Market Update - May 2013

The real estate market continues to perform strongly as we make our way further into 2013.  After several very tough years, the market has dramatically turned around - to the delight of sellers, and to the frustration of buyers. 

Compared to a year ago (May 2012), the numbers for May 2013 are somewhat shocking.  The main statistic most people look at, median sales price, increased nearly 15%.  The median sales price in the Twin Cities area is now up to $194,000. 

Connected to the increase in median sales price is the dramatic drop in inventory we have seen.  Compared to a year ago, months supply of inventory (tracks the flow of houses coming on the market versus houses sold) has dropped approximately 31%, to 3.4 months of inventory.  To translate, if no new listings came on the market, we would burn through all the current houses for sale in 3.4 months.  Historically, this number is roughly 5-6 months. 

Finally, another statistic that is easily understood - Percentage of Listing Price Received.  Compared to a year ago, this number has risen 2.5%, and now sits at 97%.  To demonstrate, homes listed at $200,000 should expect to get, on average, $194,000 for their home.

Analyzing My 2012 Real Estate Predictions

WOW!  It's been a while since I posted here.  It's amazing how easy it is to let things like a blog go unnoticed when you are busy!  However, no excuses - I promise to update this blog on a more regular basis going forward.

I want to write a follow-up post to an article I wrote at the beginning of the year.  The purpose of the first article was to form some predictions for the real estate market in 2012.  We've been through a tumultuous few years, and I was worried that my predictions might end up wildly inaccurate.  However, I actually haven't done so bad!  Let's take a look more closely:

1.  Interest rates will remain at historic lows.

Fixed-rate 30-year mortgage rates, 1/1/12 to present

Not only have interest rate remained at historic lows, they have actually fallen over the course of this year.  With the Federal Reserve keeping their overnight interest rate at essentially 0%, mortgage rates have continued to fall, even with growing demand for mortgage purchases and refinances.  So overall, I would say that my prediction has been quite accurate!  The chart on the left depicts the interest rate on 30-year fixed mortgages, courtesy of Freddie Mac.


2.  Market inventory will continue to fall.
My prediction regarding inventory was right on the money as well.  At the beginning of the year, there were 22,793 homes for sale in the Twin Cities region.  The most recent numbers we have show that there are currently 17,461 homes on the market.   This rapid drop in inventory is pretty closely correlated with my next prediction.

3.  Prices will be flat or slightly higher.
Unlike the last two predictions, which were fairly easy to measure and analyze, this prediction is a bit more nuanced.  In some areas, we have already seen prices increase since the start of the year.  In these same areas, prices have actually been increasing for the better part of a year.  However, there are still some areas that are battling high distressed sales, which has kept prices either flat or slightly falling.  Overall, I'm going to rate this one a wash. 

4.  Foreclosure rates will fall in 2012.
This may be my most off-base prediction of the four I made.  By most measures, foreclosure rates have actualy increased in 2012.  Many analysts assign blame to banks ramping up foreclosure operations after finally settling a massive lawsuit brought by the Department of Justice.  According to Daily Finance Online, foreclosure notices are up 6% compared to the beginning of 2012.  For now, I will rate my prediction as a fail.  However, it will be interesting to watch how the foreclosure rate changes over the next few months.  The "shadow" foreclosure market has been the elephant-in-the-room for some time, and real estate professionals are watching very carefully moving forward. 

Conclusion:  At the end of the day, I didn't do too bad!  Overall, the market has continued many of the trends we've seen over the last year.  Watch back for more predictions!
  

Latest Housing Update: Inventory Down Significantly

New data released yesterday by the Minneapolis Association of REALTORs shows a trend discussed several times on this blog:  the amount of inventory on the market continues to fall from the historic highs we've seen over the past 4-5 years.  In fact, inventory has fallen to roughly 2004 levels, and is down 25% in just the past year.

For the past few years, the buzz has been that we are in a "buyer's market".  Buyers could get everything for nothing, and sellers were simply at their mercy.  However, this data confirms what many have been noting:  there is significantly more balance in the market than housing prices seem to indicate.  Most economists feel that it is only a matter of time before the decrease in inventory leads to small price increases.

This is not to suggest that the housing market is out of the woods yet - a disproportionately high amount of sales continue to be foreclosures and short sales.  Many analysts fear that these distressed sales will continue to put negative pressure on traditional sellers, and it is tough to estimate exactly how many properties are in the foreclosure pipeline.

At the end of the day, we continue to see signs of life in the real estate market, but it will be interesting to see just how long it takes until we see a "normal" market again...whatever "normal" means.

Pending Sales Up, Inventory Down, Better Days Ahead?

Data released by the Minneapolis Association Area of REALTORS (MAAR) indicates that a number of important housing statistics appear to be improving.  Some 5+ years removed from the beginning of the housing bubble, and 3 years removed from the worse financial crisis since the Great Depression, we are finally beginning to see some news that their is life in the market.

The data shows that, across all price ranges, there has been an 18% drop in inventory compared to one year ago.  Homes priced between $120,000 and $200,000 saw the largest decrease in inventory, down roughly 25% from last year.  This is particularly important to sellers with equity in their homes, as well as home buyers making their first home purchase.  Lower inventory puts more pressure on buyers to act quickly and with stronger offers, which over time should lead to some price gains.

The other encouraging bit of information came in the way of pending sales.  According to MAAR, pending sales are up roughly 43% compared to a year ago.  Higher pending sales has a similar effect to lower inventory - greater demand for the same (or fewer) number of houses leads to fewer days on market, stronger offers, and (over time) price gains.

In the grand scheme of things, we are still far from seeing the recovery that is needed.  Housing prices are still soft, and more than 30% of all new inventory is either a lender-owned or lender-mediated sale.  Overall, housing prices are still down roughly 33% compared to their highs in 2005 and 2006.  We still have a ways to go, but it's definitely encouraging to see some positive movement as we swing slowly towards a more balanced market.