Price drops are becoming more common for homes for sale in the metro area, a sign that high interest rates are cooling one of the hottest parts of the Twin Cities economy.

14% of active sellers reduced the price of their home at least once in June, according to Zillow.com. That’s still below the national average, but up from 10% in May and 7.6% in April.

Since the mid-2010s, Twin Cities residential real estate has been a seller’s market, and the pandemic has made it even more unbalanced for sellers.

But with the jump in mortgage rates that began earlier this year, buyers, sellers and agents have been waiting for the market to swing back in favor of buyers. It suggests that May and June have data with sales activity – but only a little.

“Certainly, things are balancing out geographically for buyers, but we’re still a long way from being a buyer’s market,” said David Arbitt, director of research for Minneapolis Area Realtors.

While many sellers are offering discounts, a few are slashing prices. The average price drop in metros in June was only 3%. Meanwhile, buyers are coping with higher mortgage rates reducing their spending power. And the number of homes for sale remains near historic lows.

“For what we’re looking for, I feel like there’s slim pickings,” said Jenna Gerlach of Denver, who has been following the market closely. She and her husband, Mike, want to move to the Twin Cities this fall.

“Inventory seems less and we don’t know what’s going on. [mortgage] rates,” Gerlach said.

Rates are volatile, putting potential buyers on edge. Although the Federal Reserve raised the key again on Wednesday, mortgage rates edged lower last week.

The weekly survey released Thursday showed the 30-year fixed-rate mortgage averaged 5.30%, an average of 0.8 points. This is down from the previous week, which averaged 5.54 percent. A year ago at this time, the 30-year average was 2.80%.

A price jump means fewer people are able or willing to buy a home in the Twin Cities. In June, nearly 20 percent more buyers signed purchase agreements than last year. In the first three weeks of July, the drop seems steeper.

On average, people who listed their home in June received an offer within 21 days. That was the fastest one day in a year and the fastest pace in a year, Marr said.

“The pace will continue to be historically fast and is still half way through the 2018, 2019 and 2020 market,” Arbit said.

Because while buyers have more choices at the end of June than last year, there’s still a surprising shortage of listings. At the current rate of sales, there were enough homes on the market in June to last 1.6 months. That’s up 1.3 months from the same period last year, still below the five- to six-month supply that is considered to be balanced between buyers and sellers.

That imbalance is why the market is still relatively competitive and many sellers are still getting more than their asking price. On average, sellers received 103.3% of their listing price in June. While that’s down from 104.1% a year ago, it’s still the second-strongest June in 20 years.

“That still puts us in a strong seller’s market, just not as strong as last June,” Arbitt said.

At the national level, the slowdown in the housing market is more pronounced. Mortgage applications declined for the fourth week in a row last week, according to the Mortgage Bankers Association. And an index of pending home sales fell 9% in June, the National Association of Realtors said last week.

Kat Hammersang, a sales agent in the Twin Cities area and former president of MAR, said buyers are becoming more hesitant. Some are evaluating the impact of interest rate conditions and rising housing prices. The median price for all closings increased nearly 9% last month to a record $380,000.

She feels the housing market will be like it was in 2018 and 2019, when buyers have less time to make decisions and sellers have to work harder to prepare their homes for sale.

“More than ever, they’re turnkey or competitively priced… delayed,” she says. “Overconfident sellers aren’t seeing the results they think they’re going to see. On beautiful, buyers are still competing and the same is true of multiple offers.”

Arbit said that while the market is adjusting, it is unlikely to turn quickly to a more favorable one for buyers.

“This is not going to happen overnight or in months,” he said. “We’ve built below that and we haven’t got enough supply, so it’s going to take time to get the balance back to a balanced market, which is less of a buyer’s market.”

The Gerlaks refused to wait. They had planned a shopping trip to the Twin Cities in September, but like many first-time buyers, the fear of rising prices made them a little more eager to buy late. And friends who bought in the area warned them that the best homes still sell quickly and sometimes for more than asking price.

Plus, they were somewhat surprised when one of the first homes they looked at remotely checked almost everything on their wish list.

So after several virtual walk-throughs this month, Gerlach immediately offered sellers slightly more than asking price for a home in Maple Grove, despite no other offers. The couple knew that houses in the area would sell quickly, so they wanted to avoid competing offers.

“It didn’t feel like we were in the driver’s seat. It really felt like it was a seller’s market,” Jenna Gerlak said. “I just didn’t want to be in one place, offer something and live in a house that we don’t want.”

At the top of her wish list was a fireplace and a large yard for their boxers. Less than a day after listing the home, the seller quickly accepted their offer. The Gerlaks are getting ready to move.