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Regional Spotlight: Correctional Buyer Cool-Down Continues in Twin Cities Market

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RISMEDIA, April 13, 2007-Buyer activity in the Twin Cities housing market is gradually increasing as the busy spring season begins but continues to decline relative to the past several years, according to the Minneapolis Area Association of REALTORSR (MAAR) based on data from the Regional Multiple Listing Service of Minnesota, Inc.

Newly signed purchase agreements (pending sales)-a leading indicator of demand-posted 4,254 units in the month of March, down 18.9% from March 2006. Closed sales-a trailing indicator of demand-posted 3,056 units, down 22.7% from March of last year.

After showing signs of stabilizing in the latter half of 2006 and January 2007, buyer activity has now taken another relative decline in March. The sales dip occurs despite rapidly improving housing affordability, record levels of inventory and the continued prevalence of historically low interest rates-all of which add up to an excellent buying environment.

"Analysts will point to any number of phenomena to explain the continued buyer cool-down-tighter lending standards following the subprime mortgage fallout, longer buyer house-hunting adventures due to all the inventory, the continued effect of an extraordinarily frigid climate this spring," said Deb Greene, president of MAAR. "But the simple reality is that this corrective market pause is going to take some time to work through. We're not far removed from several consecutive years of unmitigated market expansion."

Seller activity remains flat relative to last year as builders and sellers show continued recognition of the changing market dynamics. New listings in March fell relative to this time last year by 5.1%, posting 10,265 units for the month.

The decrease in seller output is having an effect on inventory, with the total number of active listings growing at a much slower rate this spring than they did in 2006. At the end of March, there were 29,285 housing units for sale, up 11.9% from the same time in 2006. This year-to-year comparison was as high as 45% in June 2006 and has been on a steady decline ever since.

With the market in correction, affordability continues to show substantial improvements. The Housing Affordability Index (HAI)* for April 2007 grew to 140 due to growth in consumer income, steady interest rates and a slight dip in median sales price. Income levels, home prices and interest rates affect the HAI. Homes have not been this affordable in two years. Since the chief cause for the current slowdown is dampened affordability, the current pause in home prices is beneficial to future growth.

March's median sales price was $221,450, which was a 1.6% decrease from the same time last year. For several years prior, we had seen price appreciation in the 6 to 12% range-well above historical norms.

The post-boom correction period will continue to have a flattening effect upon home prices.

"One cure for high prices is high prices," Greene said. "The changing dynamics in the market are partially in recognition of prices that grew too fast."

The Supply-Demand Ratio (SDR) posts an April figure of 6.81, which means there are 6.81 homes available on the market for every expected buyer during the month of April. While this is an improvement over last fall, it is a 29% increase over the April 2006 figure of 5.28 and suggests longer market times for area sellers than there was one year ago.

The Percent of Original List Price Received at Sale was 95.6% in March, down from March 2006's figure of 97.8%. The decline is additional evidence of the market shift in supply and demand.

The Housing Supply Outlook (HSO) rose to 7.7 months, which means it will take the current inventory of homes 7.7 months to sell. The market is considered balanced when there is roughly a 5-month supply of homes available for purchase. Previously owned homes have 7.2 months of supply, while newly constructed homes have 10.9 months of supply.

"Smart buyers will recognize the improved housing affordability and take action," said Kevin Knudsen, president-elect of MAAR. "Sellers should continue to heed the professional staging, marketing and pricing advice of their REALTORR to set their property apart."

*All HAI figures past and present have been recalculated this month to address methodological changes in estimates of consumer income provided by the U.S. Department of Housing and Urban Development (HUD).

Previously, HUD utilized data from the decennial census to create their Twin Cities income figures, but they have since switched to using American Community Survey data that is updated more frequently. Because our HAI is based upon HUD estimates, we recalculated it according to the new methodology.

For more information, visit www.mplsrealtor.com.

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