Minneapolis Home values are closely tracking the national average, yet manage to hold more value than the fast declining national market. Largely this a result of the Minneapolis Market not experiencing the huge inflation of the bubble at its height
We are seeing a general return to sanity in the real estate market in the US. Just like the Tech Bubble caused people to lose sight of what truly makes a company valuable, so did the real estate bubble lead to confusion as to what makes a house valuable. People were buying houses for all the wrong reasons.
During the boom everyone was thinking like an investor, unfortunately 99% of those people were unqualified. This has led to the current correction in the market, during which smart people are buying. The foreclosure market has opened up opportunities for bargain buying.
Home sales continued their recent upward streak for the week ending,
with pending sales posting a 21.1 percent increase over the same week in 2007.
While this doesn’t match the extreme increases seen throughout September, it remains a positive indicator of recent buyer demand.
Just shy of 50% of the properties bought during the week were lender-mediated foreclosures or short sales—47.3 percent.
New listings declined by 10.0 percent for the same time period
comparison and are down 11.5 percent over the last three months.
The total supply of active homes for sale sits 9.4 percent below this time last year.
Inventory should decline for the rest of the year as traditional home sellers take their homes off the market with greater frequency during the fall and winter months, waiting for the inherent optimism and renewed spirit of spring’s thaw.
Highlighting a common theme of this blog, the core cities of Minneapolis and St. Paul are benefiting most from the
price appreciation trend of the last five years. Next in line are some of the developing ex-urban areas and most of the first ring suburban communities.
This is further confirmation of the importance of location in choosing real estate. Commuting an hour or more makes outer ring homes inherently unattractive and when you remove the promise of an ever inflating real estate bubble, people get back to the basics of real estate– Where do I want to live?
Downtown Minneapolis Market remains dynamic. The combination of attractive new developments and a demographic shift in which “baby boomers” and empty nesters seek to retain their youth by enjoying the benefits urban living opposed to suburbs.
This contributes to the commercial success of lofts in the North loop (Warehouse district) and Mill Ruins areas. Also latest High Rise projects like “The Carlyle” and the “Yvy Tower” have seen a strong interest from buyers. Both have seen over 90% of units reserved within the first two days of availibilty.
With a booming entertainment district circling Block E and a “Renaissance” of the Mississippi River banks, Downtown Minneapolis offers to date its best growth, leaving room yet for more affordable real estate. Projects to come…
Uptown Minneapolis shows a remaining interest for ‘condo conversions”. With yet a limited offer and continuously growing demand. Linden Hills neighborhood of Southwest Minneapolis has successfully joined the pack of conversion developments.
Last year the Agency for Healthcare Research and Quality ranked Minnesota first in the nation for the overall quality of its health care. Minnesota is also the top-ranked state for residents covered by health insurance, at 91.5 percent. And despite its frequently inclement weather, the Minneapolis metro area ranks among the top ten in the country for share of residents who exercise regularly.
But those are just the numbers. Ask any Minnesotan why the Twin Cities area is a great place to live and you’ll get a litany of reasons, from its forward-thinking policies (the state was the first to designate smoke-free areas in restaurants, in 1975) to its many cultural offerings (which include the new Guthrie Theater on the Minneapolis waterfront) to its sense of community (four in ten residents do some kind of volunteer work, the highest rate in the nation).
“There is a can-do spirit here,” says Charlie Boone, 80, who has a weekly radio show at WCCO-Minneapolis. “It’s easy to stay healthy because it’s easy to stay connected.”
| Population: | 3,175,041 |
| Median housing price: | $308,000 |
| Healthy bragging rights: | With 90 percent of households recycling, more than 80 green rooftops, and a nearly complete wireless network that extends city services everywhere, Minneapolis is redefining healthy livability. |
The recent spike in gas prices reinforces the primary tenet of real estate, location, location, location. Right now people who bought great “houses” out in the suburbs are realizing that even granite counter tops can’t compete with a good location. Little old tear downs close to the Twin Cities are holding their values better than any of the fancy new luxury homes stuck out in the country.
While some outlying neighborhoods with strong community amenities are faring well, the prices of the great majority of the cookie cutter homes built during the recent boom are falling faster than a paralyzed falcon. This is a great reason to make sure that choose a realtor who has been in the business for a while, realtors with staying power like Jeff Lundquist of IGotRealestate.com have seen market ups and downs and advise clients based on sound principles not media hype.
While newspaper headlines continue to shout about the falling sky in the real estate market, there is a bright spot of hope for those who bought at the high end of the cycle. The way to capitalize on the current price deflation is to have one’s property taxes reassessed to more accurately reflect the current housing prices.
For example, if one bought a house for $400,000 in 2006 and similar properties are selling for $325,000 in your neighborhood now, contacting your county tax assessors office and having your tax assessed value redetermined makes sense.
Usually the assessed value is only recalculated on the sale of the home and then increased according to the % scale being used by the county for that assessment period, which is set by law by the Minnesota State Legislature.
By doing a quick search of homes in your neighborhood at our website, you can find out the comparable prices in your neighborhood and see if a reassessment makes sense.
Unfortunately for those of us with rather old houses or poorly built foundations, yesterday was the day that the snow melt seeped into our basements. My house was build in 1908 and consequently the foundation has a few defects. Hence, this morning I woke up to a basement filled with water which had soaked into the carpets. I am running dehumidifiers and fans to deal with the water, but ultimately I am going to have to invest in some water abatement or basement water fixes.
While there are many companies promising basement water fixes, a simple tile job with a few sump pumps is not enough. What I really need is a full blown water removal and humidity solution to ensure that mold doesn’t overtake the crevices in the concrete and the walls.
During the real estate boom of the last few years appraisers have been under pressure from realtors and home owners to inflate the prices of homes. Seller’s agents and home owners obviously wanted a higher price so that they could make more money. Banks were largely silent and complicit in this home price inflation because they were making money just writing the loans. But, boy how things have changed.
Because banks have been bitten recently with balance sheets full of junk loans written on inflated properties, there is now pressure on appraisers to deflate the prices of homes. Of course, banks only want to protect themselves from the current situation in which homeowners find themselves owing more on their house than it is currently estimated to be worth. These loan holders comprise the large majority of people just abandoning their homes to foreclosure.
The pressure to deflate homes and protect the banks is so strong that one major bank has downgraded the entire State of California for home loans.
For anyone considering buying a house now, the way to avoid this situation is to buy quality. In real estate quality is always and only defined by one thing– location. But, what about the house itself. Well, in the short term the house itself may matter, but in the long term the only thing that matters in real estate is the property itself, the location, location, location.
Minneapolis and St. Paul real estate maintained their market value pretty well during the recent downturn because of the strength of the Minnesota economy. Now with the recent 1% reduction in the Fed Funds Rate, real estate in the Twin Cities is poised to make a complete recovery.
Single family foreclosure rates are up in the Twin Cities, but that is to be expected after the excesses of the Subprime lending boom. To quote Alan Greenspan, “irrational exhuberance” can’t last for ever. So now we are left with financially healthy buyers and sellers in a more rationalized market where values are more closely to tied to actual attributes of the underlying asset, rather than prices being artificially inflated by an unsustainable increase in demand.
Ultimately Minneapolis real estate benefits from this pruning of excess demand, because rationalized asset values benefit long term investors and traditional home owners and penalize flippers and others looking to make a quick buck in real estate.
The easiest way to analyze any market is to look at supply and demand. Right now in the Twin Cities, supplies are certainly higher than they were last year at this time. Sept 2006 supply/demand ratio was around 8.3, this year it was 12.2 in September. The good news is that projected November ratio is 11.2, meaning that sales are starting to clear out some of the backed up inventory.
Falling mortgage rates are another strong sign for Twin Cities Real Estate. With cheaper money available to finance low risk buyers and the end of the artificial inflation of the market by cheap subprime loans, market balance arrives naturally.
The Supply-Demand Ratio is calculated by comparing the number of homes for sale at the beginning of each month with the number of total pending sales for the month. The higher the Supply-Demand Ratio, the more supply there is relative to demand.
The truth about the current housing market remains more complicated than a 30 second evening news soundbite can convey. While there are some weak spots created by the subprime mess, the overall picture is far from gloomy. Consider some of the facts presented recently by the NAR, the National Association of Realtors.
The National Association of Realtors reports that widening credit availability will help home sales rebound. Foreclosures have peaked so housing appears poised to come back.Consumers are becoming more savvy to the long term costs of a mortgage and as such are returning to traditional loans, which will help the recovery. Lawrence Yun, NAR senior economist, says “Conforming loans are abundantly available at historically favorable mortgage rates. Pricing has steadily improved on jumbo mortgages since the August credit crunch, and FHA loans are replacing subprime mortgages,”This past week the Mortgage Bankers Association reported mortgage loan activity increasing 2.4 percent over the week before.Treasury Secretary Henry Paulson spearheaded the formation of a mortgage industry coalition composed of the top 10 mortgage lenders to help consumers with at risk loans. The consortium has about 60 percent market share and whatever form the help takes, such as restructuring, debt forgiveness, interest rate discounts—any little bit should help take the bite out of the current downturn.
Granted, the consortium of lenders is not doing this out of charity, by bolstering the real estate market they are protecting their existing portfolio of loans from massive depreciation. A sector wide decrease in housing prices would hurt all lenders, not just sub-primes. “Although sales are off from an unsustainable peak in 2005, there is a historically high level of home sales taking place this year — a lot of people are, in fact, buying homes,” says Yun of the NAR. “One out of 16 American households is buying a home this year. The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains.” NAR forecasts:
Economy wide inflationi is a concern, reports the NAR. Currently the Consumer Price Index, is expected to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income will probably increase 3.6 percent in 2007, up from 3.1 percent last year, says NAR. However, concerns about inflation have been hounding the US economy for at least the last 15 years, and have never materialized. Many economists were taught that inflation was a huge risk, but with increasing globalization, specialization and trade, inflation has not materialized, even in the face of record high oil prices.
The year 2007 will be the fifth highest ever for existing-home sales if the trend continues to total 5.78 million in 2007 and then rise to 6.12 million in 2008, which is still down from 6.48 million in 2006.
The bottom line is that sound home buying decisions with traditionally structured loans will continue to be the best way for Americans to save and invest. Peaks and valleys come and go, and some people got burned in this last boom, but most Americans who bought a place to live, rather than a lottery ticket mortgage, will earn a substantial return on their investment while continuing to benefit from the interest rate write off on their taxes.
