Staff photo by Daniel Olson Rader’s Housing and Development owner Alan Rader stands with the foundation of a house he is working on in Searles.

NEW ULM – Realtors and home builders alike are facing steep challenges in the New Ulm area.

New Ulm Real Estate’s team, consisting of Mary Henle, Kim Hanson, Lisa Besemer, and Stephanie Meyer is dealing with a shortage of houses available to people. Of the housing listings they do have, Besemer said few of them are within reach for first-time homebuyers.

“We’re getting new listings and they’re going in and out quickly,” Hanson said. “If you get something below $200,000, it typically goes within 24 to 48 hours.”

Hanson said there are so many looking for homes that it’s a scramble when an affordable house goes on the market in the New Ulm area. Many are afraid to lose out and will forego early steps like a home inspection to get their offer through sooner. The situation has given Besemer reason for concern.

“It makes us worried for first-time homebuyers,” she said. “That’s one of our favorite clients because they’re so appreciative and excited. We can’t find anything for them. That’s the hard part. Not only are they getting screwed with a higher interest rate closer to 7%, there are multiple offers on anything under 200,000.”

Hanson said the interest rates have driven the market the past few years, leading to big changes in available inventory. At the same time, other forces continue to make New Ulm a more desirable and in-demand place to live.

“There’s a lot more people coming over from Mankato because they’re not finding housing there,” Besemer said. “With Highway 14, they’re more apt to live in New Ulm too.”

“I’m seeing a lot of families that want to move to town for our schools and our community,” Hanson said. “We have lots going on and they want to move here.”

In addition to higher interest rates, Besemer said the cost of building homes is exacerbating the situation.

“The cost of construction right now for model homes is so high we’re not seeing a lot of model homes being built,” Besemer said. “Between the construction costs and the interest rates, it’s too high for people who build them to hold on to them.”

This was echoed by Alan Rader, owner of Rader’s Housing and Development. Though he is based out of the New Ulm area, he does most of his business outside of the area. He said interest rates are the main reason home building has decreased.

“They’re really doing a number on it,” Rader said. “We’re not seeing a lot of houses being built. A lot of people talking about it. Not a lot of people doing.”

Rader said a few years ago interest rates were in the 3-4% range. Now they are starting to come down from the 7-8% range, and many are choosing to hold out for better rates.

“You look at a $300,000 house and you’re gonna finance $200,000, between 3% and 7% is a few $100 a month in interest,” he said. “[That means] people are really waiting for the interest rates to come down.”

Interest rates are a problem for home builders as well. Many homes are built on spec, meaning they are built with the belief that someone will buy them. When the market is bad and that belief doesn’t come right away, home builders are left on the hook.

“There’s new homes in New Ulm that when built sit unsold for six to nine months,” Rader said. “We’re all paying interest on them and we’re not making that much to begin with. I have sold spec homes I lost money on because of carrying them too long and paying the interest rates.”

Alongside many other items being sold today, Rader said the price of materials has gone up. More of a concern is the price and reliability of labor.

“There’s more money paid out in labor on homes now than there ever used to be,” he said. “For a contractor to keep a good employee, he’s paying them $40 to $70 an hour. They’re not sure if they’re gonna show up the next day because somebody else might offer them $1 more and they’re gonna go that direction.”

Both sides are seeing hope on the horizon. Hanson said more housing should become available in the next few years with a few good breaks.

“We’ll continue to deal with the low inventory,” she said. “Hopefully once those apartments and more rental availability comes, with interest rates hopefully coming down a little bit, I think we’re gonna see some more houses coming.”

Rader agreed interest rates are a key to home builders adding more to the market.

“If interest rates continue to drop, there are going to be more new homes on the market because the builders will [need less money],” he said.