Rising market costs mean more money, less house

SIOUX FALLS, S.D. (KELO) — The housing market the past few years has been a fast-paced affair, marked by a drop in interest rates, limited inventory, a rise in interest rates and a reduction in buying power.

Maggie Miller with Hegg Realtors broke down the situation. “It’s been a rollercoaster for sure,” she said.

Miller told us that back in 2019, there was what she interpreted as a very balanced market. “No one party (buyers or sellers) really seemed to have an advantage over the other,” she said. “The number of homes seemed like it was a healthy number — buyers and sellers in 2019 were really able to negotiate well between each other.”

These negotiations included things such as the actual price of the home, seller-paid closing costs and more.

Today, Miller says that appear to be circling back to a more balanced market, but for the past handful of years, that balance had shifted firmly in favor of the sellers.

“If we look at 2020, 2021 and into 2022, things were really different than they were in 2019,” Miller said. “We saw a really big shift in the market, and it really became a heavy sellers market. Sellers really had an advantage.”

This advantage was a result of a handful of things, such as a drop in mortgage rates. This rate drop meant that buyers could get approved for higher loan amounts, giving them more purchasing power.

“You could go to the bank and you could get pre-approved for — I’ll just use $450k [as an example],” Miller said. “That gave you a lot of comfort in the market.”

This, said Miller, allowed buyers to be more competitive, able to offer over asking price for houses.

Other factors benefitting sellers was an influx of people moving to the Sioux Falls area. “A lot of those buyers had a lot of cash on hand,” Miller said.

The final factor was a limited supply of homes on the market. This drove prices up, led to increased bidding on homes, and saw many sales go through without much in the way of negotiations or even inspections.

In late 2022, however, interest rates began to rise once more. “That same buyer who was pre-qualifies at $450k — they lost a lot of affordability,” Miller explained. “Now you can really only afford $350k.”

Suddenly, that newfound buying power was cut dramatically. This not only impacted buyers, but also sellers, whose properties now sat on the market for longer periods as offers once again fell below asking price.

“Buyers are able to come in and negotiate — I see people offering lower than asking price, and on top of that, they’re asking sellers to contribute some dollars for their closing costs,” Miller said.

While there may be more balance returning to the market, prices remain high. “We are still struggling with inventory,” said Miller.

So what can you get for your money now?

If you bought a 4-bedroom, 2-bath house for around $230k in 2020, Miller says you would likely be paying closer to $274-$280k today.

“Prices have increased significantly,” said Miller.

For a 4-bedroom, 2-bath home in Sioux Falls, Miller says that buyers today can expect to pay somewhere in the range of $225k-$2.7 million. The average price, due to the highest priced properties, is near $580k, but Miller says a buyer can likely stay within the $200k-$550k, with $350k being a more realistic average for most buyers.

Adding to the current low inventory is the issue of declining numbers of new builds . “There’s going to be a gap in history,” said Miller, noting that things have slowed significantly since 2022. She chalks this up to factors including rising material and labor costs, as well as the rise in interest rates.

“Because the rates went up — a lot of builders have taken a step back,” said Miller. “We’ll have a historic gap.”

Considering the decrease in buying power, the lack of availability, and the high cost of houses, where can a buyer today find value?

“The biggest thing I always tell my buyers is the home has to work for you,” said Miller. That being said… “We can certainly look outside Sioux Falls,” she said. “You’re probably, historically, going to get a little bit more money for a bit more house in some of the smaller communities.”

This idea applies to places like Lennox, Valley Springs and Garretson, said Miller, but not to towns nearer to Sioux Falls such as Tea, Harrisburg and Brandon.

Another area to find value can be in what you’re willing to do yourself. “If you’re handy and you’re interested in projects — buying something that maybe needs some TLC — putting in some care.”

The number one thing you should not do as a buyer? “Do not over-extend yourself,” Miller said. “We hear — rates will always get better. Buy something now and then you can refinance it to get your payment lower later — we are projected to see some lower rates, but what if we don’t?”

Miller says it is important to make sure that what you’re buying in comfortable not only physically, but financially too. Simply, don’t put yourself in a position where you’ll be unable to afford the payments on the house you buy.

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