The Skinny

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.

Further Fed Rate Cuts?

With the national economy teetering on the brink of recession (and some would say already within one, and handily), AND legitimate inflation fears surfacing with reports like this and this, the Federal Reserve faces some tough decisions ahead. Which potential enemy do they fight first: economic contraction or price inflation?

Cutting borrowing rates further certainly helps with problem number one, but could prove problematic for problem number two.

Local mortgage blogger Alex Stenback points us to the crucial questions and some interesting web content on the subject. Click here.

Weekly Market Activity Report 4.21.08

The signs are early and nascent, but there are some promising early indicators that the Twin Cities housing market is beginning to correct and pull back from its two year-beeline in the buyer's favor. While affordability, interest rates and overall supply are still attractive, home sellers are cutting back on new listings substantially in 2008.

For the week ending April 12, there were 2,156 new listings, down a full 20.1 percent from the same week last year. That's the fifth week in the last six  that we've seen double-digit percentage drops from 2007 activity. Newly signed purchase agreements (pending sales) are still behind last year also, posting a 3.8 percent decline.

While our market still faces a long road ahead to full recovery, the recent reduction in new supply is a positive beacon on the horizon and undoubtedly welcome news for home sellers.

Click here for the full Weekly Market Activity Report.

Lessons from the RREAR Pt. I

If you're at all a fan of our Annual Residential Real Estate Activity Report (aka "The RREAR") that's released in February of each year, then you're likely a fan of the detailed, micro-level, neighborhood-based data it provides. Square footage, days on market, sales prices, percent new construcion vs. previously-owned...the list goes on and on -- and it's provided for every MLS area we can possibly fit in the damn thing.

All of this is to say that the amount of information contained in the 16 page report each year is both a) highly useful and b) difficult to sift through in its entirety without losing your mind. Constrained by the boundaries of the PDF format we're forced to simply dump all the data out to you in a grid of colums and rows, with no regard given to ordering the data or highlighting some trends to note.

We're gonna try to rectify this problem by harnessing the power and magic of the blog to dig into the numbers a little further. So let this mark the official beginning of the first post in an ongoing series: Lessons from The RREAR.

Today's subject: Price Per Square Foot.

While an imperfect science, Price Per Square Foot (PPSF) is in essence an attempt to control for the sometimes volatile data variable of home size and equate the value of the home to a simple financial question: how much house do I get for my money? PPSF varies significantly from house to house and is affected by a variety of factors—location, the type and age of the home, structural and cosmetic condition and much more.

Statistically, the Average PPSF by community in the Twin Cities varies greatly from place to place and is affected by all the same factors above, just on a broader geographic scale than a single home.

Below are the Top 20 Areas in the Twin Cities for Average Price Per Square Foot in 2007:

District	Area	PPSF
302	Mpls – Central	$244
605	Sunfish Lake	$237
300	Mpls – Calhoun-Isles	$230
381	Lake Minnetonka	$217
310	Mpls – University	$206
740	SP – Crocus Hill	$205
741	SP – Downtown/Capital Heights	$202
309	Mpls – Southwest	$200
750	SP – Mac/Groveland/River Road Area	$192
385	Edina	$191
752	SP – Highland Area	$182
748	SP – Town & Country/Merriam Park	$175
303	Mpls – Longfellow	$169
604	Mendota/Lilydale/Mendota Heights	$166
368	Hennepin-Northwest	$166
391	Saint Louis Park	$164
618	Eastern Dakota County	$163
721	Lakeland/Afton/Denmark	$163
304	Mpls – Nokomis	$162

And here are the Bottom 20 Areas in Price Per Square Foot in the Twin Cities. These are the spots you could get the most house for your money in 2007:

District	Area	PPSF
305	Mpls – North	$71
370	Sibley County	$90
343	Mcleod County	$92
342	Hutchinson	$97
301	Mpls – Camden	$99
742	SP – Central	$100
660	Goodhue County	$103
714	SP – Phalen	$106
658	Le Sueur County	$107
363	Brooklyn Center	$111
716	SP – Hillcrest/Hazel Park/Daytons Bluff	$114
720	SP – Southeast St. Paul	$116
783	Cambridge	$118
632	Rice County	$119
364	Brooklyn Park	$119
756	Elk River	$120
767	Coon Rapids	$121
769	Anoka	$121
630	Northfield	$121
612	Burnsville	$121

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.

Rental Properties on the Rise

There's a very interesting story from the Star Tribune today on the growth in rental properties around certain cities in the metro. In essence, a convergence of market factors is creating an environment where the flip from owner-occupied to renter-occupied is easier and, in some cases, more profitable.

With the well-documented rise in foreclosures, a dearth of qualified and motivated home buyers, and shifting tax burdens rendering an owner-occupied status less desirable than in years past, it's not a shocking development. But worth watching nonetheless.

For a look at how various cities are responding to the growth in rental properties, take a look at the full Star Tribune article from Steve Brandt. Hat tip to Jon Weber for bringing this to our attention.

Weekly Market Activity Report 4.14.08

Spring inventory growth remains staid in the Twin Cities housing market as the annual influx of new properties for sale has not been as rambunctious as the levels seen over the last few springs. The total number of homes for sale in the metro area currently sits at 31,615 up only 3.0 percent from the same time last year—the lowest such year-over-year increase for some years. Home sales remain relatively slow as well, with newly signed purchase agreements (pending sales) from the last three months trailing the same period last year by 16.6 percent.

This week's edition of the MAAR Weekly Market Activity Report features an updated Housing Affordability Index (HAI) for April. The HAI fell slightly to 155 due to a seasonal increase in home prices in March but remains a healthy 16.6 percent above where it was two years ago. Softening prices, motivated sellers and a continuation of historically low interest rates have dramatically improved the affordability picture in recent months.

Click here for the full Weekly Market Activity Report.

The 100 is Updated for March

Pop quiz, hot shot:

How many communities does "The 100"—our localized market tool—cover on a monthly basis?

Your answer might've been "100," which, logically, I suppose is an excellent educated guess. But you'd be so wrong. Your other answer might've been "125" since you probably remember that we added 25 areas to our cadre of area reports in late 2007, but again, you'd be so totally wrong.

The correct answer is....205! That's right, "The 100" is bigger and badder than ever. Dozens of new communities, a visual map interface and easy-to-access archived reports. It's so huge that we've had to actually change the name to "The 100+." Check the logo below for the shiny new look.

And click here to access the updated March figures for "The 100+."

Sellers relax inventory growth

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

The typical spring increase of new home listings for sale has not been as explosive as the record pace of the last few years.

The number of new listings in March was 8,523, a healthy 17.0 percent decline from last March. Year-to-date, the number of listings has fallen by 8.7 percent relative to the same time period in 2007. The net effect of this tepid spring showing is dramatically slowed growth in the total number of houses for sale. At the end of March, there were 30,652 homes for sale in the 13-county Twin Cities region, up only 4.7 percent from the year previous—the lowest such year-over-year increase since MAAR began tracking the figures.

Despite the attractive buying opportunities and signs that the peak of housing supply growth is behind us, home buyers remain surprisingly inactive. The number of signed purchase agreements (pending sales) in March was 3,632, down 14.6 percent from last March.

Those sellers who did keep their homes on the market—be they traditional sellers, builders or banks—continue to price their homes aggressively to stimulate activity. The March median sales price of $200,000 is 2.5 percent above last month but remains 9.5 percent below March 2007. The March percent of original asking price that sellers received at sale declined from 95.6 to 91.0 during the same time period.

Thinking "Green"

Approximately 16 industry leaders composed of lawyers, developers, corporate managers, engineers, professors and other experts represented the various facets of the “green” industry at the Green Buildings and New Technology Conference on April 8th. The state of green in Minnesota, green initiatives, new technology, financial incentives and strategies for enhancing sustainability were presented. The common thread running through each perspective was the importance of making green step one, prior to making any plans.

A common concern for companies or individuals who want to go green is the cost. Looking a little more long-term, however, shows the vast savings and overall efficiency throughout the structure’s lifetime are far more significant than the initial building cost. The option of retrofitting existing buildings to make them more efficient from heating and cooling management to water usage internally and externally is an alternative to building new. Homeowners should bear in mind that Minnesota is a state that gives incentives to energy companies for increasing efficiency; therefore, there are opportunities through our energy companies to use less of their commodity.

Judging from the large turnout, the massive interest in green is undeniable. Green concepts are expected to be the status quo 10–20 years from now, but things are happening in Minnesota right now. State legislation is providing incentives and funding; Minnesota Green Communities alone has nearly 380 green homes throughout the state, 190 units completed, 423 under construction, and another 1,223 under development. Don't wait 10–20 years. Start thinking green now.

Great Leaders

Last week I attended a professional development institute for association executive staff and heard an inspiring presentation from Jason Jennings, best-selling author of Think Big Act Small. Using his soon to be published (and titled) new book as a guide, Jason spoke about common traits of CEOs who have created the greatest amount of economic value for their organizations.

In his presentation, Jennings offered four guiding principles.

Great leaders turn what they do into a cause

A cause should be big and bold, inclusive, and reveal why you do what you do. It fixes something. It gives meaning to people’s lives, building purpose, passion, momentum and culture.

By way of example, at MAAR, our cause is to build, manage and promote an organized real estate market that is efficient, transparent and robust. What is your cause?

Great leaders master the art of letting go

Great leaders know how to replace yesterday’s bread winners (e.g. services and products). It exemplifies the bigger, better, bolder concept. It does not embrace the same-old-same-old. It includes letting go of ego.

According to Jennings, when you let go 1) you are better able to deal with change, 2) you stay more focused than your rivals and 3) innovation happens.

Great leaders get their people to think and act like owners

Great leaders emphasize creating economic value. People are rewarded on the economic value they create and everyone is held accountable. Decision rights are directed to the right people, the one with the right knowledge or skills, the one who produces economic value.

Great leaders are stewards

Service supersedes self interest, as great leaders demonstrate stewardship of employees, members, customers and shareholders. Abandoning power and dominion, they are available, demonstrate values and keep their hands working in the dirt. These leaders feel called to serve, are coaches and mentors, and are driven to leave their organization better.

I was impressed that before speaking to a room of over 1,000 people, Jennings walked the lobby and spoke individually to as many attendees as possible. The principles he taught apply across the field of disciplines and serve as a wonderful guide to effective, principled leadership.

Weekly Market Activity Report 4.7.08

The Twin Cities housing market is showing early signs of entering a positive phase of correction. The number of new listings entering the market for the week ending March 29 was 14.8 percent behind the same week last year, the fourth consecutive week of double-digit declines relative to last year. Unfortunately, pending sales remain lackadaisical (down 15.9 percent for the same time period comparison), so the total inventory of homes for sale continues to exhibit decelerating growth this spring season—an encouraging momentum change in our shifting supply-demand balance.

This week's edition of the MAAR Weekly Market Activity Report features updated figures for several key metrics. In March, the Days on Market Until Sale held steady at 165 and the Percent of Original List Price Received at Sale dipped slightly to 91.0—both indicators of the continued advantage the buyer holds in this market. The April Months Supply of Inventory increased to 9.6 months, up 23.9 percent from this time last year. A market that's balanced between buyers and sellers would have roughly a 5- to 6-month supply of homes for sale. We haven't been there since 2005.