The Skinny

What's the Deal With Condos?

Let's start with the facts:

• The median sales price of condominiums in Q2 2008 was only 2.9 percent lower than the price from Q2 2006. The market as a whole has seen a decline of 11.9 percent.
• Compared to one year ago in Q2 2007, the median sales price of condos actually held dead flat at $169,900 in an era of across-the-board price declines.
• Traditional condos (excluding lender-mediated foreclosures and short sales) actually increased by 3.2 percent from Q2 2007.
• And in the "huh?" department: the median price of lender-mediated condos increased by a whopping 17.2 percent from Q2 2007.

In other words, all of the data would appear to indicate that the condominium submarket appears to be holding its value better than others. But is this really true? That's questionable.

I wonder what kinds of reactions we would get if we presented this idea to the current owner and/or seller of a condo in the Twin Cities housing market. Odds are good that most would be incredulous: "You mean to say that my condo is worth more than it was last year even though I can actually see the price dropping as I watch my neighbors sell their units for less and less?"

This is one of those moments where I, as a researcher by trade, am somewhat flummoxed.

All of the market fundamentals seem to indicate that the supply and demand picture in the condo submarket is as biased towards the buyer or worse than other submarkets. Even though the supply of condos for sale is dropping nicely, so are sales, which is leading to the following picture:

Months Supply of Active Inventory

	8-2007	8-2008	Increase
Single-Family Detached	9.5	10.0	5.3%
Townhomes	9.8	11.5	17.3%
Condominiums	10.8	13.3	23.1%

Not only do condos have the highest months supply, but their months supply is growing the fastest. These signs naturally should point to falling home values as sellers price the properties to move, but, as we noted earlier, aren't. Median prices for condominiums are fairing quite well, relatively speaking.

So the title of this post becomes salient: what's the deal with condos? How are their median sales price numbers (and price per square foot numbers too, I might add) holding up so well despite unfavorable conditions?

The likely culprits for this incongruity are all based in the statistical noise that comes from trying to compare the average or median value of several different variables. Condos have a relatively small sample size (they only make up 9.5 percent of current active listings), a high degree of internal variability (from multi-million dollar penthouse high-rises to 500 square foot studio apartment conversions), and aren't experiencing the same level of foreclosure and short sale activity as the other property types.

In other words, it's hard to consider the comparison of the median price on the 1,075 condo sales in Q2 2007 to the 777 condo sales in Q2 2008 totally viable when they comprise such a small part of the market, and when we can't be sure what kind of condos were selling in each quarter. The comparison might not be totally "apples-to-apples," as they say.

More than anything, this long and rambling post just serves to illustrate how important it will be in the years ahead for all of us in the research community to think beyond the current crop of statistical tools in our toolbox, as each is limited in its own way.

Why Are So Many Houses Priced Just Under a $5,000 Increment?

We've talked about this type of thing before, but it bears repeating.

The power of price is subtle but monstrous, enough so that a difference of one penny—the distance between, say, $3.00 and $2.99—can have a gigantic effect on consumer interest in a product.

From a recent BBC article:

"...according to a French study the phenomenon still swings a considerable number of shoppers. Researchers found that lowering the price of a pizza from 8.00 euros to 7.99 euros boosted sales by 15%."

The price declined a miniscule 0.125%, but spurred a 15% increase in sales. Talk about an elastic demand curve. Something powerful, insidious—and yes—completely irrational must be at work here. The article digs in further to try and provide some explanation:

"'When a price changes from $30 to $29.99, the change from three to two makes more of a difference than the value of that money could predict,' says Mr Schindler. 'It is like when a 39-year-old turns 40, the birthday feels like a big deal. Or when 1999 ends and 2000 starts. It feels like an emotional difference.'"

Emotion trumps logic. Score one for Captain Kirk over Lt. Spock.

So what does this mean for housing? We decided to take a closer look exactly where home sellers and their agents decide to price their homes in the price continiuum to see how frequently this emotional numbers game is played. Here's a list of the 20 most commonly used listing prices for all current inventory in the Twin Cities housing market:

Rank	List Price	Count of Active Listings
1	$199,900	657
2	$179,900	543
3	$169,900	528
4	$159,900	522
5	$189,900	514
6	$249,900	496
7	$149,900	451
8	$299,900	439
9	$239,900	420
10	$219,900	404
11	$139,900	393
12	$229,900	364
13	$209,900	354
14	$259,900	319
15	$129,900	312
16	$174,900	310
17	$399,900	301
18	$269,900	300
19	$224,900	297
20	$349,900	278

Notice some patterns?

Every single price ends in 900, rather than an even "000." And every single price is priced just under an increment of $5,000. In fact, the top 45 most common list prices follow these same exact patterns.

Looks like home sellers and their agents understand the irrational power of price just as expertly as the folks at the 99 cent store.

Weekly Market Activity Report 8.25.08

If you're looking for some insight into just how sluggish the second half of 2007's home sales were, look no further then the year-over-year comparisons with sales from this year.

For the week ending August 16, 2008, there were a whopping 33.0 percent more pending sales than the same week last year—an increase of more than 200 units. This extremely strong showing is due to a combination of legitimately robust current demand and the uncharacteristically steep downward dive sales took last year after the credit markets began to constrict in August 2007. This week's figures are more in line with the equivalent (pre-credit crunch) time period in 2006—just 2.5 percent off that pace.

As for housing supply, the number of new listings on the market receded by 18.4 percent for the same time period comparison, and the total number of active properties for sale is currently 7.1 percent lower than at the same point last year.

August Monthly Skinny Video Online Now

The August Monthly Skinny is up live for your viewing pleasure, this time narrated by our 2008 President Kevin Knudsen.

Click the embedded video below, or click here to visit the standalone YouTube page for the clip.

Mortgage Standards Continue to Tighten

A phenomenon that consumers, lenders, bankers and Realtors alike are experiencing on the ground gets a 10,000 mile view from the Strib, along with the requisite human interest angle:

...so when they backed away from a complicated deal in which they tried to buy a house from a borrower who owed more than the house was worth, they thought that getting a mortgage on another, less-expensive house would be a breeze, as they had already been approved.

They were wrong. Between canceling that deal and finding a new house in Golden Valley, the mortgage markets continued to unravel, access to credit tightened and the lender who had approved them several months earlier was now asking for a bigger down payment and more detailed documentation, including photocopies of their Social Security cards.

"I was almost on my way to the doctor to get a finger pricked to give blood," Jeff Prottas said.

Obviously, the tightening of lending standards and new restrictions to that "giant pool of money" we all used to so happily wallow in are going to have some significant short-term effects on the housing market. Recent policy changes like FHA's forthcoming removal of seller-funded down-payment assistance on October 1st will have consequences on buyer activity and home sales.

Some argue that at a crucial turning point in the market where prices are falling low enough to finally encourage some buyers to enter the market, this is exactly the type of change we don't need.

Others argue that it's about freakin' time that lenders and consumers once again approach their two-way financial tango with some legitimate fear of risk.

What do you think?

Lessons in Marketing from Target Corp.

Brand identity is essential. What does your brand "mean" and do consumers accept that meaning?

Apple means sleek, futuristic, intuitive and consumer-focused. Microsoft means utilitarian, pragmatic, complex and business user-focused.

In some instances, having a powerful and strong brand can actually hurt you in the short-run, especially in times where the "values" that frame your brand's meaning are out of vogue. Case in point, Target Corp. during the recent economic malaise.

From a Strib story:

As Target released its second-quarter earnings Tuesday, the Minneapolis-based discount retailer said it will not meet long-term expectations if consumer cutbacks continue. Part of the problem is that, much as Target has tried to trump up the "pay less" side of its slogan, consumers don't believe it.

"The perception is that because it's more visually appealing than Wal-Mart, that prices are higher," said Stephanie Hoff, a retail analyst with Edward Jones in New York. "They're just going to have to figure out a way to communicate that to their customers better. They're trying to do that, but it could take some time."

Emphasis mine.

Recent stock prices confirm Wal-Mart's strong showing and Target's downward dip (from a Freakonomics article):

So despite having competitive pricing that's relatively similar to their main competition -- Wal-Mart -- consumers are staying away from Target for the time being in an attempt to be spend-thrift and cost-conscious. Now Target must go through the complex and sticky process of convincing people that "no, trust us, really, our products aren't of any higher quality than Wal-Mart, you just think they are."

A slippery slope, one on which I'd tread carefully. Recessions are temporary, but a successful and profitable brand identity that "means" quality comes along but once in a corporation's lifetime.

Mixed Metaphors: Music, Piper Paying and Medieval Torture Edition

There are no less than three metaphors awkwardly floating around in this statement below from a California real estate broker. Fun game! Can you name them all?

From Portfolio.com:

"It was a great ride for a lot of investors but eventually the music stopped and someone had to pay the piper," says Mr Kane. "What was supposed to be a liquid asset becomes a ball and chain around your neck when you owe more than the market value of the property."

What have we learned here?

The housing market:

1. is a rollicking piece of music which has the power to stop unexpectedly (perhaps akin to Blur's "Song #2")
2. is overseen by a mythical "piper," who has apparently lent us some undetermined amount of money in the past and now demands payment
3. is comrpised of items which have the magical ability to morph from liquid assets into medieval torture devices

Sounds absolutely frightening; some Lord of the Rings-type stuff. And that Piper guy sounds like a total jerk.

Hat-tip to Alex Stenback for the metaphor. Photo by Charlie Chocolate.

Mortgage Mapping

The Federal Reserve Bank of New York has some pretty sweet visual maps that plot mortgage information: foreclosure and delinquency rates, ARM usage, low and no-doc loan figures...you get the picture.

Where this tool really earns its stripes is the extreme level of detail it can provide down to the ZIP code level. In other words, you can see how frequently your neighboring zip code is making their mortgage payment late compared to your own.

While it's not as intuitive or easy-to-use as we'd like (or as today's Zillow and Trulia-trained consumer demands) it's a pretty cool application based upon the oodles upon oodles of mortgage data markers out there that just aren't used publicly enough, especially in these times of heavy public interest in home loans.

UPDATE. Some  Highlights (or Lowlights) of Active Minnesota Subprime Mortgage Loans:

• Only 53.7 percent of all subprime loans in Minnesota are "current," (i.e. not currently behind on payments).
• 60.9 percent of subprime loans in Minnesota have had a late payment in the last 12 months.
• 75.5 percent of all active subprime loans in Minnesota have adjustable rates
• 32.3 percent have a rate that will adjust in the next 12 months.

Click here to play around the interactive tool.

Hat-tip to Mem-Grems.

Weekly Market Activity Report 8.18.08

Zoinks!

Pending sales for the week ending August 9 were a startling 21.0 percent higher than one year ago, posting 900 sales as compared to 744 a year ago. While one week of such robust increase doesn't justify the opening of stored champagne bottles, it is another welcome sign of reviving buyer demand. While a highly productive number in its own right, the year-over-year increase is somewhat amplified by just how slow August of last year was, as that is the specific month in which tightening lending standards began to take root.

New listings declined by 11.3 percent for the same time period comparison, and the total number of active properties for sale is currently 6.4 percent lower than it was one year ago. With foreclosure and short sale activity increasing, the declining supply underscores just how many traditional sellers are waiting this market out by not placing their homes up for sale.

Click here for the full Weekly Market Activity Report.

Q2 Update to "Foreclosures and Short Sales in the Twin Cities Housing Market" Has Been Released

Foreclosures and short sales (i.e., lender-mediated properties) don’t appear to be leaving the Twin Cities housing market anytime soon. These types of properties are going to be with us for awhile, and having accurate and detailed information on their impact is crucial for buyers and sellers.

MAAR is proud to announce the release of the Q2 2008 Update to "Foreclosures and Short Sales in the Twin Cities Housing Market."

The report builds upon the unique methodology established in the initial report to dig further, providing new analysis on the role of lender-mediated properties by city, neighborhood, property type and price range. This detailed look at the market reveals the following and more:

• Over the past year, the inventory of lender-mediated properties has almost doubled, while traditional inventory has declined by 16 percent. 21.7 percent of all properties for sale at the beginning of July were lender-mediated.
• Traditional homes continue to hold their value better than foreclosures and short sales. The Q2 median sales price of foreclosures and short sales has fallen by 11.7 percent in the last two years while traditional homes has declined by only 3.4 percent.
• The prevalence of lender-mediated homes varies greatly from area to area. A full index of MLS areas and cities is included in the report.

So yes, after many requests from members, the media and the public, we are now offering our lender-mediated data through the geographic lens of city and neighborhood.

CLICK HERE TO VIEW Q2 2008 UPDATE.

To share comments or questions on the Q2 report, please contact Jeff Allen, MAAR Research Manager, at jeffa@mplsrealtor.com or Aaron Dickinson at aarondickinson@edinarealty.com.

Market Report: Sales Activity Showing Signs of Life

We did a news release today. It garnered some attention.
Here is what we had to say:

Signed purchase agreements in the Twin Cities housing market during July was higher than one year ago, posting a mark of 4,462 in July, an increase of 6.2 percent from July 2007. To put this in perspective, there has not been a year-over-year increase in pending sales in 30 months and no increase this large in 41 months.

Despite the increased buyer activity, home values remain soft due to a chunk of lender-mediated foreclosures and short sales, accounting for close to 31 percent of pending sales in July. The overall July median sales price of $208,000 fell from last year by 10.7 percent. Silver lining: The median price has been increasing each month this spring in line with seasonal norms.

Lender-mediated homes posted a July median sales price of $151,000, a decrease of 8.4 percent from last year. Traditional properties had a July median sales price of $229,900, a smaller decrease of 3.8 percent.

Supply continues to ratchet down. There were 8.2 percent fewer new listings in July 2008 than in July 2007, 4.9 percent fewer homes for sale, and 4.2 percent fewer homes available per buyer. That said, there are still 5.2% more active listings than in July 2006 and 30.5% more homes available per buyer. This kind of detail and more is readily available in our current set of Monthly Indicator charts.

read the full press release, including quotes from our leader-types

Homebuyer Tax Credit should get buyers back in the market

We've all had a few days to think about the impact of the Housing and Economic Recovery Act of 2008 signed by the President. Like almost all major legislation, it has provisions to satisfy or annoy everybody—buyers, sellers, REALTORS®, lenders, government regulators and real estate markets in general.

The government giveth and taketh away…

Most comments I‘ve heard from members or read about in numerous publications relate to the new first-time buyer tax credit or the elimination of seller-funded downpayment assistance programs.

The first-time homebuyer provision is in truth a loan repayable over 15 years. If the property is sold again within 15 years, the remainder of the credit must be repaid at tax time. The credit is equal to 10% of the cost of the home, not to exceed $7,500. It may be used for any single family property that will be used as a principal residence.

A tax credit reduces income tax liability on a dollar-for-dollar basis. For example, when my income taxes are prepared for the year, I buy a qualifying property, and I owe $1,000. When the tax credit is applied, I receive a payment of $6,500 from the government (based on the maximum credit of $7,500).

The full amount of the credit is available for individuals with adjusted gross income of $75,000 or less ($150,000 on joint return). The purchaser and spouse may not have owned a principal residence in the three previous years to qualify. The home must be purchased between April 9, 2008 and July 1, 2009.

This provision is an incentive for homebuyers waiting for even better deals to get off the sidelines and back into the housing market.

The Act also prohibits seller funded downpayment assistance or assistance from someone who financially benefits from the transaction, effective October 1, 2008. Legislation has already been introduced in Congress to overturn this provision. Its outcome is uncertain at this early date.

Assistance from family members, government-sponsored programs or gifts from nonprofits will still be allowed.

Mixed Metaphors: The Belly Button Edition

Another in an ongoing series where we track the creative and ludicrous ways in which the world describes the housing market, us included.

This one's from our own vaults. Let's get anatomical, y'all:

“Projections on the future of the housing market are like belly buttons—everyone’s got one,” said Kevin Knudsen, president-elect of MAAR. “But the only thing we know for certain is that this rebound will take some time."

Those who are familiar with homespun and blunt Midwesternisms will recognize this as a toned-down version of a phrase commonly used to cut down one who is espousing their opinion a little too forcefully. Let's just say that the adage typically involves a different orifice from the human body.

The 100+ Updated with July Numbers

Did you know that you can find out how many houses sold in July in Castle Rock Township in southern Dakota County at 3AM in your underwear?

It's true.

You can also wear clothes if you want.

Click here to access "The 100+."

Weekly Market Activity Report 8.11.08

For the fifth consecutive week and ninth of the last twelve, there were more purchase agreements written on homes than one year previous.

For the week ending August 2, there were 820 pending sales—an increase of 2.2 percent from the same week in 2007. Over the last three months, pending sales have held relatively steady, posting an increase of 0.6 percent from the same period last year. With sales tantalizing the marketplace with slight upward jiggering over the past several weeks, some might want to predict that we've reached bottom. While the news is encouraging, it's a bit premature to stake that claim. Meanwhile, housing supply is clearly in decline. New listings from the most recently reported week were a stirring 19.8 percent lower than last year and were down 12.8 percent over the last three months.

This week's edition of the MAAR Weekly Market Activity Report features updated figures for several key metrics. Days on Market Until Sale in July fell slightly to 146 but remains up 13.3 percent from July 2007. Percent of Original List Price Received at Sale decreased to 92.6 percent, also down from last year. Months Supply of Inventory is up 8.6 percent from last year at 10.5. And our Housing Affordability Index (HAI) fell 4 points from last month to 144 due to another increase in interest rates and seasonal increases in home prices. Despite the drop, the HAI remains much improved from 2006 and 2007.

Click here for the full Weekly Market Activity Report.