Early spring 2021, Urban Homeworks (UHW) broke ground on two new constructions in North Minneapolis located right next to each other: 2131 Bryant and 2129 Bryant. Just a little over a year later, construction on the homes finished and we put them on the market. Despite nearly identical timelines, development, designs, marketing, and identical pricing, one house sold within a few months, the other remaining on the market until early 2023. Why?
Even though the homes started on the same path of affordability, the Federal Reserve’s increases on interest rates in 2022 played an outsized role in their diverging paths. The average mortgage interest rate in March 2022, when the homes were listed, was 4.4%. By December 2022, the rate had increased to 7.3%. One home selling before the increase meant that their monthly payment would likely be ~$400 lower than their next-door neighbor.
In our efforts to sell to first-time buyers, UHW lists our homes for less than it costs to build them AND limits purchasing to income-qualified buyers—buyers at or below 80% of the area median income (AMI). Given the significant increases in materials and labor over the years, however, these discounted prices can still be too high for potential homebuyers in the area. In 2022, the qualifying income for a family of four in the Twin Cities was $89,000. The median household income in North Minneapolis was $44,096. As interest rates increased, buyers who had low enough incomes to qualify became less able to afford mortgages.
Building more affordable housing alone is not enough to close the racial wealth gap in our state. Services like downpayment assistance, homebuyer education, special purpose credit programs, and diverse ownership options in tandem with both affordable rehabilitations and new constructions are essential for ensuring we combat the homeownership disparities between Black and white Minnesotans.
As Urban Homeworks looks ahead to 2023, we know that to be successful in our mission and vision, it is imperative we grow to support and provide the additional services our neighbors need to own a home. It is by expanding the scope of our work—testifying for policies like Minnesota House File 685, reimaging private capital pools through new iterations of UHW Loan Pools, and providing homeownership resources like our partnership with Build Wealth—that the core purpose of our organization, dignified and affordable housing, will be most successful.