Twin Cities Home Price Decline Accelerating, Down 12.5% in February

by Alex Stenback on March 13, 2008

Feb_housing_deep_freeze

Hey, it’s monthly real estate stats time, and Jennifer Bjorhus over at the Pioneer Press delivers the goods:

The metro area’s median sale price sank 12.5 percent last month from a year earlier, to $195,060, according to monthly numbers released Wednesday by area Realtor groups. That’s the lowest median sale price since May 2003.

More important, the area’s slide in home values has gained steam, with prices falling harder by the month. In January, values dropped nearly 9 percent year-over-year. In December, they fell 6 percent.

As we’ve said before, this will continue until the excess supply is absorbed (more on this from the most-excellent Calculated Risk) so take the wishful chatter, like the following about affordability and swinging pendulums and whatnot, with a large dose of salt.  From the MAAR press release:

"It feels like the pendulum is finally starting to make the big swing," said Kevin Knudsen, MAAR President. "The price corrections we need are working alongside great inventory selection. And the recent FHA loan limit increase is going to have a dramatic and positive effect on buyers searching for secure financing."

Speaking of supply, and also from the press release:

…the number of homes for sale continues to post record levels despite a drop-off in new listing supply. At the end of February, there were 29,842 homes for sale, which amounts to 8.72 homes for each buyer expected during the upcoming month.

Feb_supply
Click to Biggify

As you can see above, in addition the 8.72 homes per buyer, there’s nearly 10 months (9.7) of supply.  Remember, annual supply is cyclical, and typically peaks in Sept/Oct then falls off to a holiday nadir in December.  The fact the we are already nearly at last year’s peak suggests the pendulum has yet to start retracing its arc.   

{ 3 comments… read them below or add one }

Nate March 14, 2008 at 1:53 pm

Nice graphics showing the local housing inventory spiking again.

I tend to agree that inventory has to be reduced to reach a recovery. How many years will it take for that to occur though? Lending problems and recessionary pressures will likely continue to pour inventory onto the market. Buyers are out there, but nowhere near the numbers needed to burn through the current listings. Tightening lending standards will shrink this group. I expect it will be 2010 or later until we start to see a more balanced inventory to sales ratio.

That means years of additional price declines, on top of those we’ve already seen. They may not be as steep, but it will be a consistent decline.

It also means that the people buying now, with 3-5% down, will likely be underwater on their properties within a year. It’s not like that has been causing any problems though. In a recessionary economy with a declining job market I’m sure these people will all be fine.

Nate March 14, 2008 at 2:37 pm

What I think is going to happen to the inventory is that it will be turned into rental properties.

This graph from calculated risk shows the massive run-up in home ownership since 1995, which I’ve mentioned before was really the beginning to the expansion, before innovative lending kicked in later on.

http://bp1.blogger.com/_pMscxxELHEg/R59JrWQ3QBI/AAAAAAAABi0/CChv6M-E6Uc/s1600-h/Homeownershiprateq42007.jpg

You can see that due to rising foreclosures, the percentage of home owners has begun to decline. It should also be clear that this will likely continue for some time and that there is quite a bit of decline left to occur.

As these people leave the group of homeowners many of them will return to being renters. Some percentage will instead live with their family or others in multi-family homes. The demand for rentals will be filled by a lot of the current inventory. Apartments that were turned into condos will become apartments again.

However, this group of people will also likely have little to no savings, much lower credit, and limited income to spend on housing. Remember most of these new renters will have just gone through foreclosures. This will not be some huge boon for the rental market, and I doubt we will see large increases in rental rates.

I predict a lot of pain converting housing inventory back to rental inventory. Many people are currently expecting too great a return on rental properties. I like searching through craigslist for all the 2k+ condo rental listings. New landlords who are renting at a monthly loss are likely to have issues affording the looming maintenance costs that come with rental properties. Another year or two of declining house prices in combination with steady monthly costs to support these “rentals” will eventually drive many people out of the business. Rental properties make sense at a certain price; most of the areas are nowhere near that price yet.

Johnny Northside March 22, 2008 at 12:18 pm

I’ve got your price decline right HERE, baby. I have a purchase agreement on a property that sold in 2005 for $195,000. It was listed at $17,000 but I managed to swipe it for $8,500.

But to get to this point, I had to make about a dozen offers which were looked upon as “low ball.”

All I can say is: Keep making those low ball offers. It isn’t just a buyer’s market, it’s a buyer’s AMUSEMENT PARK, baby!!!!

Leave a Comment

 

Previous post:

Next post: