Twin Cities' housing affordability reaches worst level in 18 years
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Illustration: Annelise Capossela/Axios
Homebuyers in the Twin Cities have been able to deal with skyrocketing prices over the past few years thanks to record-low interest rates.
- But with interest rates on the rise, housing affordability is at its worst level since at least 2004, according to a monthly report from Minneapolis Area Realtors/Saint Paul Area Realtors Association.
Driving the news: Average interest rates on a fixed 30-year mortgage have reached 5.2%, up from about 3% a year ago, according to Freddie Mac.
- At the same time, home prices in April were up 10% compared to a year ago, with the median sale price now at a record $370,000.
A Redfin analysis says that the minimum salary required to afford a median priced home in the Twin Cities metro was up 23% in March, compared to March of 2021.
- You now need to make an annual salary of $65,732 to afford a median priced home.
How it works: For a $370,000 house with a 20% down payment, a jump in the interest rate from 3% to 5% is the equivalent of adding $341 to a monthly mortgage payment.
The intrigue: The rising rates have so far not cooled the sellers market as homes continue to sell quickly and for above asking price.
- The rising monthly costs have buyers lowering their price targets, said Mark Mason, president of the Saint Paul Area Realtors Association.
- "If you're lowering your price point, a lot of times now you're looking in a different neighborhood as well," he said.
- Some buyers are instead choosing riskier adjustable interest rate loans with lower initial rates that could jump later.
What's next: Mortgage rates are expected to rise throughout the year and remain at or above 5% in 2023, according to Freddie Mac's trend forecast.