RISMEDIA, April 14, 2011—Numbers don’t lie, and if you look at the most recent monthly housing statistics for the Twin Cities metro, as released in the Monthly Indicators report for February 2011 distributed by the Minneapolis Area Association of REALTORS®, you’ll see they look pretty dismal.
In this RE/MAX North Central Seasonal Trend Report, four RE/MAX agents from four different parts of the Twin Cities metro all help to share that while there is one major trend bringing some key metrics down, there are also a few positive trends that might possibly help the Twin Cities in a slow and steady housing recovery. Lee Bernick with RE/MAX Advantage Plus in Savage, Andy Prasky with RE/MAX Real Estate Properties in Blaine, Tonya DuBois with RE/MAX Results in Eden Prairie, and Tina Lockner with RE/MAX Results in Woodbury, all mentioned that the short sale process is really affecting their business; however, they also talked about how buyers’ and sellers’ knowledge of the housing market, financing, and good consumer confidence and job growth could help turn things around. And while they don’t all agree on how the spring market will pan out, they do agree that any change seen will be for the better.
Short Sale Trends
Pending sales, days on market until sale, and median sales price are three key metrics that, according to our four RE/MAX agents, consistently seem depressing due to the short sale process. For starters, short sales do not go into the pending sales category when a purchase agreement is written for it. So while this statistic shows the Twin Cities has 12% fewer pending sales this February compared to last February, it doesn’t take into account any short sale homes with written purchase agreements waiting to be approved. Also, the days on market statistic has gone up 16% from 135 last year at this time to 157 this year. Prasky says the increase of 22 days is due to the higher percentage of short sales that are on the market. “As short sales sit there and wait 60, 90, 120 days to be approved, it’s clicking days on the market; so I think we’re seeing, because of the slow negotiating process we have to go through, an exaggerated amount of days on market.” In addition, the median sales price of homes has decreased significantly, $16,500 since last February, partly because of the number of short sales on the market. “It’s sort of a vicious cycle,” explains DuBois, “the length of the short sale process is not appealing to all buyers so the short sale has to keep dropping its price to make it attractive and get someone to bite; that of course affects the bank owned and traditional sale homes because they too drop their prices to be competitive.” Bernick agrees, “The banks have been so aggressive on their pricing it’s brought the whole market down…banks will continue to cut and cut prices until they’ve liquidated their inventory. They make it very challenging for someone trying to sell their home and move up.” Lockner says changes to the appraisal process have also really hurt the median sales price of homes in the Twin Cities. “Initially appraisers weren’t pulling in short sales and bank owned properties in their comps and appraisal assessments and now they are so that’s another factor we have to take into consideration; even though sellers don’t want to have to be compared to them, as far as values go, the reality is they’re going to be by the appraisers. It’s just a hard fact that sellers have to face.”
Seller and Buyer Trends
While traditional sellers have a lot of obstacles to clear with the number of short sale, foreclosed, and bank owned properties on the market, these four RE/MAX agents agree that the sellers who need to sell their home are much more educated about the economy and what’s needed from them to sell their home. New Listings for the Twin Cities metro are down 26% from 7,165 last February to 5,299 this February showing that fewer homeowners are choosing to put their home on the market, for one reason or another. Lockner says, “I’m finding that the number of sellers that are willing to endure this is very limited. If they have to sell they will; if it’s a choice, a lot of them are choosing not to. They don’t like to be compared to the bank owned properties and the short sales and unfortunately they are.
There was one point of time when the market really started its decline that there really was a difference between the two and buyers knew that…that doesn’t seem to be the case anymore because the abundance of foreclosures and short sales is so huge that traditional sellers are getting caught in the mix…it’s not good for sellers and I think if they can avoid it they will.” Prasky says for the sellers who are choosing to sell they know they have to compete with the short sales and foreclosures. “We’re positioning our sellers to pick their competition and see that there are buyers out there that will recognize the quality and care they put into their home. It’s important for us to stage the properties, and update the properties prior to listing, so we have a different product. Being move-in ready with a quick closing are very attractive things to buyers.”
Pending sales and closed sales are also down; pending sales decreased 12% from 3,527 last February to 3,082 this February and closed sales decreased 1.7% from 2,157 to 2,121 for the same time frame. While these statistics would generally prove better for our economy if they were increasing, it does appear, from our RE/MAX agents’ perspectives, that buyers are also more economically educated and realize it really is a good time to buy. “They’re able to go out there and get values,” says Bernick, “buy properties they previously couldn’t afford, get homes in great areas and in great shape. They’re setting themselves up financially for years to come.” Prasky says buyers are not only educated, but they’re being smart about their home purchases. “The buyers I’m seeing aren’t out there just for the tax credit, they’re buying houses for the right reasons. They have a job, they’ve saved their down payment money, and are out there taking advantage of the affordability that’s there…they’re educated and coming to us prequalified. Buyers that are also sellers are now positioning themselves in a non-contingent status.” DuBois says that while most buyers are now more educated, they’re still particular. “They want to see homes that are competitively priced, that have a lot to offer, sometimes commanding or demanding updates. They want it to look nice so they can unpack and move in.”
New listings and inventory of homes for sale show opposite trends; as mentioned, new listings are down 26% while the inventory of homes for sale is up slightly, 2%, from 23,332 in February 2010 compared to 23,794 this February. This means that while fewer sellers are listing their homes, there are a number of houses on the market just sitting there as stagnant inventory. This inventory is a mix of traditional sales, foreclosures, and short sales. As Lockner explains, it might seem like a lot of great options for buyers at first glance, but the deeper buyers dig the more they find their options aren’t that great. “The majority of buyers out there right now are entry level buyers and a majority of them are trying to take advantage of FHA financing with 3.5% down, which is a great option for first-time buyers. The problem we’re running into is that many of the homes on the market are either foreclosures or short sales and many of them are so distressed they would never pass FHA financing. So it eliminates a lot of those options for buyers.” It is agreed among the four RE/MAX agents that a few trends really helping the local housing market are low interest rates, low sales price, and FHA financing; however, as Lockner goes on to explain there are some unknown factors that could devastate the industry again. “I think buyers overall do see there are some great opportunities but at the same time they’re afraid because it may involve selling their current house. They don’t know how much of a hit they’re going to have to take on that end. There are a lot of factors involved and those factors seem to change…I think a big piece of it now is what’s going to happen with financing. As of this time FHA financing remains the same, however many changes have occurred in the world of the loan officers and their pricing options. This could ultimately affect financing affordability to the buyers and that could really hurt the market.”
Consumer Confidence and Job Growth Trends
“The housing market held up our economy for a long time,” explains DuBois, “and when it started to tumble—new construction, building contractors, all the trades—felt a huge effect and I think today the biggest piece to our market recovery is jobs…we’re not as bad here as many parts of the country but still, you need a job to have a mortgage to buy a house, end of story.” According to the Minnesota Department of Employment and Economic Development, the United States’ overall job growth trails Minnesota’s job growth by more than 2%. Minnesota gained more than 19,000 jobs over-the-year from February 2010 to this February and RE/MAX agents say they can see a difference in their local markets. Bernick says he’s seeing some big companies relocate people south of the river. “They’re bringing people into the south metro and I think that bodes well for our area; I know by 2030 Scott County is predicting another 100,000 people and they need to live somewhere so I think we’ll see our inventory shrink over time.” Lockner also sees relocation activity as a positive movement. “Relocation activity in Woodbury seems to be pretty constant, which is encouraging. I see a lot of people relocating into the area, a little bit going out too, but I believe that’s a good sign of what’s happening with the job market.” Prasky believes, regardless of location, people are generally just ready to move. “I think people are starting to feel more comfortable in their jobs and starting to see a recovery in the economy and are tired of waiting. They want to get out there and do something.”
Spring Market Trends
If the overall consensus is that our market has educated buyers, good interest rates and low sales prices, and good inventory for fast-acting buyers, then a big question remains: When will the local housing industry really start to recover? Unfortunately it’s this big question that doesn’t have a specific answer, and even among the four RE/MAX agents, their opinions all differ. Prasky admits that he’s seen a change in buyers’ understanding of seasonal changes and thinks his winter months might outperform his spring. “Everyone talks about getting into the spring market, which has been said for years, but I’ve personally experienced a change in buyers. Buyers are more receptive to changes in the economy, interest rates and the seasonality of the market. It has absolutely surprised me that moving into spring wasn’t as much of an impact as it used to be and December was our busiest month last year.” Meanwhile, Bernick says he thought this was one of the longest, worse winters he’s seen in his 20 years in Minnesota and that buyers and sellers are pushing back what was normally done in January and February to March and April; he’s anticipating a great spring…and beyond. “I’m optimistic about the future. We’re seeing a lot of first-time home buyers enter the market, more this spring than we even saw last spring with the tax credit, and that bodes well for the future because every time someone comes into the market it frees someone else up to go out and buy a house. I think we’re going to see upticks, probably late next year or early 2013, but I think we’re going to enjoy a period of time where things are steady.” DuBois has a little brighter recall of her winter months. “There was good inventory, there were sellers, but there were not as many buyers. Then right after the Super Bowl it sort of kicked in and we were getting three to four to five showings on a listing in a week.” Though DuBois says it wasn’t fantastic she does say it went well and she has hope for this spring. “I’m confident that spring, which is the housing market’s best time, is going to be very active. By very active I don’t think it’ll be as active as we’re used to it being, compared to years past, but I think it’s going to be the best time of year, for the entire year, for home buying and home selling.” On another hand, Lockner doesn’t think the local housing market is going to see a lot of change at all. “I think what we’re feeling right now is probably going to remain the same for awhile. I just think the foreclosures are going to continue to come, and the short sales are going to continue to increase. I think there’s always going to be some entry level buyers out there and there’s always going to be investors trying to take advantage of it. I believe we’ll probably see more inventories hitting the market this spring, that’s traditionally the way things go, but I don’t think there’s going to be any dramatic change in what we’ve experienced in the past three to six months.”
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