to sluggish sales for the first several months. In August, our industry was affected by a significant legal settlement which impacts how the real estate community will operate going forward.

And finally, a much anticipated 50-point decrease of the Feds Fund Rate occurred in September which has influenced mortgage rates. All these factors together have led to an interesting year for residential real estate sales.

Interest Rates

The year began with modest optimism for the real estate market. Sales in 2023 had fallen after a robust market impacted by COVID-19 in the years 2020-2022. There were beliefs that we would see a rebound in 2024. Buyer demand remained high and listing supply continued to be low, which has been the case since 2014. The wildcard was interest rates, which peaked in October 2023 at 7.8% (30-year fixed mortgage). In January the average mortgage interest rate was 6.6%, but there was optimism that the Federal Reserve would be making a number of rate decreases in 2024.

Projections from economists typically ranged from 3-5 rate decreases. That is not how it played out: the Fed did not adjust the Fed Funds Rate and mortgage interest rates remained at or above 6.5% until August. This unfortunately had a cooling effect on the real estate market.

The Fed Funds rate dropped. Why did mortgage rates go up?

When the Federal Reserve met in September it finally announced a 50-point decrease in the Federal Funds Rate. This was positive news for the US housing market. The belief was that this would result in an equal decrease in mortgage rates for consumers. While we did experience a slight dip in mortgage rates in late September, rates have actually increased. In fact, mortgage rates have increased .25 points in October. Why is that?

While the Fed has a huge influence on mortgage rates, it does not set them. There are two other influencers: the 10-year Treasury yield and mortgage lenders. The 10-year Treasury yield has gone up recently because investors are expecting the Fed to be more cautious in cutting rates after the large cut in September. Mortgage lenders set their own rates and will adjust rates in order to make a profit. This is why rates vary from one lender to another despite a set rate with the Fed and the Treasury yield. Mortgage lenders also consider a borrower’s credit score, income, and other financial factors when offering a rate to specific borrowers. All that said, there is downward pressure on mortgage rates, and we anticipate decreasing rates in the coming year.

Let’s Look at the Twin Cities Market Data

Sales in the Twin Cities region have been on a steady decline since May of 2022. Since then, housing sales in the Twin Cities region have declined roughly 32%. There was hope for a rebound in sales in 2024, which was predicated upon lower interest rates, but when that failed to happen sales activity remained slow. Year-to-date there have been 1.8% fewer sales in 2024 than in 2023. As mentioned in the previous paragraph, indications are that interest rates will decrease in the coming months.

There is room for optimism in the near future as we look at the inventory of homes for sale. The impact of low supply on our local housing market has been significant over the past decade. This is a product of fewer homeowners putting their homes up for sale and a 15-year-long lag in new construction. Year-to-date there are 8% more homes on the market and builders recently reported an increase in new construction. There is hope that inventory will continue to increase, giving buyers more options and stabilizing home prices.

What’s ahead of us?

We are reluctant to make predictions, but we will take a shot. With market conditions looking more favorable for sales, we are optimistic about the year ahead for three reasons. We will see lower mortgage interest rates which will then lead to an increase in buyer activity. There will also be more homes for sale because buying activity decreased over the past 2 years due to elevated interest rates. What we anticipate is an uptick in sales because many potential buyers will become active buyers. The byproduct of this will be increasing home prices, which have remained stagnant through 2023-2024. While this creates challenges for buyers, it can also create opportunities because it should motivate homeowners to list their homes for sale. If we are correct, this will lead to a more balanced housing market, as opposed to what we have experienced since 2014 – a market heavily favoring sellers.

Please keep in mind that this letter is focused on the broad market or all areas, price ranges and property types. Market conditions vary greatly depending on your personal housing needs and aspirations. At Fazendin, we take pride in staying informed on all aspects that impact the many communities in the Twin Cities region. For that reason, we encourage you to connect with us to learn more about the conditions in your community. Whether you are thinking of buying or selling or are just curious about the real estate market, we are ready and willing to provide you with valuable market insights.

Service, Knowledge, Results

Lastly, as Fazendin Realtors enters its 60th year in business, we want to thank you, our valued customers, for entrusting us with your real estate needs. As an independent and family-owned business, we feel especially grateful for your support. Since 1965 and through 3 generations of ownership, our goal has always been to put the customer first. We believe this is achieved due to our knowledgeable and skilled agents being supported by a team free of the obstacles created by corporate or franchise models which increasingly tend to prioritize profit over customer satisfaction. At Fazendin you are not just a number, you are a valued client with specific needs and goals. We have found this approach successful considering the vast majority of our business comes from past clients and personal referrals. After 60 years of success, it’s hard to argue against this client-focused approach. Thank you for your business. •