Half of Cities See Price Increases

Case-Schiller Price Index for Minneapolis.

A private survey out today reveals that half of the major cities analyzed showed month-over-month price increases.  This signifies the fifth consecutive month where at least half of the 20 cities surveyed showed price gains. 

According to the survey, the cities experiencing the largest price increases were Washington D.C., Chicago, and Detroit.  This is excellent news for the midwest, which has been hit hard by the housing bubble.  In fact, Detroit was one of only two cities (Washington D.C. being the other) that has experienced year-over-year price gains.  Compared to August of 2010, home prices in Detroit were up approximately 2.5%.

In the Minneapolis/St. Paul area, we did experience price gains, but not to the extent of Detroit of Washington D.C.  Month over month, home prices rose .4% in Minneapolis/St. Paul.  This is entirely consistent with the trends we've been seeing in the market:  fewer homes going up for sale, more pending sales, and consistently low mortgage rates. 

All of which is a long way of saying that the housing market is dramatically more stable than it was even a year ago.  Is it possible that we've hit the bottom?  It's hard to say at this point, particularly with the slower winter months ahead.  I believe we will have a much more clear picture at the beginning of Spring 2012.

New Housing Data Released

The Minneapolis Area Association of REALTORS released new housing data today, and while there are some areas of optimism, questions still remain as to how long it will take for the market to show signs of a true recovery.

On the positive side, market inventory fell significantly compared to a year ago.  As always, it is important to keep "one year ago" in perspective - just over a year ago, the federal first-time homebuyer tax credit ended.  Most credible analysts believe that, while the tax credit may have played a role in dramatically stabilizing a real estate market in free-fall, it is also believed to have distorted the market - perhaps by as much as 10%.  Lower market inventory is helping return the market to what analysts consider "balanced" - that is, somewhere between five and six months worth of inventory on the market.  That number currently stands at 7 months.

Purchase activity also showed marked improvement from a year ago.  Activity has increased roughly 46% compared to one year ago, even amidst tightened credit and market uncertainty.  Again (and I hate to sound like a broken record, but this is a very important detail), we are comparing to a period of depressed activity after the end of the federal tax credit.  But 46% is still a significant number, and I think it shows that market activity has remained strong, even despite the lack of federal housing incentives.

But what really matters to buyers and sellers are prices.  Are they up?  Are they down?  Are they flat?  Well, in the very short-term (i.e. in the last six months), we are seeing a small but clear trend towards fewer seller concessions.  But if you take a longer perspective, prices have fallen.  Compared to a year ago, the median sales price is down 10.9% (remember that distortion from the tax credit that we talked about?).  And somewhere between 1/3 and 1/2 of all homes with mortgages are underwater (depending on whose numbers you believe). 

It is abundantly clear that, although other pieces of data show encouraging signs, the only one that matters to people (price) is still struggling.  My opinion is that as the the market continues to balance itself with less inventory and higher purchase activity, we will see some small gains.  Let's imagine it's September 13, 2012 - my prediction is that the data will say that housing prices were up compared to "a year ago."  Check back with me in a year to see if I was right!

At the end of the day, it will be very interesting to see where the market goes over the next 6 months.  There have been (seemingly serious?) talks by the Obama Administration about how to "fix" the housing market.  Some have speculated that Fannie Mae and Freddie Mac might allow borrowers, whether current or delinquent, underwater or with equity, to refinance at current interest rates (roughly 4%).  I'm sure I could fill up an entire post about these plans, so let's save that conversation for a later date. 

Market Update - Warehouse District

Previously, I did a rather lengthy post about the housing market in Uptown.  I promised to do the same for other Minneapolis neighborhoods, and so here we are.

Today's market update is for the Warehouse District in downtown Minneapolis.  Specifically, this update will address the 55401 zip code, which conveniently happens to contain all of the Warehouse District!

Median Sales Price - January 2005 through January 2010 - Warehouse District (55401)

In terms of median price, the Warehouse district has actually not performed as poorly as many other Minneapolis neighborhoods.  For example, during the period between January 2009 and 2010, while most neighborhood were still experiencing drops in median price, the Warehouse District actually saw the price rise from about $235,000 to almost $250,000. 

It's also interesting to note that although the Warehouse District has certainly not been infallible in terms of price, this neighborhood experienced its major price drops well before the overall housing market hit the skids in late 2007/early 2008.  There are a plurality of possible explanations, but I would venture to guess that the Warehouse District's diversity of property types (residential, multi-use, commercial, warehouse, etc..) has helped it stave off the worse effects of the housing crash.  Think of it in terms of personal investing - it makes sense to diversify your holdings so that if one stock falls, other stocks are rising, essentially mitigating your level of risk exposure.  The same concept is playing out in the Warehouse District. 

Percent of List Price Received - January 2005 to January 2010 - Warehouse District (55401)

But while it appears the Warehouse District is performing well relative to other neighborhoods, other indicators point to potential trouble ahead.  The graph above depicts the percentage of the original list price that buyers are paying for properties in the Warehouse District.  As you can pretty clearly see, there is a definitive trend occurring that looks worrisome for the neighborhood.  The percent of list price paid has been consistently trending downwards, which does nothing to push prices up higher.  Without price increases, property owners with negative equity are stuck and the fluidity of the market is seriously challenged (check my previous post titled "Drowning" for more on the equity crisis the housing market faces). 

Months Supply of Inventory - January 2005 to January 2010 - Warehouse District (55401)

The above graph depicts the number of months worth of housing inventory currently on the market.  I think this is something to be positive about, as it looks like there has been a sizable decrease in the amount of inventory sitting on the market.  High amounts of housing inventory indicate a large sell off in the market without ample buyers.  This tends to push housing prices down as fewer buyers compete for more houses.  Buyers have a great advantage of sellers and can typically dictate many of the terms of the sale.  

The sudden decrease in inventory is a good sign because I think it indicates a return of buyers to the market.  Although many people out there are debt-rich and cash-poor,  buyers are returning to purchasing and consumer confidence can sometimes be a self-fulfilling prophecy.  I would expect to see this number to continue to decrease, back to more "normal" levels (is there such thing as "normal" anymore?).

Conclusion

I think the Warehouse District, like other neighborhoods in Minneapolis, will continue to see some improvement in 2011.  I think buyers are gaining some confidence and the housing market should reap some of those rewards.  We are seeing decreasing inventory and relatively stable prices, and so it should just be a matter of time before we see prices start to creep upwards.  By no means are we "out of the woods yet," and many people fear for the worse in other real estate sectors (i.e. commercial real estate), but I think most signs generally indicate that there is reason to be optimistic.