This was not the year that Frank D’Angelo expected it to be.
“I thought that 2025 was going to be a very robust year” for home sales, D’Angelo, president of Minneapolis Area Realtors, said. “But clearly the political uncertainty, the government shutdown, the tariff talks prior to all of that, just put everything on pause. Pause, pause, pause.”
Nationally, home sales are on track for their worst year in decades. The state has bucked this trend, with data from Minnesota Realtors showing that the number of year-to-date closed sales by the end of August was 1.7% higher than at the same point in 2024. The median sale price was also $10,000 higher, a positive data point for sellers, but not for buyers.
The Federal Reserve’s recent interest rate cut has sparked curiosity from potential homebuyers, according to builders and real estate agents, but not enough to overcome an exceptionally uncertain economic environment.
“We’ve seen that renewed interest overall as the rates have kind of drifted a little bit lower,” D’Angelo said. “But buyer behavior isn’t always about the math associated with affordability.”
“Consumer confidence plays a very big role,” he said, adding that there has been a steady drumbeat of news about government layoffs, trade wars, partisan gridlock, the politicization of economic data and other events that hurt consumers’ confidence in the economy. “Look at the most recent events. We just had a government shutdown this past Wednesday, and that uncertainty keeps people on the sidelines.”
Related: Contract for deed buyers beware
Consumer confidence slid in September to the lowest level since April of this year, according to a widely followed measure of consumer sentiment. The Conference Board warned in its Sept. 30 report that U.S. consumer attitudes have been below the threshold that typically signals a recession since February.
Minnesota real estate agents and home builders say despite this economic pessimism, the housing market continues to show some healthy fundamentals.
The housing market and interest rates are closely linked. The “Fed funds rate” that is decided at the widely covered Fed Open Market Committee meetings is the interest rate at which commercial banks lend their excess reserves to each other overnight. When that rate is cut it allows commercial banks to borrow money more cheaply because they will pay less interest on the borrowed capital. That gives banks the option to loan money to consumers at a lower interest rate, including for mortgages.
This can boost the buying power of potential homebuyers, who can then afford to borrow more while making the same monthly payments that they would on a smaller loan in a higher interest rate environment.
While mortgage rates rely on other factors, such as the bond market, they tend to follow the Fed’s benchmark interest rate. Mortgage rates generally go up when the Fed tightens monetary policy, and go down when the Fed loosens monetary policy.
The Federal Reserve lowered its benchmark rate in September, but it had telegraphed the move months earlier. In this instance, the Fed saying it was going to cut rates caused mortgage rates to begin dropping long before the actual benchmark rate cut in September.
“What we are experiencing here in the Twin Cities and surrounding area is that inventory is relatively low, and the market feels healthy on both sides,” said real estate agent Greta Fay.
While generally upbeat on the market, she acknowledges that the Fed interest rate is not as important a factor as a potential buyer’s financial situation and unique needs.
“Homebuying is above all an incredibly personal decision,” Fay said. Meanwhile, broader political and economic trends are “definitely impacting some consumers.”
Nick Erickson, senior director for housing policy at building industry group Housing First Minnesota, sees this as a potential inflection point for the market. The number of building permits for single-family homes in Minnesota increased this year after three years of declines. September saw a 22% year-over-year increase in permits applied for, he said.
That housing supply growth was driven in part by demand, as well as anticipation of Fed interest rate cuts.
“Late April (or) early May is when the market really started to react to an expected rate cut,” Erickson said. “Some of those permits could be just coincidental timing, but the expectation of a rate cut definitely was a factor.”
The state’s housing deficit was around 100,000 homes, Erickson said. Home builders want to be ready to sell as the state’s population grows, even without buyers lined up in advance, he said.
Economic slowdowns can reverberate for years in the housing market. When builders suspended new construction during the Great Recession in 2007, it took half a decade for activity to recover. The resulting shortage, which occurred nationwide, led to higher home costs that priced large swaths of Americans out of the housing market.
“We’re nearing 20 years since the Great Recession and we’re still dealing with the housing shortage that the recession created,” Erickson said.
Related: Will the antitrust settlement change real estate?
Minnesota’s would-be buyers have been hard-hit by the housing affordability crisis. The Twin Cities metro area has the most expensive median home price in the upper Midwest, even greater than Chicago, a larger and traditionally more expensive metro area, Erickson said.
According to Zillow research, the median home price in the Twin Cities was $391,089 in June, higher than the national average of $367,965, and nearly $50,000 more than the Chicago metro’s median home price of $346,252 in June.
Those most impacted by higher prices and interest rates are first-time buyers, who have less savings and rely heavily on financing, D’Angelo said. Their hesitation to make large financial commitments in uncertain times, in turn, keeps current homeowners who are ready to upsize, downsize or move locations in a “holding pattern,” he said, since there are fewer buyers willing and able to purchase their homes.
Younger potential homebuyers are also likely to hold off if they aren’t confident in the economy, D’Angelo said.
“Until we can make homes affordable for first-time buyers and put the economy on a predictable, stable, upward trajectory for a while, there will remain bottlenecks in the system,” D’Angelo said.
All four real estate agents that spoke to MinnPost said for those who need to move and can make the finances work, it’s a good idea not to overthink the broader economy: move when you’re ready to, not when you think the market is perfect for it.
“Don’t wait on headlines or try to time the Fed. Every market creates opportunities,” said D’Angelo. “So sit down with a trusted realty advisor who can help you cut through all that noise, make some sense of the data, and help you make the best decision to protect your equity today or position yourself correctly for tomorrow.”