Category Archives: The Skinny

Where are the Highest Prices?

Posted on July 30, 2015 Pat Delaney Posted in The Skinny

By David Arbit on Wednesday, July 29th, 2015

We are often asked “Which cities have the highest home prices?” Whether it’s a member, the media or the general public inquiring, it’s a fairly common question. Wonder no more! Below are tables showing the top 25 highest priced markets in the region. The top two tables rank all areas, regardless of market size. The bottom two tables only show areas with a certain volume of sales. The left table uses just June 2015 sales, while the table to the right uses 2015 YTD data. Of course, the measure used is median sales price.

Data to the people!

From The Skinny Blog.

Conventional is King Again as Government and Investors Exit

Posted on July 23, 2015 Pat Delaney Posted in The Skinny

By David Arbit on Monday, July 20th, 2015

The changing popularity of various home financing tools tells a unique story and shows how the government and private sector mortgage market shares have evolved through the housing crisis and subsequent recovery.

Following the ebbs and flows of the housing market itself, the mortgage finance marketplace has also transformed over the last decade. First, some scene setting. Each trendline above represents the percentage of closed sales in the Twin Cities 13-County MSA that utilized a particular form of mortgage financing, by month. No seasonal adjustments have been performed; the data is raw and comes directly from NorthstarMLS.

Between 2005 and mid-2007, conventional loans made up about 80.0 percent of all mortgages. With conventional mortgage liquidity—shall we say—plentiful, the government only represented about 5.0 percent of loans. As the economy and housing market began to unravel in 2007, the mortgage spigot was drying up. As such, the FHA started to take up that slack and became a dominant player in the mortgage marketplace. By the time of the first-time home buyer tax credit in late-2009, FHA loans comprised a whopping 45.0 percent of sales while conventional loans made up about 35.0 percent of sales. The remaining 20.0 percent include all-cash deals and other loan products.

Though its overall effectiveness remains somewhat debatable, that tax credit signaled a turning point—at least in the mortgage market. At that moment in late-2009, conventional loan market share began to recover and FHA market share started to shrink. Fast forward to present day and conventional loans now make up 60.0 percent of the market while FHA loans make up just 20.0 percent. Earlier in 2015, FHA loans made up about 15.0 percent of closed sales, which is consistent with 2004 levels. Most recognize this as a positive, as the private sector has once again assumed the majority of the risk associated with residential mortgage lending.

All-cash sales can also be illuminating, shining light in some of the more interesting nooks and crannies. Though not all cash sales reflect investor activity, it’s one of the better indications of investors in the market and can be used as a proxy.

Between 2004 and 2008, cash deals made up about 5.0 percent of all closed sales. By February 2011, about 28.0 percent of Twin Cities homes were purchased with cash—a record high. Note the dashed orange trendline. This was at the same time as distressed (foreclosure and short sale) market share was at its highest. Traditional sales volume had fallen dramatically and investors were picking up foreclosures for $0.30 – $0.70 cents on the dollar.

Of the consumers that could, even they were understandably nervous to make large purchases such as a home. Nowadays, about 12.0 percent of sales are done in cash, the lowest share in seven years, or since the middle of 2008. That reflects a mixture of fewer foreclosures and short sales, rising prices, a rising stock market attracting more capital and low inventory levels frustrating traditional buyers and investors alike.

The market numbers are well and good, but sometimes following the money can tell a unique story. The modes of financing behind the market can signal changes in investor behavior, consumer confidence, bank lending patterns and how those forces interplay with one another.
From The Skinny Blog.

Pending and Closed Sales Both Reach Highest Level Since June 2005

Posted on July 13, 2015 Pat Delaney Posted in The Skinny

By Aubray Erhardt on Monday, July 13th, 2015

The Twin Cities metropolitan housing market reached key milestones in June. Both pending purchase demand and closed unit sales officially reached 10-year highs. The last time demand was this strong was June 2005. The number of signed purchase agreements rose 19.2 percent to 6,266. Closed sales increased 22.0 percent to 6,928. Seller activity showed more modest gains compared to last year. New listings rose 4.6 percent to 8,678 during the month, which is a multi-year high. It’s the highest number of new listings for any month since April 2010. Excluding March and April of 2010, new listings were at their highest level for any month since June 2008. Despite that, the number of available properties fell 9.4 percent to 16,597 homes.

“Buyers have been extraordinarily active this spring and summer,” said Mike Hoffman, Minneapolis Area Association of REALTORS® (MAAR) President. “With both pending and closed sales activity officially reaching 10-year highs, consumers— particularly first-time buyers—understand that the timing is right. Therefore, sellers are also getting strong offers quickly.”

Given all this demand, the June 2015 median sales price climbed 4.7 percent to $229,900. That puts home prices within about 3.5 percent of the June 2006 record high of $238,000. However, the typical price per square foot, now at $128, is about 18.5 percent below its June 2006 record high.

The market landscape continues to favor sellers, even though it is still a historically attractive time to purchase real property. Because of the ongoing imbalance between supply and demand, the number of days a listing spends on the market fell 5.7 percent to 66 days. Sellers are accepting 97.8 percent of their original list price and 99.6 percent of their last list price. The Twin Cities metropolitan area currently has 3.6 months’ supply of inventory, which still signals a seller’s market. That figure dropped 18.2 percent from June 2014. This measure is essentially a ratio of supply and demand and indicates how long it would take to completely clear the market of all inventory assuming no new homes enter the marketplace.

According to the Federal Reserve, interest rates could still rise slowly later this year if the economy continues to perform well as it has been. Mortgage rates continue to hover on either side of 4.0 percent, compared with a long-term average of over 7.0 percent. The most recent data from the Bureau of Labor Statistics shows the Minneapolis-St. Paul-Bloomington metropolitan area has the third lowest unemployment rate of any major metro. That puts our region behind only sister cities Austin, TX and Salt Lake City, UT. Minnesota and the Twin Cities specifically are uniquely well positioned to compete in today’s global economy.

“With positive momentum in housing and the economy, agents across the region are helping buyers and sellers achieve their real estate goals,” said Judy Shields, MAAR President-Elect. “Since most sellers are also buyers, those sitting on the fence may not want to wait to make their move.”
From The Skinny Blog.

Getting Over 100% Of Your List Price

Posted on July 7, 2015 Pat Delaney Posted in The Skinny

By David Arbit on Monday, July 6th, 2015

Real estate professionals understand that there is an imbalance between supply and demand in most markets across the U.S. Buyers have been highly motivated by a variety of factors ranging from low (but rising) interest rates, job growth, rising rents, general optimism and other dynamics. Seller activity, however, has been more restrained—though there’s some evidence that’s starting to change.

In the Twin Cities, that imbalance between supply and demand has driven down absorption rates. With 3.6 months supply of inventory (5-6 is considered “balanced”), our market is still tilting toward sellers. In other words, low inventory combined with strong demand means many sellers are receiving multiple offers on well-priced and well-presented listings.

Buyers are essentially competing with each other in order to purchase the limited number of desirable homes on the market. It’s a regional bidding war: as buyers vie against one another, they may offer more than the list price of the home in order to win the day. That means sellers are sometimes yielding over 100 percent of their list price. It’s a dream-come-true for sellers. Now it just has to appraise!

In 2005, a full 33.8 percent of all closed sales sold for over 100 percent of the current list price. That’s over 1 in 3 sellers receiving more than their asking price. That figure fell to 18.9 percent as the market crash began in 2007, and it touched that low again in 2011. By 2013—a very strong recovery year—the figure had increased to 26.4 percent. After falling again to 22.0 percent of all sales in 2014, the number of homes that sold above list price has increased to 24.8 percent so far in 2015. With the second half of 2015 yet to be recorded, it’s possible we will end the year near 2013 levels, particularly as buyers face the looming risk of rising interest rates combined with climbing rents and an improving labor market.

Ultimately, a healthy and sustainable housing market should be well-balanced between sellers and buyers, supply and demand. A healthy market means relative equilibrium, one that favors neither buyers nor sellers, but allows for both sides of the transaction to successfully reach their goals. A healthy market means sellers are enjoying some appreciation but home prices aren’t dramatically outpacing incomes. After about a decade of lurching between boom and bust, the Twin Cities housing market as well as others across the nation finally seem to be settling into a healthy groove—for the time being.

Is Bigger Better?

Posted on July 7, 2015 Pat Delaney Posted in The Skinny

By David Arbit on Friday, June 26th, 2015

COMPARING SQUARE FOOTAGE TRENDS IN THE NEW CONSTRUCTION AND PREVIOUSLY OWNED SEGMENTS

New construction prices not only recovered far faster than previously owned prices, but they have also reached an all-time high (see chart). The median sales price for new construction was about $268,000 in 2009 but has since soared to new highs of just over $376,000. Previously owned prices, by contrast, reached $228,000 in 2006 but are now at $205,000. What’s driving this, you ask?

A multitude of factors have encouraged new home prices to stretch to new heights. Builders, contractors and suppliers will tell you that input costs have risen and that is true. Labor, copper, concrete, PVC, drywall and other related commodity prices have all risen lately. Steel prices, however—which make up a small share of overall construction costs—have fallen as China has flooded the global market with cheap steel. China now produces as much steel as the rest of the world combined. Lumber prices increased over the last few months, but have mostly declined since 2013. Lumber prices on the Chicago Mercantile Exchange are on-par with 2010. Let’s not digress too much.

Something else noteworthy is happening, and this graph illustrates it pretty well. Though perhaps unsurprisingly, the total square footage of new construction is increasing at a far faster rate than the previously owned segment. Between May 2005 and May 2015, the median square footage of newly constructed homes rose 65.2 percent. During that same period, the median square footage of previously owned properties only increased 7.1 percent. For new construction, the typical home was built with 1,614 total finished square feet in 2005 but that figure grew to 2,667 total finished square feet by 2015. By contrast, the typical resale home had 1,700 square feet in 2005 but has only risen to 1,821 square feet as of May of this year. Interestingly, previously owned homes tended to be larger than new construction in 2005.

The nature of previously owned properties is that they don’t change that much. Those properties are already built. The 7.1 percent increase can be explained by two different dynamics. First, those who are selling and buying resale homes are tending to list and purchase slightly larger properties. Second, through remodeling projects such as a master bedroom addition or finishing off a basement or attic space, the existing housing stock can increase in finished square footage even though the foundation is already in the ground.

So what does this all mean? Well for one thing, those who have ruled out purchasing a newly built home because prices are at all-time highs might reconsider once they realize what’s causing that. Builders are constructing larger and larger homes, but not every newly built home is enormous and over $1 million. In fact, new construction can be fairly competitive with existing resale properties in certain areas and price points. Additionally, though the median sales price is at an all-time high, the price per square foot is not even back to bubble levels (see chart).

Another factor to keep in mind is that a lot of new construction in 2005 was condo-centric, particularly in and around both downtowns. As the condo bubble burst, development shifted toward single family products on larger suburban lots. Condos obviously tend to be smaller than single family homes, so that was certainly constraining square footages 10 years ago. In other words, a low baseline can impact this sort of analysis as much as if not more so than the current period. The large increase in new construction may be explained by a low 2005 figure as opposed to a high 2015 figure, though both dynamics

As we become ever more cognizant of energy efficiency, carbon footprints, insulation and everything that comes with it, there is some anecdotal evidence that smaller housing products are gaining popularity and it seems to be consumer-driven. There are even entire communities of “micro homes” (see article). So, despite the trend in new construction, perhaps bigger won’t always be better.

Twin Cities Home Price Analysis

Posted on June 25, 2015 Pat Delaney Posted in The Skinny

By David Arbit on Thursday, June 18th, 2015

After nearly 10 years, home prices are within 6.3 percent of their record high seen in June 2006. We have been here before, but we are in a different environment these days. The labor market has benefited from the longest stretch of private job growth on record, the stock market is at all-time highs, corporate balance sheets have seldom looked this good, we have a more regulated lending environment, consumers are deleveraged, our population has grown and consumers are more cautious this time around.

As we near (errr return to) “peak” pricing, there are several important items to bear in mind. First, this is not a brand new high in some foreign land, it is a return to where the market was 10 years ago but with better fundamentals (see above). Second—and as the chart suggests—if you assume that prices had followed their long term trend of increasing at 5.0 percent per year (nominal, not adjusted for inflation) as they have, we are still not back to where we would be assuming that rate of increase over the last 20 years. Third, this market is not fueled by irrational, unjustified speculation and exuberance—a leading cause of bubble-itus. Rather, it is fueled by low interest rates, rising rents, job growth, a diverse and robust local economy and slowly rising incomes.

Those who remember paying $0.05 for a cup of coffee or a candy bar like to remind us: prices will rise. It is inevitable. To expect home prices not to follow that trend is unrealistic. Once home prices began recovering, it was only a matter of time before they surpass their previous peak. Given all the improvements we have seen in the market and economy, it is no surprise we are back to where we were. But this time, under much better circumstances.
From The Skinny Blog.

May 2015 Real Estate Stats for the Twin Cities

Posted on June 11, 2015 Pat Delaney Posted in The Skinny

By Aubray Erhardt on Thursday, June 11th, 2015

MEDIAN HOME PRICE JUST SHY OF RECORD HIGH AMIDST STRONGEST DEMAND IN A DECADE

With the sole exception of inventory, every market metric showed continued improvement during May. The number of signed purchase agreements in the 13-county Twin Cities increased 19.5 percent to 6,228. That marks the highest May pending sales count since 2005. Sellers, however, were only slightly more active than last year. New listings rose 0.3 percent to 8,590 for the month. Excluding April 2015, that’s the highest number of new listings for any month since the home buyer tax credit period of April 2010. Homes also sold in less time and sellers yielded a higher share of their list price.

The May 2015 median sales price of all MLS home sales increased 6.7 percent to $224,000. That’s within 3.6 percent of the May 2006 level and 6.3 percent of the record high seen in June 2006. Price per square foot offers a different perspective, as it accounts for the increasing square footage of homes selling. The average price buyers paid per square foot rose 3.5 percent to $128.

“Though it’s not the only important measure by a long shot, many factors have enabled prices to once again approach these levels,” said Mike Hoffman, Minneapolis Area Association of REALTORS® (MAAR) President. “It’s taken nearly 10 years just to get this close to break-even and this time the fundamentals are better, our population has grown and industry professionals and consumers are more cautious.”

Persistent rent hikes, low mortgage rates, solid job growth and some noticeable wage growth are all encouraging consumers to seriously consider homeownership. But sellers and builders have been reluctant to list and build at the same levels they did when demand was this high 10 years ago. That has kept us in a seller’s market for some time. The number of days a listing spends on the market also reflects this. Those selling their homes are waiting a median of 35 days before accepting an offer at a median of 99.5 percent of their current list price. May months supply of inventory fell 12.2 percent to 3.6 months. Markets with between five and six months of supply are considered balanced.

Over the last 12 months, buyer activity increased the most in the townhome segment, where properties are also selling the fastest. Condominium prices increased the most of any property type over the same period. New construction pending sales for May increased at about half the rate of previously-owned properties. The number of homes on the market in May fell for all property and construction types.

The finance environment remains attractive. Mortgage rates are hovering around 4.0 percent, compared with a long-term average of 7.0 percent. The Twin Cities housing affordability index increased 2.7 percent since May 2014. An educated and literate workforce combined with a healthy and diverse economy helps Minnesota compete for top talent and businesses on an international scale.

“Many brokerages are seeing record volume even as prices move toward 2006 levels,” said Judy Shields, MAAR President-Elect. “Buyers in a variety of segments in our wonderful region are eager to make homeownership a reality. Prospective sellers should take note—they’re likely to receive top dollar for their property.”
From The Skinny Blog.

Exactly What is the Trend?

Posted on June 4, 2015 Pat Delaney Posted in The Skinny

By David Arbit on Tuesday, June 2nd, 2015

“The trend is your friend.”

We don’t know who said it, or when. But we believe the spirit of that statement is to ignore the micro fluctuations in the data and focus on the overall, macro-level pattern. Let the trend speak to you. Ignore the noise in between. The noise is only there to confuse you. Actually, the noise is really there because buyer activity ebbs and flows with the freeze and thaw cycle as well as with the school year. Though it’s tempting to follow the seasonal peaks and valleys, it’s plain to see that prices and sales always decline between summer and fall, and then subside again between fall and winter. It’s as predictable as potholes in the Minnesota spring. As such, it’s less meaningful to compare June to October and far more meaningful to compare October of this year to October of last year. Because of this high degree of seasonality in our market, comparisons across all of our reporting environments utilize a year-over-year benchmark.

From The Skinny Blog.

April Pending Sales Highest for Any Month Since June 2005

Posted on May 14, 2015 Pat Delaney Posted in The Skinny

By Aubray Erhardt on Tuesday, May 12th, 2015

The number of signed purchase agreements in the 13-county Twin Cities region reached a 10-year high for the month of April. The figure came up just shy of reaching a 10-year record high for any month. Buyers wrote 6,329 offers to purchase homes, a 26.0 percent increase from last April and the most for any month since June 2005. New listings also rose as sellers continued to regain confidence. The number of new listings increased 10.7 percent to 8,613 during the month. That’s the highest number of new listings for any month since the home buyer tax credit period of April 2010.

The median sales price sustained its upward trajectory, increasing 10.0 percent to $215,600. The median home price has now seen 38 months of year-over-year increases. Price per square foot—which accounts for the rising square footage of homes selling—rose a more modest 3.0 percent to $124. Months supply of inventory fell 5.6 percent to 3.4 months, and still points to an overall seller’s market. Days on market decreased for the first time this year. Those selling their homes are waiting an average of 85 days before accepting an offer.

“Overall, buyers are truly out in force this spring,” said Mike Hoffman, President of the Minneapolis Area Association of REALTORS® (MAAR). “Climbing rents, consistent job growth and finally some beginning signs of wage growth are all encouraging Twin Citizens to invest in homeownership.”

As a result of the strong demand, inventory shortages in the most popular price ranges and neighborhoods can still be challenging for many buyers. Over the last 12 months, inventory levels fell 1.1 percent in the $100,000 to $249,999 range but rose 22.2 percent in the $250,000 to $499,000 range. The number of active listings for homes priced above $500,000 rose 21.4 percent.

Among the different property types, inventory levels fell 4.6 percent for condos and 0.9 percent for townhomes, but rose 10.0 percent for single-family properties. The number of homes on the market rose 6.2 percent over the past 12 months for previously owned homes, but the figure increased 19.3 percent for new construction homes.

The finance environment remains favorable. Mortgage rates are approximately 3.9 percent, compared with a long-term average of 7.0 percent. The Twin Cities housing affordability index actually increased since this time last year.
A diverse and growing regional economy has served the Twin Cities housing market well throughout the years. According to the Bureau of Labor Statistics, the Twin Cities has the fifth lowest unemployment rates of any major metropolitan area in the nation at 4.0 percent. Forbes ranked Minnesota as one of the top 10 best states for business, seventh in economic climate and second in quality of life.

“The numbers combined with the sense of urgency really paint a clear picture,” said Judy Shields, MAAR President-Elect. “Buyers are quite motivated, hoping to get in before rates rise, though both buyers and sellers stand to benefit from the current market environment.” From The Skinny Blog.

March Pending Sales Soar by the Most Since 2011, Highest Since 2005

Posted on April 13, 2015 Pat Delaney Posted in The Skinny

By Aubray Erhardt on Friday, April 10th, 2015

The number of signed purchase agreements in the 13-county Twin Cities region surged by 30.0 percent to 5,301 contracts. Sellers were also confident, as new listings increased 21.4 percent to 7,887 during the month. That is the largest increase in pending sales since August 2011 and the highest March count since 2005. New listings showed the second largest increase since July 2013 and the highest March count since 2010. Inventory levels rose 0.7 percent to 14,127 homes, the second increase this year.

The median sales price rallied 10.5 percent higher to $210,000, the strongest gain in over a year. The median home price has now seen over 36 months of year-over-year increases. Price per square foot—which adjusts for the square footage of homes selling—rose a more modest 4.5 percent to $121. Absorption rates remained flat at 3.3 months, and suggest an overall sellers’ market. Days on market rose 7.4 percent to 102 days.

The role of foreclosures and short sales continued to diminish on both the list and buy sides. Traditional new listings comprised 92.2 percent of all seller activity, the highest level since October 2006. Traditional sales made up 84.9 percent of all closed sales, which is on-par with late-2007 levels.

The finance environment remains favorable. Mortgage rates continue to hover near multi-year lows at around 3.7 percent, compared with a long-term average of about 7.0 percent.

Improvements in the economy and household finances could partly offset the impact of rising prices and interest rates. The Twin Cities housing affordability index of 198 has been fairly stable since the end of 2014.

A diverse and robust regional economy has served the Twin Cities housing market well throughout various cycles. According to the Bureau of Labor Statistics, the Twin Cities has one of the lowest unemployment rates of any major metropolitan area in the nation at 4.0 percent.
From The Skinny Blog.