Sunday, August 12, 2012

Anatomy of a Real Estate Recovery: Minneapolis - St. Paul Area Housing Market is Hot, Hot, Hot

The chart above provides evidence of the significant recovery going on in the Minneapolis Area real estate market, based on new data for market activity there in July:

1. Closed home sales in July increased by 14.6% above last year, and by 58% above two years ago. On a year-to-date basis, the 27,413 homes sold so far this year is the highest for any January-July period since 2006.       


2. Pending home sales in July (4,748) is 24.3% higher than the same month last year, and 65% higher than July 2010.  

3. The average marketing time for houses sold in July was 106 days, down from 146 days last year and 132 days in 2010, and was the shortest average marketing time since at least 2006.    

4. The median sales price in July was $179,500, a 14.3% increase over last year and a four-year high for the month of July.  The median price increase in July was the largest year-over-year gain since January 2004 and the fifth straight month of an annual increase.  

5. The average sale price as a percent of list price was 95% in July, the highest percentage for a July since 2007, and above the 91.7% average last year and the 91.9% two years ago.  

6. The months supply of inventory in July was down to only 4.3 months, the lowest level in almost 7 years, since the fall of 2005.  

7. The inventory of homes for sale in July was only 16,806, the lowest inventory level since December 2003.   

Bottom Line: By every relevant measure (median price, closed sales, pending sales, average marketing time, percent of list price received, etc.), the real estate market in the Minneapolis-St. Paul Area is experiencing a full and sustainable recovery this year, and the housing market conditions there are reflected very closely in many other metro areas around the country.  


In fact, with the home inventory level currently at a 9-year low and the months supply of homes at a 7-year low, the biggest challenge for the Minneapolis-area real estate market is now a shortage of homes for sale relative to the increasing demand.  With the tight supply of homes listed for sale and more buyers coming into the market, we can expect multiple offers and further increases in home prices going forward.  

Here's how the Minneapolis Area Association of Realtors explains the situation in the Twin Cities:

"With the Olympics in full swing, housing has already medaled in several arenas. A few short years ago, housing was considered a headwind to economic recovery. Today, housing is seen as a tailwind to a stalling economy. For the first time since 2005, housing is on track for contributing positively to national GDP in 2012. That can occur either by way of direct residential investment or through remodeling and other ancillary services. Watch for signs of sustained tailwinds in a variety of indicators, including market times, seller concessions, prices and absorption rates."

17 Comments:

At 8/12/2012 7:48 PM, Blogger VangelV said...

The chart above provides evidence of the significant recovery going on in the Minneapolis Area real estate market, based on new data for market activity there in July:...

I guess people don't want to learn their lesson. This type of commentary has been given to us several dozen times over the past two years and we have yet to see the actual bottom of the housing market. What is missed by Mark and not mentioned by the sources that he quotes are the millions of homes that are under water and hundreds of thousands of homes that are behind in payments that have yet to hit the market for a number of legal and technical reasons. But if you talk to real estate lawyers you hear about how they are adding staff because foreclosures are about to take off after the election. The bottom line is that you won't get a recovery in housing until you get some actual job creation and increased workforce participation.

 
At 8/12/2012 8:59 PM, Blogger Mark J. Perry said...

Given the historically low level of homes available for sale, more homes coming on the market might be a good thing, not a bad thing. Housing sales are being held back in many areas like Minneapolis because of the low inventory of homes listed for sale.

 
At 8/12/2012 9:26 PM, Blogger The High Priest said...

This comment has been removed by the author.

 
At 8/12/2012 9:27 PM, Blogger The High Priest said...

I still have yet to hear an answer as to what will happen when interest rates inevitably rise. Will the decline in borrowers put a whole new crop of people underwater?

 
At 8/12/2012 9:30 PM, Blogger Jon Murphy said...

Will the decline in borrowers put a whole new crop of people underwater?

Probably not. The housing market can't go much lower than it already is.

 
At 8/12/2012 9:33 PM, Blogger Jon Murphy said...

It also depends on when interest rates start to rise again. Interest rates are based on expected inflation and the baseline measurement. Well, inflation isn't huge right now and the Fed has promised to keep rates low through 2014. This will get us through the upcoming recession in late 2013/early 2014. Rates will likely start to rise sometime in 2015 as the US and global economies improve and inflationary pressures set in. So, it may be healthy at that time.

 
At 8/12/2012 11:14 PM, Blogger Henry H said...

Minnesota is a non-judicial foreclosure state. Minneapolis cleared their foreclosure inventory faster than judicial states like Florida. The median household income to house price is more realistic than places like Orange county, Ca.

 
At 8/13/2012 12:44 AM, Blogger PeakTrader said...

Minnesota doesn't reflect the national average:

MN’s New Job Figures Reflect Home Construction Growth
June 14, 2012

"Minnesota’s seasonally adjusted unemployment rate for May held steady at 5.6 percent.

That’s down 1 percentage point from 6.6 percent in April of 2011.

Those figures compare with a national unemployment rate of 8.2 percent last month and 9 percent last May.

Minnesota’s labor force participation rate was 71.1 percent in May, well above the national rate of 63.6 percent."

 
At 8/13/2012 1:39 AM, Blogger PeakTrader said...

It may be a slow and uneven recovery:

Think Housing Is Safe Again? This Will Change Your Mind
August 10, 2012

"11 million mortgages in the housing market (24% of total home mortgages outstanding) are underwater.

"...equity of 20% or less in their homes, we capture another 25% of all mortgages outstanding. These homeowners don’t qualify for the 20% or more equity required as a down payment to trade up homes.

In addition, those homeowners who are at least 30 days late on their mortgage payments have increased to 6.5 million, according to RealtyTrac.

Furthermore, there are millions of homes that have still not been foreclosed on that will add to the supply of homes over the next few years.

Basically, close to half of all mortgages in the U.S. housing market are held by homeowners who are basically stuck."

 
At 8/13/2012 1:43 AM, Blogger PeakTrader said...

The article continues...

As soon as home prices rebound and as soon as there is actual demand in the housing market, what do you think these homeowners will do?

They will sell, which will continue to put pressure on home prices and the housing market in general.

 
At 8/13/2012 6:47 AM, Blogger VangelV said...

Given the historically low level of homes available for sale, more homes coming on the market might be a good thing, not a bad thing. Housing sales are being held back in many areas like Minneapolis because of the low inventory of homes listed for sale.

A reality check is required. The data I provided not that long ago was indicating 10 million homes under water and hundreds of thousands of homes where payments were not being made and were being run down but were not foreclosed. When those homes hit the market, and they will, prices will fall in real terms.

As I said before, when you have a record high ownership rate and little in the way of job creation you can have regional pockets of strength but there will be no national recovery. The Obama administration knows all this. It is why it has put up barriers to foreclosure, why the Fed is flooding the system with liquidity and buying mortgages, and why FHA is backing 3% down mortgages on homes that are valued $700K. A healthy market would not require such props.

 
At 8/13/2012 6:50 AM, Blogger VangelV said...


Probably not. The housing market can't go much lower than it already is.


Sure it can. In real terms housing is still too high and unless the employment picture improves cannot put in a true bottom.

 
At 8/13/2012 11:02 AM, Blogger bart said...

Initial signs of a turn in the weekly Dataquick numbers

 
At 8/13/2012 11:04 AM, Blogger bart said...

Zero, none, nada sign of a bottom in the monthly payment for the average house - 20% down, 30 year mortage

 
At 8/13/2012 2:00 PM, Blogger Paul said...

Mark,

"Housing sales are being held back in many areas like Minneapolis because of the low inventory of homes listed for sale."

Same thing going on in Phoenix. That doesn't necessarily mean Vangel is wrong, long term.

 
At 8/13/2012 3:52 PM, Blogger VangelV said...

Same thing going on in Phoenix. That doesn't necessarily mean Vangel is wrong, long term.

I have no problem with Mark or anyone else claiming that some local market is hot and looking OK or even strong, particularly if it is in a state where there was no real estate explosion during the bubble and where the housing, job, and demographics pictures are acceptable. My concern is that Mark is trying to suggest that a national recovery is near. If that is true you could be looking at a nominal explosion that signals a massive dollar devaluation but that would not be the basis of a strong housing market.

 
At 8/13/2012 4:21 PM, Blogger juandos said...

New home sales?

Well locally I know some surveyors and their rough guessitmate of new homes being built are by the number of surveyors being employed...

Its not that good presently...

 

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