Twin Cities' housing affordability reaches worst level in 18 years

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.