The Skinny

Buyers: Inactive by Choice?

A compelling and mostly unanswered question: why are home sales sluggish?

There's a myriad of potential explanations to this question, many of which have already been talked about at length by others, including us. Most of these explanations are at least somewhat valid and salient, and the true culprit is likely an amalgamation of factors working naturally and unintentionally in concert to create an environment that discourages home sales.

What's truly intriguing is that these varied explanations and justifications can mostly be segmented according to two distinct conceptual groupings:

• people don't want to buy homes
• people can't buy homes

In other words, are buyers consciously sitting on the sidelines because they believe that now is not a good time to buy? Or are they trying to get in the fray but can't because something is holding them back against their will, like tightened lending standards? Below are some suggested explanations for buyer inactivity, grouped accordingly.

The million dollar question: is there one segment that feels like it explains the situation more than the other? Do people just not want to buy houses? Or do people want to but can't? Or is it a combination of the two? What do you think? We're looking for input from the broader real estate community here.

The people who may have the most to say about this would be those in the mortgage community. Has there been an increase in the number of applicants who don't qualify to purchase? Can these consumers account for the lion's share of the drop in sales or not?

Sometimes blogs are valuable not for providing answers, but for asking questions. Hopefully this is an example.

Weekly Market Activity Report 3.31.08

Vamoosh! Home sellers in the Twin Cities are continuing their great disappearing act, with new listings on the market in 2008 sitting far below last year's rate. Over the last three months, there have been almost 2,500 fewer listings put on the market than there were a year ago—a drop of 9.5 percent.

Inventory is still more plentiful than ever.  Despite the pullback, we still have a record high number of houses on the market for this time of year. So what's the takeaway here? Well, if we look closer, we can see that the inventory gap between now and one year ago is closing, and closing hard. We've gone from being up 12.6 percent from a year ago to only 5.5 percent up in the last 12 weeks.

Gut check: We must keep perspective on the challenging environment that sellers still face, despite the softening competition. The number of signed purchase agreements (pending sales) for the last three months is 17.7 percent behind the same period a year ago. There's fewer of everything.

Click here for the full Weekly Market Activity Report.

On Television

"The TV business...is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free and good men die like dogs." – Hunter S. Thompson

How's that for an attention grabber? Hey, blogs are supposed to be controversial and interesting. That's what they teach us in blog class. But the lead-off quote is not just meant to be incendiary. It's also a comment on what REALTORS® are up against when they enter the realm of television. A career in real estate, days of media preparation, hours of research for the day's story...and you're lucky if you get 10 seconds of air time.

If you know that going in, you will do just fine on television. Television reporters work fast under extreme deadlines, and they are most interested in "the nuts" of a story. No, that doesn't mean they (always) hit below the belt. It's a Texas Hold'em poker term. If you have "the nuts," you have the best hand. All reporters want the best hand, especially for a competitive story.

Like when the National Association of REALTORS® releases some optimistic, seasonally adjusted numbers that show a 2.9 percent increase in existing home sales, or the S&P/Case-Shiller Home Price Index shows a record 10.7 percent drop, or a Moody's Economy.com report says 10.3 percent of the nation's homeowners hold loans that exceed their home's value. Believe me, they're on it quick and they will use you for whatever angle packs the most punch.

We're lucky in the Twin Cities this year. We have four complimentary presidents of our four local associations. Kay McDonough of the Southern Twin Cities Association of REALTORS® has the natural smile and necessary enthusiasm to deflect negativity. Rod Schimmel up at the North Metro REALTORS® Association can rattle off facts and figures like he absorbed them for breakfast. Greg Bauman is handling media duties over at the Saint Paul Area Association of REALTORS® with vocal authority and strong eye contact. And here at MAAR, we have Kevin Knudsen who charms 'em with the soothing intonation of a southern gentleman (southern side of Minneapolis, that is). I have been fortunate enough to work with all of them, and they're going to represent us well this year.

Here are four recent TV story samples of the presidents at work on the topics in play:

WCCO 4 - "Home Sales Rise Locally, Nationally"
WCCO 4 - "U.S. Home Sales Up, But Minn. Still Down"
FOX 9 - "Home Sales Rose, Prices Fell in February"
KARE 11 - "More Home Loans Exceed Home Values"

I have also had the pleasure of working with several members of the local news media. I bear no ill will toward them, and my Hunter S. quote is not at all reflective of how I feel about them. You see, my other reason for quoting Dr. Thompson is because my son's name is Hunter S. I, too, am guilty of making the the story fit my angle.

And for that reason, I'm better suited for print.

Running Up, Trickling Down

The run up in home prices during the boom years was fast and extreme, like an Andrew W.K. record. But the downward correction in prices—at least until recently—has been relatively slow and mild, like a Low record. In other words, the drop in home values we've seen so far is just a drop in the bucket compared to the value increases of past years.

Your reaction to this news depends on whether you're an optimist or a pessimist.

Pessimist: more price declines must be on the way to bring some balance back.

Optimist: people who bought their homes in the late 1990s or early 2000s are probably still sitting on a nice little chunk of appreciation.

Realist: The beauty of it (and the trouble of it) is that you're both right.

$200 Billion: A Liquid Ditty

Last week, OFHEO, Fannie Mae and Freddie Mac announced a major initiative to increase liquidity in support of the U.S. mortgage market. The initiative is expected to provide up to $200 billion of immediate liquidity to the mortgage-backed securities market. OFHEO estimates…the GSEs to purchase or guarantee about $2 trillion in mortgages this year.

What the heck does this mean?

Well for starters, it means that there should be more money available for mortgage lending, something our market desperately needs. Remember just a few months back when lenders were tripping over each other to borrow you money for homes, cars, education and a new set of golf clubs? All you needed to do was fog a mirror and sign your name and you were good for another few hundred thousand dollars.

Well that all changed last August at the onset of the subprime meltdown. The pendulum swung fast in the other direction, as investors quickly went into hiding and money has been hard to find for any kind of securitized loan, including mortgages.

Think of the $200 billion this way, with the median home price bordering on $200,000, this new money infused into the market will provide for more than 1,000,000 new mortgages, or some 15-20 percent of this year's home sales.

Simply put, the initiative increases liquidity in the housing market by providing hard to find funding for new mortgages. It will provide the capital to help the GSE's fund their newly increased lending limits and aid in their servicing of the jumbo mortgage market. Combined with the recent increase in FHA mortgage lending limits, it is one more step in stimulating buyer activity in a depressed housing market.

As for the $2 trillion in mortgages this year, I am still trying to get my arms around the concept of $200 billion. I best be off to find a calculator that carries more than ten digits...

NOTE - For those lost in acronym never land, OFHEO is the big brother that watches over Fannie Mae (FNMA) and Freddie Mac (FHLMC), both of which are privately held companies operating as Government Sponsored Enterprises (GSE's).

The Media, The Realtor, The Tension

Call me crazy, but the tension between the media and the real estate industry is 100% fascinating.

In case you missed it, there have been approximately 984,412 articles in the Twin Cities newsmedia the past two weeks on the local housing market. One on suburban foreclosures. One on the role of the credit crunch. Another on the troubles associated with vacant homes.

Realistically, this deluge of coverage isn’t that surprising. The recent news that February’s median sales price of $195,060 was 12.5 percent behind the same month last year is certainly something that any reputable news outlet should have an interest in reporting.

But in all of my face-to-face interactions with realtors, I get the impression that industry professionals are less than thrilled about all the recent press coverage. And really, I can’t blame them for feeling that way. The common accusation is that the media “goes negative” and sensationalized at the expense of providing the simple and unvarnished truth about the market.

All the emphasis on the negative aspects of the housing market in the media undoubtedly has had a depressing effect on consumer psychology and confidence. Few could argue with that. But as we all know, “truth” is a subjective phenomenon at best; it ain’t viewed in the same light by all parties. One man’s truth is another man’s spin.

And we also need to remember that there’s a stark, strong and necessary difference between the advertising arm of a large media outlet and the journalism arm of that same organization. Just because a newspaper gladly accepts our advertising dollars does not mean they then owe us any semblance of a “payback” in their actual news content. Journalism’s proud traditions require that the news remain untainted by the revenue concerns of the organizations that provide it.

I don't have a grand thesis to impart here. Just wanted to point out that the relationship between the media, real estate professionals and the general public is very complex, with no clear heroes or villians. Everyone’s got legitimate and illegitimate beef with everyone else. Yes, press coverage tends to accentuate the negative. Yes, this is probably having a troubling effect on consumer confidence. But the numbers really haven’t been that pretty, and we’re all collectively responsible for educating consumers about the full, nuanced reality of this market.

The item that sparked this whole train of thought was a great recent Inman News Article on the industry-wide tension between the media and the real estate industry.

Click here for the article (password may be required).

Weekly Market Activity Report 3.24.08

Potential home buyers waiting for even more new inventory to hit the market may be waiting a long time. For the week ending March 15, there were almost 300 fewer properties put on the market in the Twin Cities than during the same week in 2007—a decline of 12.0 percent. And the number of new listings on the market in the last three months is 6.9 percent behind the same time one year ago. So while total inventory remains high, the frenzied peak of seller activity appears to be behind us.

The number of newly signed purchase agreements jumped significantly from the previous week; and for the same time period comparison last year was down only 8.9 percent. While this is a positive indication that buyers may be beginning to recognize the tremendous opportunities available, we are by no means out of the woods yet. Let's at least hope we're out of the snow.

Video Killed the Radio Star II

More fun with visuals!

On January 16th, 2008 we helped put on a huge Residential Real Estate Summit, along with the three other Twin Cities REALTOR® associations and the Real Estate Communications Group. The event was a fascinating mix of people, with panels on a wide-ranging scope of subjects including market projections, new construction, lending law changes, generational dynamics, emerging markets and more.

Our own Chelsie Foty put together a quick and painless video recap of some of the event's best moments. Take a look here.

 

March Housing Supply Outlook

The March Housing Supply Outlook has just "hit the streets," as it were. Dedicated fans of the HSO (as we call it) know that there is a literal deluge of information to absorb each month. In the interest of making your time with it more effective, here's a few quick takeaways to look for:

• There has been massive growth in the inventory of homes for sale in the lower price ranges below $190,000. This is very likely a combination of natural price depreciation knocking homes down into the lower ranges and the preponderance of priced-to-move REO properties.
• The two property type categories with the highest months supply of inventory are new construction single-family detached homes (12.0 months) and previously-owned condominums (11.3 months). The two categories with the lowest months supply of inventory are previously owned single-family detached homes (8.7 months) and previously owned townhomes (9.3 months).
• Despite the lowest decline in unit sales of any property type, single-family homes are currently seeing the largest declines in value, 5.6 percent down in price per square foot when comparing home sales for the last twelve months to the previous twelve months before that.

Click here for the full March Housing Supply Outlook.

Weekly Market Activity Report 3.17.08

"So tired, tired of waiting for you" -- The Kinks, garage-rock innovators and noted housing economists

Still waiting! Buyer activity remains relatively lethargic in the Twin Cities housing market. For the week ending March 8, the number of new purchase agreements signed was 682, behind the same time last year by 18.7 percent. Despite the deluge of properties available, rapidly improving affordability, attractive interest rates and motivated sellers, buyers appear to be unwilling or unable to take advantage of this incredibly attractive buyer's market.

This conundrum begs a question: Do buyers remain on the sidelines because they so choose or because they have no choice? In other words, is it tightening lending rules or a sincere lack of consumer interest that is keeping buyers in stasis? What do you think?

This month's edition of the MAAR Weekly Market Activity Report features an updated figure for Months Supply of Inventory, which jumped in March to 9.2. This means that it will take the current supply of properties for sale roughly 9.2 months to sell through completely.

Calling All Brokers! If MAAR were to host a broker summit that gathered Twin Cities real estate brokers together, what speakers would you be willing to pay to listen to? These speakers can be national or local, real estate related or general. Please share your thoughts with Linda Stoeckicht at [email protected].

Click here for the full Weekly Market Activity Report.

What Twin Cities Area Home Buyers and Renters Need to Know

The manager of a large brokerage office recently asked what should be the elevator speech in an agent's repertoire for use when conversing with home buyers. When you have only a couple brief minutes of face to face time, the following is what home buyers need to know:

1.        Never has there been a more robust supply of homes for sale from which buyers can choose...lets go shopping 

2.       Interest rates have declined and are again approaching historic lows...advantage buyers

3.       Declining interest rates and moderated home prices mean housing affordability has rebounded to the high levels experienced during the boom part of this decade...buyer motivation

4.       Whether it begins this spring, next fall, or one year from now, these circumstances will cause pent up buyer demand to soon unfurl, so as to take advantage of this new environment...opportunity is knocking

5.       The newly revised mortgage limits for FHA financing will open up more opportunity to new home buyers...new avenues to home ownership

6.       The stage is set for a real estate market rebound...catch the wave early on

7.       Your best investment for building long-term family wealth is home ownership...start building your future today

While the real estate market needed to pause and take a breather after several years of over-stimulated growth, after two-plus years the stage has been set (or nearly set) for a return to a healthy and balanced market that will benefit both buyers and sellers. Those buyers that sense the change in the wind and act before the masses jump in are the ones that will be in the best position to reap the rewards of the market rebound.

Buyers spring for falling home prices

The substantial corrective price declines first seen in January were further fleshed out in February, as the median sales price for the month of $195,060 is a decrease of 12.5 percent from the same month last year. There were 3,087 purchase agreements signed and 2,009 sales closed—down only 10.2 and 13.6 percent from last year, respectively. This is a lesser decline than seen in recent months.

The MAAR Housing Affordability Index (HAI) shot up eight points from last month to 157. That's the healthiest HAI figure since 2003. Additionally, the number of homes for sale continues to post record levels despite a drop-off in new listing supply. At the end of February, there were 29,842 homes for sale, which amounts to 8.72 homes for each buyer expected during the upcoming month.

A note to those scouting the market for rock-bottom prices: The decline in median sales price is just as much a function of what kinds of properties are being sold as it is a slashing of listing prices. According to MAAR's February Housing Supply Outlook, there recently has been a large increase in the sales of properties priced under $150,000, which does have the effect of skewing the overall median sales price downward. | READ THE FULL PRESS RELEASE

Video Killed the Radio Star

As some of you have probably noticed, we recently overhauled our entire website. This is something that most businesses do but once in a blue moon due to the time, effort and costs involved. Knowing that this was going to to be the website we're stuck with for some time—for better or worse—we tried to bring a keen eye towards all the interactive bells and whistles that we all expect our modern web-surfing experience to have.

Web video is one such bell or whistle that we've all come to know and love (except when it helps create phenomena like this). So, yes, we are dipping our toes in the video waters; carefully at first and likely with more confidence in the near future. You can take a look at our videos here. Chelsie Foty, our Member Relations staff representative, helped put together these clips.

The clip with the most relevance to The Skinny and our focus on market insight, is the "Intro to Market Info Tools" video, which provides a quick tutorial on our 5 different research tools—where to find them and how to use them to help answer the burning questions you might have.

Click here to view the video. Anything else you'd like us to make a video on? Let us know in the "Comments" section below.

P.S. The music being played is Les Savy Fav, "We'll Make A Lover of You" from the 2004 album Inches.

Weekly Market Activity Report 3.10.08

The number of new listings on the market has been relatively small so far in 2008. Over the last eight weeks, there have been roughly 1,200 fewer listings put on the market than during the same eight weeks in 2007—a decline of 6.7 percent. The decline in purchase agreement activity during the same period is on a more extreme decline, however—falling by 17.8 percent for the same time period comparison.

What buyers need to hear about is the significant improvement in affordability. Despite an increase in mortgage rates, the Housing Affordability Index (HAI) shot up dramatically for March to 157, the highest figure in five years! The HAI increased thanks to a decline in sales prices in February and increased consumer income. The home buying environment has been getting exponentially more attractive with each passing month, which is great news for those waiting on a real estate market rebound.

This week's MAAR Weekly Market Activity Report features updated figures for several important metrics. Days on Market Until Sale held steady at 165 in February, an increase of 12.2 percent from last year. The Percent of Original List Price Received at Sale increased slightly to 91.1 percent, and should continue to rise in the spring months as it does each year.

Do buyers recognize the improving affordability and what it means to their bottom line? Let us know what you think by clicking the "Comment" link below and sharing your thoughts.

Click here for the full Weekly Market Activity Report.

Clowns to the Left of Me, Jokers to the Right

We have been neener-neenering with pointed finger at such overwrought housing markets as California, Nevada and Florida over the past year and saying, "Ha, it ain't us!" Our 2007 President, Deb Greene, made the point on national television that the country's interior markets were far more stable than the coasts, to which CNBC's Maria "The Money Honey" Bartiromo said, "Good point, and thanks for making it."

But what's this? A new year-end report from OFHEO seems to be poking a small hole in our argument. The Minneapolis/St. Paul MSA ranks #225 out of #291 MSAs on the list of appreciation rates. Really? That low? Okay, our area's annual appreciation of -1.6% is nowhere near the muck of Modesto, California's -15.5% or Punta Gorda, Florida's -13.3%, but is it so impossible to imagine us as the next Ann Arbor, Michigan (-7.9%) in the near future?

Look around the region, and you'll see that just about everyone is doing better than us. From Duluth to Dubuque, from Sheboygan to Sioux Falls, we're on the outside looking in at their relative calm. Are we reeling from some big-city issues that the likes of Ames and Appleton don't have to worry about? Not sure about that. Milwaukee's relatively stable at 1.4%. Chicago's hanging tough at 1.6%. Even Cincinnati and Columbus are evens to our odd (let's not talk about Detroit or Cleveland for now; too messy, those comparisons). 

On the flip side, the mountains and the scrub plains are doing bully business, according to the OFHEO 2007 figures. Grand Junction, Colorado enjoyed a smiley 12.0% appreciation; Ogden, Utah was a solid 10.8%; and big ups to Bismarck, North Dakota for their 10.7% increase.

Needless to say, we'll be watching 2008 like a hawk around here. We recently called 2007 "one of the most interesting years in the history of residential real estate." There is currently no reason to believe that 2008 won't be another wild ride.