17 Jun Inflation and interest rates in Minnesota
Inflation and interest rates in Minnesota
Yesterday the Federal Reserve raised its benchmark interest rate by .75 percent. That was the first time the federal Reserve has raised the benchmark interest rate by that much since 1994. They also discussed raising the benchmark rate another .5 percent in July. The Federal Reserve has been late to the dance to combat inflation and as a result they are doing benchmark rate increases of one after another before we even feel the effects of the first one.
How will that affect us in Minnesota? The interest rates for mortgages today are about 6 percent because of the Federal Reserve action for a standard 30-year mortgage for a conventional loan. An FHA/VA loan is about 5 percent now. So, interest rates have now doubled since the start of 2022 and that means buyers affordability has diminished by half. Right now, in Minnesota the demand for mortgages is about half what it was last year at this time.
Our current real estate market is still a seller’s market. But as inventory gradually increases and the effects of these interest rate increase is fully felt it will I predict go back to a more normal, neutral real estate market in Minnesota.
The other elephant in the room is a recission. With these drastic interest rate increases, Russia’s invasion of Ukraine that affects gas and food prices, and supply issues with COVID it would be a miracle if we do not see a recession. A recession is defined as a reduction of our Gross National Product (GNP) for two consecutive quarters.
On the bright side we will still have a busy real estate market in Minnesota. In this type of real estate market, it is important that seller’s have a real estate agent who can effectively market their home, so they get proper exposure. Having a home just sell itself will have less exposure to buyers and not likely the highest sales price that could be had with multiple buyer interest.
I hope you found my blog on “An update on inflation and interest rates in Minnesota” helpful. Look for more blogs on all aspects of Minnesota, real estate, and the world around us.
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The Anderson Team