The Skinny

Seasonal price increases suggest early signs of market stabilization

Today MAAR released its monthly housing statistics press release. It said this and more:

The median price values of homes in the Twin Cities housing market are showing signs of seasonal increase. The April median sales price of $204,500 represents the second consecutive month of monthly upward price movement, on the heels of seven consecutive months of downward movement.

Despite the seasonal increase, the overall April median sales price of $204,500 is 7.9 percent behind April of last year. Lender-mediated properties, which include foreclosures and short sales, saw a decline of 9.6 percent for the same time period, while traditional, non-lender-mediated properties saw a decline of only 1.4 percent.

At the end of April there were 32,368 homes for sale, a mere 1.5 percent above this time last year, the lowest such year-over-year growth since MAAR began tracking the figures. Year-to-date, the number of new listings has fallen by 9.5 percent relative to the same time period in 2007. The number of year-to-date new listings which are not lender-mediated is decreasing at an even quicker pace—down by 24.0 percent from the same time period last year.

The number of signed purchase agreements (pending sales) in April was 4,208, down only 6.6 percent from last April. Since 2006, these year-over-year declines have typically been between 12 and 20 percent.

MAAR Research Report: "Foreclosures and Short Sales in the Twin Cities Housing Market"

Foreclosures and short sales have become topics of great interest over the past year. Providing data and statistics on the exact impact of these growing phenomena upon the regional housing market has, so far, proved challenging, with little yet produced on exactly how (and how much) these unfortunate events are affecting the buying and selling decisions of Twin Cities real estate consumers.

We're proud to announce the release of “Foreclosures and Short Sales in the Twin Cities Housing Market,” a special new research report that attempts to answer some of the more pressing questions surrounding lender-mediated properties. Inside you’ll find an analysis of current inventory, new listings, closed sales, sales prices, and the impact that the growth of lender-mediated properties is having on each trend.

The data was gathered and analyzed by MAAR staff in collaboration with Aaron Dickinson, REALTOR® member with Edina Realty, and utilizes a new data approach based upon information from the NorthstarMLS system.

To share comments or questions on this new report, please contact Jeff Allen, MAAR Research Manager, at jeffa@mplsrealtor.com or Aaron Dickinson at aarondickinson@edinarealty.com.

The Power of Price

Realtors know as well as anyone that humans are instinctively wired to be swayed by the bottom line and to scour for deals. Take two properties that are identical in every respect: location, square footage, condition, etc. Offer one for $250,000 and the other for $249,900 and guess which one sells first.

Obviously, real estate doesn't often offer properties which are identical in every respect, which is why the housing market isn't like Wal-Mart. Houses aren't uniform commodities and lowest price doesn't always win out. Consumers are willing to pay more for quality.

With all that in mind, here's a pretty sweet video from local band Tapes N' Tapes which illustrates the power of price. Stay tuned to the end of the clip for the full effect.

Weekly Market Activity Report 5.5.08

Ring the bell, sound the alarms, shout from the mountaintops: the number of homes for sale in the Twin Cities region as of today is less than the number for sale at this point last year, a new benchmark which marks an encouraging sign that the market is in an early stage of recovery.

This is the first time since MAAR began tracking inventory figures that we have been able to show a year-over-year decline in listing supply. There are currently 32,448 residential properties for sale, a decline of 134 units from this time in 2007. With sellers still holding back on putting their homes on the market (new listings are down 11.4 percent from last year over the last three months), this downward year-over-year trend in inventory should continue into the summer.

This week's edition of the MAAR Weekly Market Activity Report features a new figure for our Supply-Demand Ratio of 7.53, which means there are approximately 7.53 homes on the market for each buyer in May— up 12.9 percent from May 2007 when the figure was 6.67.

Flawed Home Price Data

There's been a lot of talk—quite understandably so—about the picture being painted by national and local data on housing prices in recent months. For potential home sellers, the numbers haven't been pretty.

Numbers from the National Association of Realtors showed a March median sales price decline of 7.7 percent from a year ago. The Standard and Poor's Case-Schiller Index shows a 12.7 percent drop in their composite of the nation's twenty largest metropolitan areas. In our own market, we're showing a 9.7 percent decline in median sales price when comparing March 2008 to March 2007.

But there's an inherent trouble in accepting broad, metro-wide median sales price numbers as some sort of gospel truth about general home price appreciation. Housing markets are not homogeneous. Within each metro area there's a cornucopia of different property varieties. Location, price range, construction status, condition and—yes—foreclosure status all affect housing values on a case-by-case basis. So these median price numbers have to be approached with a critical eye.

This caution is especially crucial in a time like today, when our national housing market is in the midst of a fairly unique point in its history. Foreclosures and short sales—often priced at extreme discounts to spur sales—are comprising a much larger portion of our markets than they have in previous years, rendering the traditional methods employed by NAR, Case-Schiller and ourselves a bit skewed.

Even NAR and Case-Schiller are now publicly acknowledging these flaws. Click here for a MarketWatch piece on the subject.

Hmmm...if only we had a way to separate foreclosures and short sales from non-bank-mediated properties in the data. Then we could really get a feel for current market conditions.

A subtle hint: keep an eye on us in the next week.

Hat-tip to Pat Paulson for pointing out the MarketWatch article to us.

Lessons from the RREAR Pt. II

We pick up here where we left off, with the second part of our new series: Lessons from the RREAR, where we dig deeper into the data found in our Annual Residential Real Estate Activity Report.

Today's subject: Square Footage.

Despite a consistent decline in the number of residents per household each year thanks to an aging population and relatively lower birth rates, the average square footage of Twin Cities homes continued its inexorable rise upwards in 2007. As newer, larger homes are added to the pipeline and existing homes are refurbished and expanded over time, the overall size of our homes gradually increases, seemingly into infinity.

This is either fantastic or horrible news, depending on whether or not you're generally in favor of second amusement rooms in the basement for antique billiard tables and pinball machines.

Entirely-too-subtle jabs at suburban consumerism aside, what this all means is that every year we seem to have more square footage per person than ever before. So relax and truly enjoy that extra beanbag chair or Barcalounger with no shame.

Below are the Top 20 areas in the Twin Cities for Average Finished Square Footage for closed sales in 2007. This is where you can really sterch out into that 7th bedroom. Not coincidentally, some of these are also the higher-priced communities in the region:

Code	Area	Avg. Sq. Footage
605	Sunfish Lake	5,120
368	Hennepin-Northwest	2,929
398	Victoria	2,927
381	Lake Minnetonka	2,733
604	Mendota/Lilydale/Mendota Heights	2,595
392	Eden Prairie	2,569
396	Chanhassen	2,541
707	Ham Lake	2,519
642	Prior Lake	2,413
385	Edina	2,389
626	Lakeville	2,318
367	Hennepin-North	2,317
762	Andover	2,301
727	Stillwater/Bayport	2,288
365	Maple Grove/Osseo	2,283
644	Savage	2,244
374	Plymouth	2,234
726	Woodbury	2,216
721	Lakeland/Afton/Denmark	2,206
706	North Central Suburban	2,198

And here are the Bottom 20 areas. Not surprisingly, you'll notice regions here that either a) have a high preponderance of condominiums and/or b) have a relatively older housing stock and/or c) are located in the two center cities or first-ring suburbs.

Code	Area	Avg. Sq. Footage
741	SP – Downtown/Capital Heights	1,089
302	Mpls – Central	1,307
308	Mpls – Powderhorn	1,310
742	SP – Central	1,322
310	Mpls – University	1,333
307	Mpls – Phillips	1,347
301	Mpls – Camden	1,351
303	Mpls – Longfellow	1,360
738	SP – Home Croft/W 7Th	1,377
306	Mpls – Northeast	1,386
746	SP – St. Anthony/Midway	1,421
716	SP – Hillcrest/Hazel Park/Daytons Bluff	1,430
728	SP – Riverview/Cherokee	1,442
386	Hopkins	1,457
379	Bloomington-East	1,462
305	Mpls – North	1,469
714	SP – Phalen	1,504
304	Mpls – Nokomis	1,514
600	West St. Paul	1,516

For a look at the geographic boundaries of these MLS areas, visit here. And stay tuned in the weeks ahead for more Lessons from the RREAR.

Riding in the Pyrenees

Le Tour De Housing Market
One of my favorite aspects of the Tour De France is the race through the Pyrenees. For several days, riders struggle mightily through tremendous mountain climbs in an effort to win the coveted yellow jersey and hopefully cement themselves as a legitimate contender to win the Tour.

For the past few years, our housing market has been challenged by a real estate ride through the Pyrenees. Rapidly growing inventories (see chart) created a steep mountain climb that home sellers and real estate agents had to navigate in an effort to get their homes sold. And, like the riders on the Tour, many fell short of achieving their goal.

Looking at what lies ahead, it appears the regional real estate market is approaching the end of the Pyrenees, leading to more modest hills on the horizon. Over the past several weeks, new listing activity has declined significantly and the total inventory of homes for sale is nearing its concluding peak. In fact, for the first time in years we expect to soon be reporting that listing inventory has actually declined as compared to one year earlier.

This recent phenomenon, the result of a combination of declining seller activity and growing buyer activity, will gradually shift our market back in the direction of a balanced market, meaning supply and demand will be cycling at a complimentary pace.

Yes, it will take us a while yet to get to the finish line, meaning the eventual balanced market. Nonetheless, it is encouraging news that we appear to be moving out of the mountains, into the hills and ultimately, on to smoother real estate roads.

Minneapolis Advantage Loan Program

The City of Minneapolis is tired of sitting back while foreclosures pockmark the visage of parts of their fair city. Fearing neighborhood degredation, they're trying to spur some of the kinds of redevelopment that city councils and neighborhood groups always love.

Basically, anything but rental conversions.

Thus enters the Minneapolis Advantage Loan Program, a downpayment and closing cost assistance program which offers $10,000 zero percent interest rate loans forgivable over five years to anyone buying a home in one of the city-defined eligible neighborhoods.

How does the city define an "eligible neighborhood?" It's actually quite objective and reasonable, much to our delight. Areas of the city which have been affected significantly by foreclosures, as expressed by a ratio of foreclosures compared to all properties, are the programs' focus. Click here for an excellent (but unsurprising) map.

For more information, check out some FAQ's and a general run-down.

Weekly Market Activity Report 4.28.08

For two years, home buyers in the Twin Cities housing market have behaved like medieval kings—looking down upon their vast and glistening kingdom of available homes for sale with a calm and dismissive eye, slowly selecting their properties without hurry or haste. While their reign is not yet over, there are some noticeable cracks in the walls of their castle.

Sellers are not putting homes on the market with anywhere close to the frequency with which they did the last four years. For the week ending April 19, there were only 2,152 new listings, down 19.6 percent from the same week last year. This marks the sixth week in the last seven with a double-digit percentage drop from 2007. The slowdown in buyer activity has also shown signs of abating, as the number of new purchase agreements signed for the week ending April 19 was 893, only 3 units behind the total of 896 seen this week last year. This is the second straight week of relatively flat year-over-year pending sales activity.

However, don't head out and buy that $80,000 Italian sports car you've always wanted just yet. It's important to bear in mind that:

1) foreclosure and short-sale activity is taking up a larger portion of our overall market activity than it did previously, which has the effect of propping these numbers up a bit, and

2) we're still 39.8 percent behind our 2005 sales pace from the end of the boom cycle.

But flattening overall supply (only up 0.4 percent from this time last year) and encouraging trends in sales figures should serve as welcome signs that the market corrections we've experienced in the last two years are taking a turn. Some semblance of order may very well be restored to the "kingdom" in the next year.

Click here for the full Weekly Market Activity Report.

The Wright County Discussion

As many of you already know, the Star Tribune recently ran an in-depth three-part series on the Wright County real estate market called "From Boom to Bust." Wright County has experienced some tumultous changes in the last few years due in no small part to the real estate boom and resulting explosion of new construction activity in the growing, exurban region. With the housing market now in contraction, Wright County is—like many counties in the metro—experiencing dramatic declines in new construction and uncertainties with some high-profile residential projects.

The Strib broke up their coverage into three parts:

Part I: Minnesota's New Ghost Towns

Part II: Housing Bets Gone Bad

And Part III, with an infinitely less-catchy title: Suburbs stuck with empty houses are trying to figure out what to do now

No matter your take on the fairness or objectivity of these reports, they are worth the read, and highlight some important market currents underpinning the challenges that face communities struck hard by the shifting market. The Strib's editor even went as far as publicly praising her staff for their work on the story.

But some aren't so pleased with the coverage, perhaps justifiably so, for its laser-focus on one specific county's troubles. In light of the troubles experienced by the entire metro, this feels like an unnecessary pile-on by some. In the interest of promoting intellectual curiousity and vigorous discussion, below is an unpublished letter to the Strib editor, penned by Wright County Economic Development Partnership leader Noel LaBine (hat-tip to Laurie Karnes for sending it our way):

++++++++++++++++++++++++++++

Star Tribune Article off-balance

The recent articles by Star Tribune reporters Chris Seeres, Jim Buchta, and Glenn Howatt have been very biased in their presentation of the current housing situation in the area. Why they decided to target Wright County is curious. They certainly have not taken a balanced view of what has happened in the current market. Moreover, their interpretation of the facts is misleading.

They are biased because they have decided to use a fear mongering approach to explain an already distressed situation. Obviously they are not students of the use of media to be an asset towards the development of community. Words like reckless, ghost towns, and meltdowns are more useful to describe war and devastation than to describe a needed correction in the housing price bubble. Quoting people, who believe that were heading for a depression, adds further impetus to their fear-mongering.

More on the positive side includes all the businesses that are doing well in Wright County. Expansions have recently occurred for manufacturers in Annandale, Cokato, and St. Michael, and more are being planned for manufacturers in Howard Lake and Monticello. These are building expansions ranging from 7,000 s.f. to 90,000 s.f. Other expansions are occurring with several manufacturers, that I know of, that does not include building expansion, but which certainly include product and/or workforce expansions. In addition there are several large projects underway with a new jail being built in Buffalo, an addition to the hospital clinic in Monticello, and a new Fleet Farm retail center in Monticello. In addition to these, there are two new restaurants being planned for Otsego and two more new bank buildings going up there as well. Meanwhile, a new community center is being planned for St. Michael. Some other new businesses that are looking to move into or start-up in Wright County include a corrugated plastic pipe manufacturer, an environmental concrete wet-waste handling businesses that will employ up to 40 employees in two years, and a natural pet and human skin and teeth treatment and food supplement business. These are just some of the many projects that are occurring in Wright County, which has a healthy economy overall.

A more balanced view would consider some of the facts. If 1 out of 40 houses are in foreclosure, in Wright County that would be about 2.5% or 97.5% of houses are either paid for or the owners are able to make their monthly payments. Which way of presenting that information is less scary? In a balanced view aren’t both points of view valid? There is another fact mis-represented. While Otsego, Albertville and St. Michael may have had predominantly German ancestors, there are 16 communities in Wright County, and some of them have had a majority of their ancestry from either Ireland, or Finland, or Quebec, or other regions. I raise this point, because in Wright County we have balance, we believe in balance, and we try to maintain a balanced point-of-view.

While the current distressed housing industry and market is worrisome and has caused some decay in consumer confidence, this is certainly not the general profile of our economy. The housing and auto industry only makes up 7% of our gross domestic product. The other 93% of our economy is doing fine. With the declining value in the dollar, not only are U.S. and Minnesota manufacturers experiencing increased demand for their products, but for the first time in 20 years we are experiencing a positive foreign balance of trade. This market correction is not only a necessary part of a free market society, but already there are some very positive signs of the much-needed correction. Bottom line is 95% of us have good jobs and we are making are payments. Hardly the profile for the despairing economy that the Star Tribune promotes.

If the purpose of their articles were to sow dissension and fear, then they have succeeded. I have attended five events in Wright County in the last four days, and everyone has had a negative reaction to the stories. One realtor told me that a deal that she has been working on for a retail strip mall is being further scrutinized by the banker, because he has been spooked by the article. A number of people have asked me to write a response to these articles. If the Star Tribune is trying to regain some of the subscribers that they have lost, I would suggest that printing articles like these is not a good tactic.

Another criticism of their tactics is their decision to make these stories of “get-rich-quick schemes by a few” worthy of front page news. For one thing, it is not a new story. The market has already shaken out most of the bad mortgage writers. For another thing, the courts are already indicting a number of fraudulent deal makers. Putting this kind of story on the front page is just one more step toward the tribune becoming a tabloid newspaper.