After an impressive summer, Twin Cities home sales continued at a 10-year record pace in September. Most indicators are beginning to show month-to-month moderation although year-over-year comparisons remain positive. The number of closed sales rose 12.0 percent to 5,114 homes. Fewer sellers listed their properties than last September, as new listings decreased 6.9 percent to 6,355. Inventory levels fell 16.0 percent to 15,928 active units. Prices continued to rise with the median sales price up 8.3 percent over last year.

Other price measures also continued to perform well. The median list price rose 2.1 percent to $245,000; while the average price per square foot rose 6.3 percent to $129. Sellers enjoyed their position of strength in the marketplace as the percent of original list price received at sale rose 1.0 percent to 96.6 percent. At 4,635 contracts signed, pending purchase activity also remains strong—12.3 percent above last September’s levels. On average, homes sold in less time. Days on market declined 8.5 percent to 65 days. This is consistent with a market leaning slightly towards sellers. Months supply of inventory fell a significant 26.1 percent to 3.4 months of supply. Generally, five to six months of supply is considered balanced. While the metro as a whole is favoring sellers, not all areas, segments and price points reflect that.
“September was another strong month for buyer activity,” said Mike Hoffman, Minneapolis Area Association of REALTORS® (MAAR) President. “Seller activity, however, remains restrained, meaning those who do choose to sell are getting top dollar in near-record time. The demand for homes is still exceeding the supply.”

Strong demand and low supply levels have created an environment where competitively-priced homes sell quickly and sometimes with multiple offers. This supply-demand imbalance, along with the “product mix shift” back to traditional sales, also means prices have risen for 43 consecutive months. The September 2015 median sales price rose 8.3 percent to $222,000 compared to a year-to-date increase of 6.8 percent to $220,000. Sellers are accepting offers at a median of 99.2 percent of their final list price.

Since housing doesn’t occur in a vacuum, it depends on other economic forces like a recovering labor market, job growth, favorable interest rates and confident consumers. Those factors have helped support our recovering housing market. We’re in the midst of the longest stretch of private job growth on record, unemployment has been cut in half from its peak and consumer confidence is rising. The latest Bureau of Labor Statistics figures show the Minneapolis-St. Paul-Bloomington metropolitan area had the second lowest unemployment rate of any major metro at 3.3 percent compared to 5.1 percent nationally. Mortgage rates are around 4.0 percent, compared to a long-term average of over 7.0 percent. The Federal Reserve is committed to lifting their key Federal Funds rate, a major factor affecting mortgage rates.

“We expect interest rates to stay below their long-term average for years to come,” said Judy Shields, MAAR President-Elect. “The trick will be sustaining price gains that motivate enough sellers to list their properties without pricing out today’s buyers—particularly first timers.”
From The Skinny Blog.

“Accept certain inalienable truths: Prices will rise. Politicians will philander. You, too, will get old. And when you do, you’ll fantasize that when you were young, prices were reasonable, politicians were noble and children respected their elders.” – Mary Schmich

We hear a lot about home prices and how they change over time. But by far the biggest pitfall of dealing in absolute dollar terms is that a dollar in 2015 does not buy what a dollar used to get you in 1960 or even in 2010. If you’ve ever purchased the same product or service even just several years apart, you implicitly know this, though you may not be familiar with some of the rationale and technical aspects of tracking and adjusting for inflation. And let’s be clear here: that is ok!

While the nominal (not inflation-adjusted) home price has certainly increased in absolute terms, the typical home that cost $15,977 in 1960 dollars would actually cost exactly $127,635 in 2014 dollars. So a lot of what appears to be price gains is actually attributable to inflation, though not all of it. This is why it’s important to separate out inflation-adjusted prices from nominal, reported prices. It’s the best way to answer the question: excluding the effect of inflation, how much did real home prices actually increase?

The Consumer Price Index (CPI) is the most common method to account for inflation when dealing with time-series data stated in currency units. Using the Bureau of Labor Statistics (BLS) CPI, we’ve adjusted historic home prices and restated them in constant 2014 dollars. Note how far apart the trendlines start versus where they end up. Only when nominal prices approach 2014 do the trendlines converge—since, at that point, both nominal and adjusted prices are stated in 2014 dollars.

Enough with the buildup. So what’s really going on here?

Between 1960 and 2015, nominal home prices increased from $15,977 to $261,963, a gain of 1,539.6 percent. During the same period, inflation-adjusted prices increased from $127,635 to the same $261,963 for a more modest gain of 105.2 percent. That’s a big difference, and shows just how much of the run-up in prices can be attributed to inflation.

But it’s also important to note that home prices more than doubled during the 54 year study period (1960-2014) even after adjusting for inflation and despite the downturn. That means after factoring for inflation, home prices kept pace with inflation AND doubled in 54 years. An increase of 105.2 percent spread out across 54 years translates into a 1.95 percent real annualized average growth rate. That finding supports the roughly 2.0 percent annual home price increase that is referenced quite often. It also supports the fact that real estate is an effective inflation hedge.

Equally or perhaps even more importantly, while nominal home prices are quickly nearing their 2006 highs, inflation-adjusted or real home prices are still well below their previous peak in 2005. In other words, while nominal prices seem to be approaching their previous peak, real home prices are still a bargain, especially compared to 2004-6 prices stated in 2014 dollars. That means real home prices have to increase 26.4 percent before they break even with 2005 levels. Nominal home prices have about 6.6 percent to go before reaching 2006 levels.

But life is all about choices, and choices—at least in the strict economic sense—represent a series of opportunity costs. An opportunity cost of a choice, such as buying a house, is what you give up to get it. Most of us have to choose between two major investments at any given time. Sure, gold and other precious metals might also keep pace with inflation and then some, but you can’t live in a pile of bullion. You can only visit your gold periodically. Investing in a home is one of the most effective inflation hedges out there. Plus, while you’re quietly slaying the inflation dragon and enjoying some appreciation, you’ve got a place to live!
From The Skinny Blog.

Minneapolis, Minnesota (August 13, 2015) – After purchase demand reached a 10-year record high in June, the Twin Cities metropolitan housing market continued to delight in July. With the spring and summer peak buying season coming to a close, activity levels should begin to cool month-to-month, though most indicators should continue to show year-over-year improvement. The number of signed purchase agreements rose 12.1 percent to 5,716 for July, but are up 18.7 percent so far in 2015. Closed sales increased 17.7 percent to 6,275, but have risen 16.7 percent so far this year. Seller activity was flat compared to last July, new listings fell just 0.4 percent from 7,997 to 7,963. Given that combination of supply and demand movement, the number of available properties for sale fell 11.0 percent to 16,940 homes.

“While those selling their home are yielding top dollar, others wonder if today’s younger generation will be renters forever,” said Mike Hoffman, Minneapolis Area Association of REALTORS® (MAAR) President. “But a National Association of REALTORS® (NAR) survey found that millennials comprised 32.0 percent of all home buyers and 68.0 percent of first-time buyers—both the largest share of any group.”

As interest rates continue to normalize this year, even more pent-up demand from all age brackets will likely be released during this period of historic affordability.

Since demand increased while supply indicators fell—and because a larger share of sales came from the higher-priced traditional segment—the July 2015 median sales price rallied another 4.7 percent to $225,000. The median price per square foot increased 3.4 percent to $120. While the July 2015 median sales price was slightly lower than the June 2015 price, the July 2015 price per square foot was slightly higher than June 2015.

Again due to the factors mentioned above combined with a sense of urgency among buyers, the number of days a property spent on the market fell 7.4 percent to 63 days. Sellers are accepting offers at a median of 98.5 percent of their original list price but 99.7 percent of their final list price, suggesting near-full price offers come quickly once a seller is priced right.

The Twin Cities metropolitan area has 3.7 months’ supply of inventory, which means the region as a whole is a seller’s market. That figure dropped 19.6 percent since July 2014. However, not all local areas, market segments and price points reflect that metropolitan-level reality. This metric is a ratio of supply and demand and indicates how long it would take to completely clear the market assuming no new homes enter the marketplace.

Barring suddenly negative economic data, the Federal Reserve is poised to normalize rates by lifting the Federal Funds rate off of zero starting in September. Mortgage rates are still just below 4.0 percent, compared with a long-term average of over 7.0 percent. Nationally, the economy added 215,000 new private payrolls in July while the unemployment rate held steady at 5.3 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.

“We have so many different things going for our region,” said Judy Shields, MAAR President-Elect. “Twin Citizens are smart, and they realize that when rents are high and rising, interest rates are under 4.0 percent and prices are still below their peak, it’s time to consider investing in the stability and predictability of homeownership—in most cases, it’s cheaper than renting.”

From The Skinny Blog.

Though not quite as often as the most expensive areas, we are also occasionally asked which cities are the most affordable (least expensive). Below are tables showing the 25 lowest 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 only June 2015 sales, while the table to the right uses 2015 YTD data (through June). The measure used is still median sales price.

Even more data to the people!

From The Skinny Blog.

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.

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.

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.

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.