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The Twin Cities Housing Market Has Bottomed

After years of price declines, today I am here to say that the Twin Cities housing market has bottomed.

Having sold houses for the last nine years I can tell you I’ve seen both the up and the dramatic down of our market… it has been quite the theme park ride!  I think we are all sick of the real estate roller coaster and would prefer to enjoy a little “lazy river” type housing market for a while – one that ebbs and flows but without the steep drops or climbs of our recent past.

I’ve spent years looking at many different housing metrics and the last six months have shown a dramatic turn in many fundamentals – far faster than many, including me, expected.  While statistics are great, actual experiences of those on the street are still important in “taking the temperature” of the real estate market.  As many of the housing statistics were showing improvement, this change was also supported by the experiences I’ve had and the stories I have heard from many other agents in our market.

Today we are seeing a large spike in multiple offers on properties – which is quite surprising since these are normally the slowest months of the year for housing.  I have several clients that missed fantastic home value opportunities about a year ago.  We’ve been looking and waiting all year for something close to those homes come on the market and expected to see them this winter since this is when the “best bargains” are normally in the market.  We’ve been extremely disappointed!  If the true bargains are gone, will they be coming back?  I’m betting not.

In 12 months I believe that Twin Cities home prices will be effectively flat from where they are today… and may even be slightly up.

These are the key reasons why I believe the housing market has bottomed:

Of course all of this data is regional – in different areas, housing types and price ranges we probably bottomed a year or more ago.  In other micro markets we may still see another year or more of housing price declines.  When they say real estate is local, what they really should say is that real estate is not only block by block but also type by type and price point by price point.  Wondering what’s going on in your micro market?  Ask your favorite REALTOR for a more specific conversation.

I welcome thoughtful comments.


Twin Cities Homes for Sale

twin cities housing inventory by maar 400x238 The Twin Cities Housing Market Has Bottomed(image courtesy MAAR)

The inventory of Twin Cities homes for sale has just hit lows not seen since the 2003-2004 time frame.  Inventory at the end of 2011 dropped almost 30% from a year ago and I can tell you that my buyers certainly felt the difference in the number of homes that met their criteria.

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Twin Cities Home Sales

twin cities home sales by maar 400x238 The Twin Cities Housing Market Has Bottomed

Twin Cities home sales in 2011 were the strongest (for non-tax-credit sales) since 2006.  As the economy slowly improves, consumer sentiment is likely to rise and more people will qualify for loans as they get back to work.  A more optimistic population and more people working should push sales activity higher in 2012.

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Twin Cities Rentals

mhp 2x4 rental chart 400x271 The Twin Cities Housing Market Has Bottomed(image courtesy MHP)

The apartment vacancy rate in the Twin Cities has dropped from 7.3% in Q4 2009 to 2.3% in Q3 2011 – its lowest level in 10 years.  Average rents have risen from approximately $900 to $925 in that same time period.  (source: Marquette Advisors via MHP)  As vacancy remains low and rents continue to rise, the rent vs. own equation sways further towards ownership and more renters are likely to enter the home buyer market.

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Twin Cities Foreclosure and Short Sale Inventory

twin cities foreclosure short sale inventory 400x256 The Twin Cities Housing Market Has Bottomed(image courtesy MAAR)

Foreclosures and short sales have hit multi-year lows and with such high demand for them, inventory is likely to decline even further in 2012.  Less competition=less price negotiation power by buyers.  Traditional Seller have hit levels we haven’t seen since the early 2000′s.

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Short Sale Inventory Lower than Reported

50 percent The Twin Cities Housing Market Has Bottomed

According to a recent MLS search I conducted, we have approximately 3600 short sales in the Twin Cities that are listed as “Active.”  These are the numbers that are tracked and reported in our local market reports.  Upon further inspection though, nearly 1800 of these short sales already have an accepted offer and are contingent on approval from the lender.  So if we were to report the number of short sales that are truly available for buyers, we’d be at only approximately 1800 units – which is under 5 months of inventory… actually lower than that of Traditional Sellers!

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Twin Cities Closed Home Sales by Type

twin cities december home sales by foreclosure type 400x256 The Twin Cities Housing Market Has Bottomed(image courtesy MAAR)

The surge in additional closed sales in December 2011 vs. December 2010 went almost completely towards Traditional Sellers.  As foreclosure and short sale inventory continues to decline, buyers will have no other choice but to go back to these traditional sellers.  December 2011 proves that these buyers will in fact make that switch.

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Minnesota Mortgage Delinquencies

mhp 2x4 mortgage delinquencies 400x271 The Twin Cities Housing Market Has Bottomed(image courtesy MHP)

Minnesota mortgage delinquencies have dropped from 8% in Q4 2009 to 5.6% in Q3 2011.  (source: Mortgage Bankers Association via MHP) Fewer delinquent loans mean fewer preforeclosures. Fewer preforeclosures means fewer foreclosures. Fewer foreclosures mean fewer bank owned homes for sale.  The Minneapolis Federal Reserve breaks out where in Minnesota the highest mortgage delinquencies are.

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Minnesota Preforeclosure Notices

MNHOC preforeclosure notices 2009 2011 Q3 2011 400x206 The Twin Cities Housing Market Has Bottomed(image courtesy MNHOC)

Not only have mortgage delinquencies fallen in Minnesota, but so too have preforeclosure notices.  The Minnesota Homeownership Center’s data shows that while preforeclosure notices did tick up in Q3 2011, they are still down about 20% from their peak a year earlier.

(Quarter 4, 2011 data is now available)

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Minnesota Sheriff Sales

housinglink sheriff sale chart 400x212 The Twin Cities Housing Market Has Bottomed(image courtesy HousingLink)

Just as mortgage delinquencies and preforeclosures have fallen from their peak in past years, so too have sheriff sales.  Sheriff sales were down 32% in Q3 2011 versus the year-ago quarter according to HousingLink’s most recent report.  Makes sense – since lenders must first serve homeowners a preforeclosure notice before they can foreclose, if those are down then sheriff sales will naturally be down as well.

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Not the End, But the End

If you got this far, congratulations!  I could go on and on for hours on this stuff but I believe these are the biggest indicators of our housing market coming into balance.  Thanks for reading.  I welcome any comments you may have.

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5 comments
Mike Woods
Mike Woods

Aaron, I think we've bottomed in Indianapolis, Indiana too. However, I don't expect to see much appreciation for another 5 years.

Stanley
Stanley

The prediction that the housing market has bottomed in Minneapolis plucks ancillary supporting data for sake of convenience and ignores the statistics that people with serious skin in the game (read: Wall Street) know to be true. Based on predictions of tepid growth in the local economy, and no real progress in local wages or unemployment, 2012 is too soon for a recovery, and the economic cycle hasn't fully run its course. There will be layoffs yet at several Twin Cities Fortune 500 corporations. Late 2013/early 2014 has always been the turnaround point which means the bottom will come during the Summer of 2013.

ryan l
ryan l

I agree for the most part, I think there are a few chinks in the armor. Vacancy rates in rentals might not hold quite as much water because many renters may be victims of the housing market and not qualified for home ownership, as such rental rates may also be artificially high due to essentially inelastic demand. While it looks like the lower end of the market may be on the uptick I think that 1st time buyers who in the past would have bought a 200K house will now be effectively frozen out of the market due to lack of supply, tighter lending requirements and general risk aversion. I agree that the days of buyers finding steals are gone, but I still am not sold on the market being healthy yet? Will buyers move upmarket, will sellers move down market? Maybe townhomes and condos will finally start to turnover again? Only time will tell. BTW great analysis again.

ryan l
ryan l

I agree for the most part, I think there are a few chinks in the armor. Vacancy rates in rentals might not hold quite as much water because many renters may be victims of the housing market and not qualified for home ownership, as such rental rates may also be artificially high due to essentially inelastic demand. While it looks like the lower end of the market may be on the uptick I think that 1st time buyers who in the past would have bought a 200K house will now be effectively frozen out of the market due to lack of supply, tighter lending requirements and general risk aversion. I agree that the days of buyers finding steals are gone, but I still am not sold on the market being healthy yet? Will buyers move upmarket, will sellers move down market? Maybe townhomes and condos will finally start to turnover again? Only time will tell. BTW great analysis again.

Jack Vilett
Jack Vilett

Thanks for all the great information and pointing out the block by block, type by type and price point by price point angle. I think your assessment of a bottom is most certainly correct for the low end of the market. Under $150,000 in many areas we can't find our buyers home. The opportunities were there last year but we can't find them now. Aaron, you rock, and thanks again for keeping us informed.

Disclaimer

TwinCitiesRealEstateBlog.com is not a Multiple Listing Service MLS, nor does it offer MLS access.
This website is a service of Aaron Dickinson of Edina Realty, a broker Participant of the Regional Multiple Listing Service of Minnesota, Inc.