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Twin Cities Weekly Real Estate Market Update, April 02 2012

April 2, 2012 By 5 Comments

This is shaping up to be an interesting spring real estate market in the Twin Cities.  We are seeing a lot more multiple offer situations occurring as the inventory is staying down.  This will eventually lead to price increases, if things continue on this path…

New Listings out paced last years by only 2.2%.  This is a small increase and not yet a trend, the market can easily absorb that inventory and needs more inventory.  (I still can’t believe I am saying that…)

Pending Sales continue to outpace year over year leaving our inventory at lows we haven’t seen since 2004.

 

In the Twin Cities region, for the week ending March 24:
• New Listings increased 2.2% to 1,414
• Pending Sales increased 30.2% to 1,052
• Inventory decreased 27.3% to 17,193

Read Full Report from Minneapolis Area Association of Realtors

 

Below is the chart comparing year over year New Listings.  There have only been 2 weeks this year in which we added more listings over last year.  We may be headed for a shortage of housing…

 

 

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McMansions: back by popular demand

April 2, 2012 By 2 Comments
A luxury home in a small town

A luxury home in a small town (Photo credit: Wikipedia)

“Death of the McMansions“, “home buyers want higher quality-smaller homes” has been the mantra for awhile.  While that makes great headlines and great “feel-good” writing, the truth is something entirely different.

The housing boom and easy financing lead to the home sizes increasing, as the homes got larger the nickname “McMansions” was created.  The nickname is not meant as a compliment to these larger homes, but rather an insult.  I believe much of the criticism about larger home sizes stems more from jealousy than anything else.   There are however some good arguments made for smaller homes, but the consumers are not choosing those homes.

If you asked any of the home owners who live in these “so-called” McMansions, I doubt you will find any one of them that believe they live in a McMansion and you would probably find a number of them that are “against McMansions”.  It is all relative perception…

Home Sizes Shrinking?

There was a trend during the housing crash that the average home size was getting smaller, and that is where the bandwagon of reporting started from.  Certainly these decisions are made out of environmental concern and higher consciousness for energy efficiency.   I contended that the consumers are value shoppers, and size is one of the perceptions of value.  It appears as if I my beliefs are being proven correct.

I categorize the consumers perception of value as weighing these 3 factors against the pricing when shopping for a home.

  1.  Location (school district, commute, family)
  2.  Size (raw square footage)
  3.  Feature/Finishes (built-ins, upgrades,technology, etc)
The home size square footage I was beginning to quantify this in Market Studies I was running for local home builders.  The new homes that were selling all had 1 thing in common, larger finished square footage than the homes that were not selling.

In Minnesota most homes have full basements, this is primarily because of our frost levels in winter require our footings to be at least 42″ below grade – therefore it is not that much more money to add a full basement.  Where we are seeing home builders providing “value” in our local market is by adding the finished square footage in the basement.  This is relatively inexpensive square footage to add.  The other area local builders are providing Size value is in bonus rooms over the garages.   This area already has a roof and footings, so it is cost effective square footage to add.  We are also seeing a trend away from the 2 story open foyer and that space is being utilized as living space now.

Courtesy of Builder, US Census Bureau data

 

 

 

 

 

 

 

 

 

 

 

 

Builder published a great article on home sizes beating me on timing, but delivering some awesome content.  At Builder Online they are onto this trend of larger home sizes.  So I referenced some of their content.

Between 2010 and 2011, average new, single-family home sizes spiked to 2,522 square feet—larger than during the height of the boom, leaving the industry wondering whether smaller homes were ever truly in vogue or if they were simply a necessity due to tight credit, high unemployment, and a lack of equity.

Read Full Article from Builder 

Why do consumers prefer larger homes?

We as Americans like to dream big, and our homes are among our biggest dreams.  Family sizes are not getting larger, yet our need for larger homes is growing.  Much of this is the amount of stuff we own.

Personally I own so much stuff that I can hardly function.  I try to get rid of stuff, but more stuff keeps piling up.  It just somehow magically accumulates on me.  I am not the only one with this dilemma…  We live in an age where there are cheap products readily available for impulse purchase.

Think about 2 generations ago. ..  My  Grandfather probably owned about 4 days worth of clothing – today that number is probably 10 fold.  He didn’t have an “entertainment center”, let alone a television, no computer or home office, no charging stations for iPads, iPhones, and gizmos, no rec room, craft or hobby rooms.  He and his family of 8 lived comfortably in 900 square feet.  Today I couldn’t fit all my iPads, iPhones, Computers, Printers, TVs into 900 square feet…  Unless the economy goes back to more of “survival basics” – I don’t see the home sizes shrinking…

Right or wrong, it is reality.

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Minnesota Per Capita Personal Income, 1929-2011

March 30, 2012 By 2 Comments

The States “personal per capita income” reports were released from the US Department of Commerce: Bureau of Economic Analysis.

From a historical perspective, ponder what we experienced in this downturn…

Then look at the map and check out North Dakota…

I will open this one up for discussion.  There are several ways this can be interpreted or mis-interpreted.  What is this really telling us?  Thoughts?

Click on Map for Interactive Map from St Louis Federal Reserve

 

 

 

 

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Minneapolis / St Paul Building Permits, March 28 2012

March 28, 2012 By 2 Comments
VOLO, IL - MARCH 16: Construction workers bui...

(Image credit: Getty Images via @daylife)

The numbers we were waiting for, Building Permits for Minneapolis / St Paul.   These are the building permits for 1-Unit structures (single family homes) not seasonally adjusted.

February 2012 is about 22% year over year increase and 18% increase over January 2012.  These are great numbers, but we are not yet out of the woods on this.  Take a look at the graph below to see how this looks in the overall picture, still bouncing along the bottom..  There is reason for optimism with the low inventory of homes for sale in the Twin Cities – this will put additional demand on new housing units.

It is hard to predict the future, if we look at just the existing inventory and the current pace of pending sales – it would be tempting to call this the bottom.  We still have a lot of headwinds including; increasing gas prices, food prices straining family budgets, troubles in Europe that could send the economy into a downturn, added regulations in the mortgage business and to top it all off – it is an election year.  There is also the Shadow Inventories, although I am not overly concerned about this as a factor this year. With all the unknowns out there, I will venture to guess we will see a small  increase in building permits – but not much upward movement on house prices.  Even if there is huge demand for new homes, the builders would have a difficult time meeting the demand with the lack of funding available from banks.  This will work its way out, but it will take time.  Hopefully I am completely wrong and the housing market takes off this year..

2011-01-01   157
2011-02-01   190
2011-03-01   234
2011-04-01   285
2011-05-01   349
2011-06-01   394
2011-07-01   367
2011-08-01   391
2011-09-01   366
2011-10-01   375
2011-11-01   311
2011-12-01   286
2012-01-01   202
2012-02-01   245

 

 

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Case Shiller Index: Minneapolis / St Paul MN, March 27, 2012 release

March 27, 2012 By 1 Comment

Case Shiller Index was released today for period ending January 2012.  For the Composite 20 Index the prices showed a decline of 0.8% from December 2011 to January 2012 or a 1-year change of -3.8%.

Minneapolis / St Paul index also showed a -0.8% decline from December 2011 to January 2012 and a modest -1.8% 1-year change.

Read Full Press Release from S&P Case Shiller

It appears like the data we are seeing in our local market place of a balancing market is beginning to be reflected in the Case Shiller Index.  There is a lag time with this index, but it is great for seeing the real estate market from a historic perspective over time.

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Twin Cities Weekly Real Estate Market Update, week ending March 17 2012

March 27, 2012 By Leave a Comment

Minneapolis Area Association of Realtor’s weekly real estate market update reports shows continued year over year increase in pending sales, decrease in new listings and lower inventory.

In the Twin Cities region, for the week ending March 17:
• New Listings decreased 1.3% to 1,406
• Pending Sales increased 23.1% to 1,029
• Inventory decreased 27.5% to 17,088

Read Full Report from MAAR

Inventory of homes for sale is now all the way down to 17,088, a 27.5% drop year over year.  These levels of inventory have not been seen since 2004.  I am anticipating the spring build up of inventory, but it has not happened yet.

This is a huge step in market correction.  This alone will not correct the market, the economy on a whole needs to kick it in gear.  Jobs create housing demand.  We saw lower unemployment rates in Minnesota, yet if you look at the number of jobs – we are at 2004 levels which ironically enough is where we are at for inventory of homes for sale.  If the employment situation improves, this inventory will get lower and lower and will drive the need for new construction to add inventory to the market.  We are at the point where adding more inventory makes sense again in strategic locations and price ranges.

So keep an eye on gas prices, employment figures and inflation.  These will be a few of the leading indicators on housing demand.

The “shadow inventory” of foreclosures looming is very unlikely to hit this year.  There are some good arguments on why this “shadow inventory” may not hit the market at all.   I don’t believe this will hit this year, but I believe we will begin to see this inventory some time next year.

So if you have been wanting to sell, now is the time to put your home on the market.

 

 

 

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Building Permits and Starts, Midwest Region

March 21, 2012 By 2 Comments

The US Census released the January Housing Permits and Starts report for February 2012.  Nationally the report is showing a small decline in housing starts and an increase in building permits.

BUILDING PERMITS
Privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 717,000. This is
5.1 percent (±1.2%) above the revised January rate of 682,000 and is 34.3 percent (±3.1%) above the February 2011 estimate of
534,000.
Single-family authorizations in February were at a rate of 472,000; this is 4.9 percent (±1.2%) above the revised January figure of
450,000. Authorizations of units in buildings with five units or more were at a rate of 219,000 in February.
HOUSING STARTS
Privately-owned housing starts in February were at a seasonally adjusted annual rate of 698,000. This is 1.1 percent (±15.9%)* below
the revised January estimate of 706,000, but is 34.7 percent (±16.7%) above the February 2011 rate of 518,000.
Single-family housing starts in February were at a rate of 457,000; this is 9.9 percent (±11.4%)* below the revised January figure of
507,000. The February rate for units in buildings with five units or more was 233,000.

Read Full Report include Housing Completions

For the Midwest Region

Housing Permits increased by 14.7% ( 15,000 units), most of that increase was in multi-family units.  1-Unit structure permits increased by 2.7% (2,000 units) from January to February.

Housing Starts increased slightly by 3% (3,000 Units) and a large increase of 1-unit structures by 13.9% (11,000 units).

The Minneapolis / St Paul figures should be out next week when we can take a closer look at our local market.

 

 

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Twin Cities Weekly Real Estate Market Update: March 19, 2012

March 20, 2012 By 1 Comment

The Minneapolis Area Association’s weekly real estate market update continues to show increased Pending Sales and dwindling Inventory.  This latest report shows the New Listings matched almost even with last year.  The market can continue to handle additional inventory at this time, however this is an important metric to watch as we head into the spring market.

In the Twin Cities region, for the week ending March 10:
• New Listings decreased 0.3% to 1,450
• Pending Sales increased 20.9% to 995
• Inventory decreased 24.3% to 17,899

Read Full Report from MAAR

 

 

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Whose Market is it Anyway? (Monthly Skinny for March 2012)

March 19, 2012 By Leave a Comment

This is one of the better videos Minneapolis Area Association of Realtors has put together about the housing market.  It explains in a concise and easy to understand way what our market conditions are in the Twin Cities.  Are we in a Buyer’s Market or a Seller’s Market?

So Whose Market is it Anyway?

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The Housing Market projections to 2050

March 19, 2012 By 2 Comments

What is the housing market going to look like going forward to 2050?  Projections are a fun statistical way of making major mis-calculations.  It is still worth looking at what some of the obvious conditions going forward may be.

The Bipartisan Policy Center put together a paper on the future of the national housing market.

 

The Supply:

As the Baby Boomers begin to retire and die, they will be releasing their housing units to the market.  Most of these will be owner occupied housing.

  • 2000-2010: approx 10.5 million housing units (net release of housing unit by Baby Boomers)
  • 2010-2020:  10.6-11.3 million housing units (net release of housing units by Baby Boomers)
  • 2020-2030: 14.4-15.0 million housing units (net release of housing units by Baby Boomers)

Owner-occupied units will account for about 80 percent of the releases, and most will be single-family detached dwellings. Total demand for new housing in the coming years is difficult to judge, but it is certain that the release of senior-occupied units will account for a growing share of the total inventory of housing stock while new construction will constitute a declining share. The likely consequence is that growing numbers of states and metropolitan areas will experience softening market conditions and weak demand for new construction.

The paper goes on to discuss the nature of the housing that will be released.  The main points are that these single family homes were built when energy was cheap, and financing was easy, and the economic future looked bright.  In short, they are suggesting that there will be no need for these big suburban homes and people will want to live closer into the central city.

While there is some merit in their points, I disagree with some of their premises.  The main reason I disagree is the baby boomers aren’t this predictable, they will zig when we think they will zag.  I also disagree that buyers prefer smaller homes, but this is a subject for another post and discussion.

The Demand

The demand is harder to pin down and this paper discusses 3 scenarios of economic growth and what might happen with the absorption of the baby boomer homes.

Basically there are 2 segments that will be absorbing the baby boomers homes; The Baby Bust generation (my generation, generation X) and the Echo Boomers (Millennials, Generation Y).  Since Generation X is the generation that everyone overlooks primarily because of their small numbers, the paper focuses on the Millennials.

This paper seemed to overlook Gen X and Gen Y soldiers are returning from war.  I believe they will be a market force once they are able to pick up with their lives again and focus back in family and career. Many are starting over and it will take time for them to become  a force in the job and housing market.

This paragraph from their paper raised my eyebrows a bit:

Echo Boomers have been hit hard by the recession. In fact, even before the recession they had experienced weak or no real income growth since 2000. About 22 percent of those 18 to 24 years old in 2010 lived in poverty. And in another grim statistic, the median income of people 15 to 24 years old dropped nine percent between 2009 and 2010 alone. Nearly half of 25- to 34-year-olds who had moved in with family and friends to save money would otherwise have lived below the poverty line…  …

Other factors, however, could inhibit household formation and homeownership. Young adults carry high levels of credit card and student loan debt; even young people who already had formed households had higher debt loads in 2009 than people of the same
age 10 years earlier.31 Rates of marriage declined in the 2000s from 8.2 per thousand to 6.8 per thousand..

Page 14

My thoughts from what the Millenials have been through is that this generation may actually become a 180 from the Baby Boomers and more in line with the WWII generation or Depression era generation.  Meaning they may become far less materialistic and a lot more fiscally conservative going forward.  Thoughts?

Conclusion:

There are a couple key points I took from this, although I am still digesting a lot of this.

  1. Reading between the lines – there is approx 100 million more people over the next 38 years…  …that’s approx 1,196,172 new households per year. (they have to live somewhere!)
  2. Housing Policy (regulations etc) and Economic conditions going forward is going to be the deciding fate of what happens with homeownership going forward.

 

 

 

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photo credit: The U.S. Army via photopin cc

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The views expressed on this blog are my own and do not necessarily reflect the views, opinions, or positions of my Broker, Edina Realty.