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.

Brooklyn Park Abandons Point-of-Sale Inpection Program

As you probably know, there are several cities in the Twin Cities that require city inspections when homes are sold.  The names (Point of Sale, Truth in Housing, Truth in Sale of Housing, etc..) and details differ from city to city, but the underlying idea is the same - cities want some way to assure that their housing stock stays in decent shape, and so they require sellers to have the home inspected prior to closing on the sale.

My thoughts on this have always been that more and more cities would adopt similar programs.  There are already quite a few cities that require Time of Sale inspections (Crystal, Golden Valley, Minneapolis, St. Paul, Richfield, Bloomington, etc..), but my expectation was that this would continue to grow.

However, at least in the very short-term, my assumption has been wrong.  Just last week the City of Brooklyn Park voted to repeal their Time of Sale program.  As of June 3, sellers are no longer required to have their homes inspected.

For buyers and sellers in Brooklyn Park, this is probably welcome news.  Although their are certainly benefits to such a program, many buyers and sellers look at them as invasive, time-consuming, and a waste of money - particularly by sellers, who are responsible for making any repairs required as a result of the inspection.

Ultimately, it will be quite interesting to see which city makes the next move on this front.  Will a new city adopt such a program, or will we see Time of Sale inspections continue to get the axe?  Stay tuned to find out!

Mortgage Rates Start to Climb

Screenshot from Zillow, showing jump in mortgage rates over the past 7 days

Well, we all knew the day was coming.  For several years now, mortgage rates have been at all-time historic lows.  Fueled by the Federal Reserve's decision to keep the overnight fund rate at or near zero, buyers have had access to extremely cheap mortgage funds.  However, it appears as those the days of record-low rates is rapidly coming to an end.  Or, at the very least, shifting upwards towards where rates normally are.

Although the recent jump in rates is some reason for concern in a market still working to find it's footing, there is little reason to believe they will climb significantly higher.  The Federal Reserve has already pledged to artificially keep rates low into the near future.  However, only time will tell where the market goes from here.

Housing Recovery and Inventory Shortage

Market Inventory - Provided by MPLS Area Association of REALTORS

Wow, I have not posted here in a long time.  Consider this my formal vow to pay more attention to this blog!

As many of you know, real estate has been through a tough decade.  We saw enormous price gains from 2001 through 2008, unlike anything seen before.  Unfortunately, this was subsequently followed by massive price drops, high levels of foreclosures, and a market in complete distress.

It now appears that we are emerging from the depths of the real estate collapse.  And that is fairly positive news for everyone involved - buyers, sellers, loan officers, real estate agents, local communities, etc..  Normalcy (whatever that means) is something we've been seeking for quite some time now.

However, the recovery happening in the market is not all positive news.  Four years ago, there were more houses for sale than buyers knew what to do with.  Buyers had roughly 10 months worth of inventory to look at (10 months of inventory means that if there suddenly zero homes coming on the market for sale, it would take 10 months for all the existing inventory to sell).  Today, that number sits at a paltry 3.8 months.  Essentially, we've gone from one unhealthy extreme (way too much inventory) to the opposite (way too little inventory).  This has created a lot of pressure within the market, and as a result home prices are up roughly 10% compared to a year ago.

What we ultimately need is more home sellers to list their homes.  It is easy to see why sellers are still reluctant.  Just five years ago they though their homes were worth significantly more.  My (speculative) theory is that the lingering effects of the bubble/burst are still present in many sellers minds, and they have simply come to grips with the idea of staying put for the time being.

This summer will be a very important indicator of where the market is headed.  If sellers do decide to come off the fence and list their homes, buyers will be reinvigorated by more inventory to look at.  Stay tuned for a follow up post in the next few months as more data becomes available.

And as always, please feel free to contact me if you are curious what your home is worth.  I would be more than happy to prepare a market analysis for your home!

Client Testimonial

Below is a testimonial I recently received from a client.

"I just wanted to thank you again for all your hard work getting my aunt's condo sold.  I know you weren't paid enough for all your work because of the small price, but you behaved as if this was a million dollar deal for you!  I will not hesitate to recommend you when I have the opportunity."