Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

St. Thomas Real Estate Analysis: Demand for Moderately Priced Homes in Twin Cities Outstrips Supply

Market ReportThe university found the number of homes on the market reached a 10-year
low at the end of 2015. It’s good for sellers but more challenging for buyers.

The Shenehon Center examines new trends and opportunities in multi-generational housing in the Twin Cities.

The supply of homes available to buy in the 13-county Twin Cities region dropped to a 10-year low in December, according to a monthly analysis conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the center tracks the median price for three types of sales: non-distressed or traditional; foreclosures; and short sales (when a home is sold for less than the outstanding mortgage balance). In addition, it looks for trends in the market and creates a monthly composite index score by tracking nine data elements for those three types of sales.

Herb Tousley, director of real estate programs at the university, said there has been a shortage of homes for sale all year, but in December that number dropped to the 10-year low of 10,301. The shortage is especially pronounced for the more moderately priced homes. For example, homes that cost less than $200,000 represented 30 percent of the homes on the market in 2015 but 42 percent of the sales. In that same category there were 1.86 homes available for each one sold. On the other end of the price range, there were 8.85 homes over $600,000 on the market last year for every one that sold.

“The bottom line is that there is way more demand than supply of homes that are priced at less than $400,000,” Tousley said. “The continuing shortage of homes for sale coupled with increased demand for houses in that price range will continue to keep an upward pressure on prices but will likely be a drag on the number of closed sales. “This is great if you are a seller but is much more challenging if you are a buyer,” he said.

Except for the low inventory, December marked the end of a year that has been a continuation of the steady recovery that the Twin Cities housing market has enjoyed for the past three and a half years. The sale price of a non-distressed (traditional sale) home was up 3.7 percent for the year; the price of a short-sale home was up 19.7 percent; and the sale price of foreclosed homes was unchanged. The combined increase for all three categories was 10 percent. Tousley expects the recovery to continue. “In the second half of 2016, increasing sale prices should start to bring out more sellers as homeowners’ equity positions begin to improve,” he said.

Multi-generational households – A rising trend?

According to John Burns Real Estate Consulting, 14 percent of U.S. households (that’s 16.5 million households) now live multi-generationally. The number is expected to increase for three reasons:

• Delaying marriage has increased the number of young adults who live with their parents.
• Surging retirement has increased the number of retirees living with their children.
• Significant immigration from countries where multigenerational living is the norm also has helped boost the numbers.

Tousley said that if the 14 percent number holds true for the Twin Cities, that would mean there are 189,381 multigenerational households in the 13-county region. He noted that according to a Consumer Insights survey of more than 20,000 shoppers for a new home, 44 percent they would like to accommodate their elderly parents in their next home. Also, another 42 percent plan on accommodating in their next home children who are 18 and older.

“Since most of the U.S. housing stock was not built for multigenerational living, this provides a tremendous opportunity for homebuilders,” Tousley said. “This trend is also increasing the number of secondary dwelling units, sometimes called in-law units. “These units can be set aside within a larger single-family home, such as a separate basement or attic apartment; attached to a primary residence, such as an apartment above an attached garage; or smaller separate units built on the same lot as single-family homes. “Over the next decade, look for these trends to change the makeup of the single-family housing stock in the Twin Cities.”

mortgagesThe St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for December 2015. The index, which tracks nine data elements for the three types of sales (traditional, short sales and foreclosures), started in January 2005. For that month, the center gave each of the three indexes a value of 1,000.

The December 2015 index score for traditional sales was 1,082, down .8 percent from November but up 5.2 percent for the year.

The December 2015 index score for short sales was 965, up 3.1 percent from November and up 6.4 percent for the year.

The December 2015 index score for foreclosures was 774, down 2.3 percent from November and up 3.3 percent for the year.

 

More information online

The Shenehon Center’s charts and report for December can be found at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

The index is available free via email from Tousley at hwtousley1@stthomas.edu.

Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Multifamily, Real Estate Lending, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

A Brief Summary of the 2015 Twin Cities Housing Market. This Year was a Good Year, What About 2016?

We examine some of the more important questions about the Twin Cities housing market in 2016 and offer some thoughts Houseforsaleabout where the market is headed.

An analysis of Twin Cities real estate data for 2015 through November shows that the housing market is continuing to recover along with the economy; home prices, the number of closed sales, pending sales, new listings, and the percentage of traditional sales (not foreclosures) are all on the upswing.Meanwhile, a historically low number of homes on the market is continues constrain the number closed sales. This has created an imbalance in the market where buyers outnumber sellers and leads to situations involving multiple offers and homes selling above asking price.

Will 2016 bring more of the same? In this month’s Residential Real Estate Report Herb Tousley, director of real estate programs at the university will examine some of the more important questions about expectations for 2016. These questions are;

  • What will happen with median home sale prices in 2016? How long will it take for them to approach pre-crash levels? Look for an increase of 6% – 8% in the median sale price of homes sold in the Twin Cities. **
  • What will happen to the number of homes sold during the year? Look for an increase of 4% – 6% in the number of closed sales in 2016. **
  • What will happen with the number of homes available for sale in 2016? We are expecting an increase in the inventory of homes for sale of 1% – 3% compared to the previous year’s levels. **
  • Will interest rates and mortgage rates continue to rise in 2016 and if so, what effect will it have on the housing market? In 2016 look for rates to drift from just under 4% to slightly over 4% by the end of the year. **
  • What will happen with new housing starts in 2016? Will home builders break out of the doldrums next year?   In 2016 I am expecting an increase in the number of permits issued of about 10%. **
  • What will happen with apartment development and rent levels? Will the market continue to be able to absorb the expected number of units in the pipeline?   Our expectation is that next year will be another good year for apartment developers with an additional 3,800 – 4,000 market rate units being added to the existing stock. We also we expect that the strong local economy and continued employment growth will sustain continued rent growth of 2% – 2.5% in 2016. **

 **For a more detailed explanation of the above answers you can download the complete November Residential Real Estate Report at: http://www.stthomas.edu/business/centers/shenehon/research/default.html.

Real-Estate-Supply-and-Demand-300x259The Residential Real Estate Report is a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at St. Thomas’ Opus College of Business. Each month the center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed (traditional-type sales), foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance). More details about the market, including an analysis of distressed-property sales during the winter months, can be found on the Shenehon Center’s website: http://www.stthomas.edu/business/centers/shenehon/research/default.html.

Research for the monthly reports is conducted by Tousley. The index is available free via email from Tousley at hwtousley1@stthomas.edu.

 

 

Affordable Housing, Development, Economics, Home Prices, Housing, Housing Trends, Industry News, Investment Real Estate, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

September’s Housing Market Key Benchmarks Running Well Ahead of Last Year

A new emerging build-to-rent trend coming soon to the Minneapolis/ St. Paul Market Market Report

Strong housing-market benchmarks – including home prices and the number of sales – have continued well into the fall season across the 13-county Twin Cities region, according to a monthly analysis conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the center tracks the median price for three types of sales: nondistressed or traditional; foreclosures; and short sales (when a home is sold for less than the outstanding mortgage balance). In addition, it looks for trends in the market and creates a monthly composite index score by tracking nine data elements for those three types of sales.

In September 2015 the $230,000 overall median sale price of a single-family home was unchanged from August but is 6 percent higher than in September 2014. Likewise, compared to last year the number of closed sales was up 12.5 percent and the number of pending sales (homes that are sold but have not yet closed) was up 11.9 percent. Herb Tousley, director of real estate programs at the university, cites two factors that are keeping the sale prices up: above-average wage growth and a historically low number of homes on the market (down 15.5 percent in September compared to a year ago). “We are continuing in a sellers’ market,” he said. “Look for these trends to persist through October before the market settles down a bit during the holiday season.”

Sept 2105 Median Sale Price

Build To Rent – A New Trend Heading in our Direction?

 A lack of existing housing inventory, a relatively low number of new housing starts combined with a tight rental market is causing some builders to change their strategy; they are starting to build homes specifically for rental. This is a new trend that is beginning to appear in a number of markets across the country. According to the Wall Street Journal, 5.85 percent of the 535,000 single-family homes started in 2013 were built to rent. That number is expected to continue to increase over the next several years. This trend is being driven by the lack of a once-plentiful supply of existing distressed homes that could be purchased a deep discount, renovated and then converted into rental properties. “For the last several months the percentage of distressed sales in in the Twin cities has been less than 9 percent,” Tousley said. “And that means there have been few distressed homes available.”

Builders are building three- and four-bedroom homes specifically to rent to families. They can select durable materials and interior finishes that can withstand increased wear and tear. And since these homes are new, expenses like repairs and maintenance will be much lower than comparable older, existing housing. “Some builders are selling these homes to institutional buyers as a way to sell homes in a hurry that allows them to keep their crews busy and cash coming in the door,” Tousley said. “In some cases, these homes are being sold in bulk to institutional buyers at an 8 percent to 10 percent discount. In tight rental markets like ours, investors believe that continued rent growth and rising home values will allow them to reach their investment objectives.”

He said the build-to-rent trend is beginning to appear in several forms. Some investors are buying newly built homes from builders on lots in new subdivisions and in long-standing, established neighborhoods that are located in the same general geographical area. These large investors already own and rent homes that are scattered in different locations and they have the infrastructure in place to manage and care for the properties. In some cases developers are building entire rental communities that have three- and four-bedroom homes built with higher quality materials that will offer amenities similar to high-end apartments such as a club house, fitness center and resort-style pool area. Landscaping and exterior maintenance will be reduced where crews can mow all of the yards, plow snow and maintain the common areas on a large-scale basis.

“These communities would be attractive to a number of potential tenants,” Tousley said. “These homes would appeal to families who are new to the area and would like to get to know the market before they buy. This gives renters a chance to live in a nice neighborhood while they look for a home to purchase. Other renters would like to live in a high-quality neighborhood but don’t have the down payment required to purchase a home at this time. Some developers are offering these homes as an opportunity for renters to save for a down payment and build their credit until they can qualify for a mortgage. A rent-to-own concept could help potential buyers purchase a home in today’s tougher lending standards.” “While we haven’t seen build-to-rent activity yet in the Twin Cities, I wouldn’t be surprised to see this trend emerge here in the near future,” Tousley said.

The St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for September 2015. The index, which tracks nine data elements for the three types of sales (traditional, short sales and foreclosures), started in January 2005. For that month, the center gave each of the three indexes a value of 1,000.

The September 2015 index score for traditional sales was 1,114, down from the record-high 1,126 in August. The downturn is blamed, in part, on declines in the number of new listings and closed sales.

The September 2015 index score for short sales was 955, down from 975 in August. There were only 97 short sales in the 13-county Twin Cities region in September, representing 1.9 percent of total sales.

The September 2015 index score for foreclosures was 822, up from 818 in August. There were 333 foreclosure sales in September, representing 6.4 percent of total sales.

Sept 2015 UST Indices

More information online: The Shenehon Center’s charts and report for September can be found at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

The index is available free via email from Tousley at hwtousley1@stthomas.edu.

 

Best of Real Estate Matters, Commercial Real Estate, Development, Green Building, Historic Tax Credits, Housing Trends, Investment Real Estate, Minneapolis / St. Paul Housing, Minnesota Real Estate Hall of Fame, Minnesota Real Estate Journal, Real Estate Programs, Real Estate Trends, Think Outside The Box, Twin Cities Real Estate, Urban Planning, UST Real Estate in the News

New Members of Minnesota Real Estate Hall of Fame Announced

The Minnesota Real Estate Hall of Fame, established in 2010 by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business, will add three new members in a morning ceremony Thursday, Nov. 5th, at the Golden Valley Golf and Country Club.

Members of the Minnesota Real Estate Hall of Fame are chosen for their outstanding business performance, high standards of ethics and community activities. The three new members

Dan DolanWells Fargo

For more than 50 years, Dan Dolan has pursued a career in real estate. He was a leader in improving the professional and ethical standards in real estate and was an early promoter and employer of women in real estate sales. His real estate developments include the Evergreen Community, an upscale residential development in Woodbury; and the Oakdale Crossing Business Park.

Throughout his career, Dolan has been actively involved in boards and fundraising, including the merger of Cretin and Durham high schools, fund raising for the University of St. Thomas, and serving as King Boreas XLII in the 1978 St. Paul Winter Carnival. He may be eligible for retirement, but Dolan is just as passionate as ever about real estate development and continues to receive offers of employment in the industry.

Larry Laukka  

Since 1962, Larry Laukka has actively served in all  aspects of the real estate industry, but primarily in the building and development business. Laukka’s experience has included the design, development, financing, construction and marketing of more than 6,000 dwelling units and home sites throughout the greater Twin Cities community, and the management of approximately 3,000 owner-occupied townhomes and condominiums. His leadership roles include president and director of the Minneapolis Builders Association (MBA), senior life director of the National Association of Home Builders (NAHB) and founder of the Minnesota Housing Institute (MHI), which served the real estate industry’s state-wide needs to commercially promote home ownership and legislative action.

In the 1960s, Laukka worked with The Near Northside Re-Development Agency, a community based organization established to guide the redevelopment of the near north side of Minneapolis. The agency focused on the growing need for market rate housing and led to the development of single-family housing, hailed as “The Suburb in the City.”  After being approached by Governer Wendell Anderson, Laukka helped develop the State Housing Finance Agency and chaired the Minnesota State Housing Code Advisory Board until a state-wide building code was in place. Most recently, he served on the Fairview Southdale Hospital board of trustees and chaired the development of its new Carl N. Platou Emergency Center opened August 2015.

James Solem

For more than 40 years, James Solem provided outstanding leadership and tireless work in real estate finance and public policy, supporting the development of rental and ownership housing for low and moderate income households. He was the executive director of the Minnesota State Planning Agency from 1970 to 1978, and served as commissioner of the Minnesota Housing Finance Agency from 1978 to 1994 – a position he was appointed to five times by three Minnesota governors. From 1994 to 2000, Solem was the regional administrator for the Metropolitan Council, leading the long-range planning for transit, wastewater, parks and community development in the seven-county metropolitan area.  From 2000 – 2006, at the University of Minnesota’s Center for Urban and Regional Affairs (CURA), he led a project to bring new ideas to the issues of affordable housing and regional growth.

Now retired from the Metropolitan Council, Solem is active with consulting and volunteer service. He is chairman of the board of the Community Reinvestment Fund and of the boards of Common Bond Housing Corporation and the Greater Minnesota Housing Fund. Throughout his career, Solem demonstrated an exceptional knowledge of operations and governmental polices, brought a high level of ethical standards to the real estate industry and championed those most in need.

The program is open to the public and the cost is $60. More information is available at http://www.stthomas.edu/centers/shenehon/minnesota-real-estate-hall-of-fame/

To register use the following link:    https://webapp.stthomas.edu/eventregistration/ust/register.jsp?eventcrn=B1973

The Minnesota Real Estate Hall of Fame now has 30 members. Previously named were:

  • 2010: Tony Bernardi, Lloyd Engelsma, Gerald Rauenhorst, William Reiling, Jim Ryan and Sam Thorpe Sr.
  • 2011: Robert Hoffman, Darrel Holt, Bernard Rice, Emma Rovick and five members of the Dayton family: Bruce and the late Douglas, Donald, Kenneth and Wallace.
  • 2012: David Bell, Robert Boblett Sr., Philip Smaby and Boyd Stofer.
  • 2013: Leonard Bisanz, Helen Brooks, Thomas Crowley, M.A. Mortenson Sr. and Kenneth Stensby.
  • 2014: George Karvel Ph.D., Cyril “Cy” Kuefler Sr., Jim Stanton

 

Affordable Housing, Economics, Home Prices, Housing, Housing Trends, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

St. Thomas Real Estate Analysis: Twin Cities Remains One of the Most Affordable Housing Markets in the Nation

The 13-county Twin Cities region compares favorably to other metro areas thanks to wages and strong housing-market fundamentals.

The Twin Cities remains near the top of the list of affordable housing markets in the United States, according to an analysis conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the center tracks the median price for three types of sales in the 13-county Twin Cities region: nondistressed or traditional; foreclosures; and short sales (when a home is sold for less than the outstanding mortgage balance). In addition, it looks for trends in the market and creates a monthly composite index score by tracking nine data elements for those three types of sales. Herb Tousley, director of real estate programs at the university, credits “continuing strong housing-market fundamentals and above-average wage growth thus far in 2015” for keeping the Twin Cities near the top of affordable-housing lists “According to Forbes, household income growth in the Twin Cities in 2014 was 1.9 percent. Based on our improving local economy and low unemployment rate, we are expecting household income to grow 2 percent to 2.5 percent in 2015,” Tousley said. “That means that household incomes and median home sale prices are increasing at nearly the same rate so in terms of real dollars home prices are keeping up with inflation.

Aug Housing Report - Image 3

“This is not the case in many major metro areas around the country. In May 2015 the average apartment rent in the Twin Cities market had increased to just over $1,200. Home ownership in the Twin Cities remains an affordable option for many since a household that is earning the median annual household income can afford to purchase a home selling at the median sale price in our market.” Here are five examples of single-family-home affordability from around the country (details are available on the Shenehon Center website):

Single Family Home Affordability

Twin Cities Denver San Francisco Chicago Atlanta
Median Sale Price $224,900 $329,000 $656,000 $242,600 $157,700
10% Down Payment $22,490 $32,900 $65,600 $24,260 $15,770
Finance Amount – 30 years @ 4% $202,410 $296,100 $590,400 $218,340 $141,930
Monthly Payment $966 $1,414 $2,819 $1,042 $678
Monthly Property Taxes $375 $548 $1,093 $404 $263
Monthly Insurance $100 $125 $200 $100 $100
Monthly Total Payment $1,441 $2,087 $4,112 $1,547 $1,040
Annual Total Payment $17,294 $25,044 $49,344 $18,561 $12,485
Area Median Household Income $66,940 $62,760 $79,624 $60,564 $55,733
% of Household Income Required 25.84% 39.90% 61.97% 30.65% 22.40%

 

Key numbers for August.

The median sale price of traditional-sale home in August 2015 was $229,900; that’s down .48 percent from July 2015’s $231,000 and up .83 percent from August 2014’s $228,000. The median sale price of a short-sale home in August 2015 was $163,500; that’s up 6.2 percent from July 2015’s $153,950 and up 2.19 percent from August 2014’s $160,000. The median sale price of foreclosure-sale home in August 2015 was $149,900; that’s up 8.62 percent from July 2015’s $138,000 and down 1.07 percent from August 2014’s $151,525. In August 2015, 7.68 percent of sales were “distressed” (foreclosures or short sales). That compares to 10.57 percent in August 2014.

Closed sales and low inventory.

The number of closed sales in August was 5,836, down from July’s 6,363. “This decrease is part of normal market seasonality as sales activity slows down as we move into fall,” Tousley said. “The encouraging part of this is that despite the decrease it represents an 8.1 percent increase over the August 2014 closed-sales volume.” The number of homes for sale remains historically low. In August 2015 there were 2.8 homes available for sale for every home sold. In August of 2014 there were 3.5 homes available for sale for every home sold. And in August 2006 there were 6.3 homes for sale for every home sold. There were 6,923 new listings in August 2015, down 13 percent from July and unchanged from the level recorded in August 2014. “That tells us that low levels of homes available for sale will persist in the short run. In the meantime, the low number of homes for sale and the higher volume of closed sales are being reflected in lower time on the market, a higher number of multiple offers and sale prices at more than the original asking price,” Tousley said.

Continued Lag in New-Home Construction

A source of additional single-family housing is the construction of new homes, but so far this year, Tousley said, “the number of single-family housing starts has failed to live up to many homebuilder’s expectations.” Based on the number of construction permits issued through August (3,202), the Twin Cities is on track to have about 5,000 new homes built or under construction in 2015. That’s about the level of new construction in 2014, but less than in 2013. That compares to the early 2000s, when the number of building permits was running at 8,000 to 10,000 per year. “The level of new-housing starts is going to have to increase considerably to make a significant contribution toward increasing the number of homes available for sale in our market,” Tousley said. The cost of new single-family homes is clearly on the rise in the Twin Cities. In the late 1990s and early 2000s, before the market crash, nearly half the new homes sold for less than $250,000. In the last two years, less than 20 percent of the new homes sold for less than $250,000. Much of this increase, Tousley said, is due to higher land prices, development costs and building materials. The average price of a new home is running about $100,000 more than the median price of an existing home. For example, in 2012 the median price of an existing Twin Cities home was $177,900, while the average price of a new home was $287,352. So far this year, the median price of an existing home has been $224,900 and the average price of a new home is $330,466.

The St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for August 2015. The index, which tracks nine data elements for the three types of sales (traditional, short sales and foreclosures), started in January 2005. For that month, the center gave each of the three indexes a value of 1,000. The August 2015 index score for traditional sales was 1,129, up one point from July 2015. The August score is the highest since the index began in 2005 and is up 4.06 percent from August 2014. The August 2015 index score for short sales was 979, up five points from July 2015 and up 4.71 percent since August 2014. The August 2015 index score for foreclosures was 820. That’s unchanged from July 2015 and up 1.23 percent since August 2014.

More information online

The full report and additional charts for August can be found at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

 

 

 

Commercial Real Estate, Office Real Estate, Real Estate Trends, Twin Cities Real Estate

North Loop Among Top 10 Tech Submarkets for Rent Growth Nationwide

The North Loop neighborhood of Minneapolis is among the top ten tech office submarkets for rent growth in the nation, according to a recent report by CBRE. Office rents in the area have shot up by more than 20% in just two years, which is double the rate for the overall Minneapolis office market. The North Loop also ranked fifth nationally for net absorption growth, which was at 8.2 percent during the same period. These numbers put the North Loop among an elite class of tech office submarkets in the nation, posting similar numbers to San Francisco’s SOMA and Austin’s Northwest submarkets.

Source: CBRE

Source: CBRE

The growth is driven by demand among tech firms for non-traditional office space with features such as brick-and-timber construction and exposed ceilings, features common to the North Loop’s many historic warehouse and light industrial buildings. The demand has led to low vacancy rates and created an environment ripe for new development, something developer Hines Interests hopes to capitalize on with its T3 project which will incorporate many of the design features that tech firms want and which are typically only found in historic buildings, such as exposed wood ceilings.

Hines hopes to capture some of the North Loop tech office demand with its new construction T3 building.

 The trend is also likely to drive additional conversions of historic buildings to office space. One example of this is the recent announcement that Artic Cat will move its corporate headquarters to a renovated warehouse in the North Loop in order to help attract new employees.

Recreational vehicle manufacturer Artic Cat recently announced it would move its corporate headquarters to the renovated Western Container building in the North Loop.

It remains to be seen whether the North Loop can sustain continued growth in absorption and rents for tech office space. A recent Start Trib article on the CBRE report quoted Tyler Kollodge, a Minneapolis-based CBRE broker: “The high demand and low vacancy rate has allowed landlords to push rental rates; however, most of the tenants in the area have been there for several years and are facing sticker shock when they see the new proposed rental rates on a potential lease renewal.”

However, national and local trends point to continued growth in the tech office market. The CBRE report noted that the high-tech software/services industry has created over  700,000 new jobs nationally since 2009 (at a growth rate of 34%), which accounts for one-fifth of all new office-using jobs. And in a recent Bureau of Labor Statistics report, Minnesota ranked number one for tech job growth in 2015, growing 8.3 percent in the first six months of this year.

The full CBRE “Tech-Thirty 2015” report is available here.

Economics, Home Prices, Housing, Housing Trends, Real Estate Trends, Residential Real Estate, Twin Cities Real Estate

Some Facts Regarding Today’s Changing Home Buyer

Summary of an National Association of Realtors report by John Burns, John Burns Real Estate Consulting

Let me summarize for you some of the key findings from an NAR report on home buyer and seller generational trends. So often, useful facts get lost in big reports.Market Report

Household Compositions

  • 13% multigenerational living. 13% of buyers have multiple generations over the age of 18, with 21% of those buyers headed by someone aged in their 50s. This ties in nicely with our last Consumer Insights survey of more than 20K home shoppers, where 50% of those in their 50s said they planned on living multigenerationally, either with a parent or a child. 37% of multigenerational buyers had an adult child, while 21% of buyers had an aging parent.
  • 73% couples. Married people buy 65% of all homes sold, with unmarried couples buying 8%.
  • 16% single women double the men. Single women are almost twice as likely to buy as single men, purchasing 16% of all homes sold compared to 9% of all homes for single men. After the age of 50, purchases by single females rise even more.
  • 65% childless. Homes designed for adults rather than families make more sense, as 65% of all home buyers do not have children. Resale homes were primarily designed with families in mind.
  • 11% foreign born. Consistent with our demographic findings that 23% of those born in the 1970s were born abroad and that foreign born buyers are less prone to purchase, foreign purchases are heavily skewed to those born in the 1970s. 17% of buyers aged 35–49 are foreign born—nearly double the percentage of any other age cohort.

Changing Buying Habits

  • 43% finding their home online. 43% of buyers found the home they purchased online, ranging from 51% of those aged under 35 to 34% of those aged 60–68.
  • 25%+ of Gen X and Gen Y buyers finding their home on their smartphone. More than half of Gen X and Gen Y used a mobile device in their search, and more than 25% found the home they purchased on their mobile device—meaning 75% did not.
  • Bigger more important than smaller. Only 10% of buyers cited home size as the primary reason to move, with 7% wanting larger homes and 3% wanting a smaller home. We show more on this below.
  • 70% suburban. Suburbs dominate, with suburbs including small towns capturing 70% of demand. This is consistent with our demographic findings, which also include a finding that urban has taken market share from suburban in the last 15 years.

mortgages Young Buyer Profile (under 35)

  •  Mostly first-time buyers. Young buyers comprised 32% of all buyers, and 68% of the buyers under age 35 purchased their first home.
  •  Less desire to renovate. Younger buyers who chose a new home did so to avoid to renovation headaches, while older buyers (60+) were slightly more likely to be drawn to new homes by the amenities.
  •  Convenience trumps affordability. Consistent with our demographic findings that today’s young buyers value their time more than prior generations at the same age, young buyers buy for job convenience (74%), affordability (58%), schools (44%) and parks (28%), in that order. Older buyers placed far less importance on these factors.
  • The down payment is the hurdle.
    • High LTV required. 63% of young buyers put 10% or less down, and 45% put 5% or less down. Without FHA financing and a recovering mortgage insurance industry, this buyer would be almost extinct.
    • 31% get help. 31% of young buyers received a gift or loan from a friend or relative.
    • Student debt a big hurdle. Student debt was cited by 54% of young buyers as the biggest impediment to saving the down payment. We estimate that student debt resulted in 8% (414,000) fewer home sales in 2014 than would have been the case if debt levels were the same as in 2005.

Big Differences between Move-Up and Move-Down Buyers

Younger move-up buyers sold at a tidy profit to buy a larger home, while older move-down buyers sold at a small loss to buy a smaller home. The key stats by age are as follows:

  • Under 35: Owned prior home 5 years (2009) and sold it for $73K profit to buy a 590sf larger home
  • 35–49: Owned prior home 9 years (2005) and sold it for $69K profit to buy a 450sf larger home
  • 50–59: Owned prior home 11 years (2003) and sold it for $9K loss to buy a 40sf smaller home
  • 60–68: Owned prior home 13 years (2001) and sold it for $13K loss to buy a 160sf smaller home

Those who bought in 2009 or later have clearly fared far better than their predecessors. Older buyers are able to sell at a loss because they have paid down part or all of their mortgage and have other financial resources.

In summary, the US home buyer has become quite diversified, including a rising number of foreign born and far more DINK (double income, no kids) and single female home buyers than ever before. Urban homes and homes closer to work have appreciated much faster, which our consulting team has verified in markets across the country. High-LTV programs have played a huge role in the housing recovery. All of these factors combine to create great opportunities for entrepreneurs who understand their local markets and can respond to these increases in demand that cannot be met by the resale market.

 

Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Real Estate Brokerage, Real Estate Trends, Residential Real Estate

Will Millennials Buy Homes Online? The Chinese Already Are

This is a reposting of an article written by Omri Barzilay  in Forbes Magazine

The real estate market has of course gotten better since the crash of 2008 – home sales are improving across the country and the market is growing. It seems on the surface that the future is bright for realtors, especially with the advancement of the Internet. It allows an agent’s listings to be seen by a broader audience, which then leads to faster, more efficient sales. The latest numbers show that 95% of homes for sale get published online, but the number of deals closed on the web remains quite small – just a fraction of the $2 trillion real estate industry.  Will Millennials actually buy homes online? It is important to know who the Millennials are and for real estate agents to understand their impact of the real estate market. Millennials make up the generation that follows Generation X, and their birth years range from the early 1980s to the early 2000s.  A large portion of Millennials is just getting to the age where they will dip their toes in the housing market, and there is much debate as to whether or not they’ll turn to the Internet as a source of home buying. The question of whether Millennials will actually buy homes online is the subject of much debate. Millennials certainly make up the first generation to be fully immersed in the web, but will they follow the path of previous generations, using the Internet only to search for homes and instead purchase them in person? While they are the generation that is fully immersed in the web that does not necessarily mean that they are more willing to buy homes online. In fact, they may follow in the steps of Generation X and the Baby Boomers and instead prefer to only search for homes online, but buy them in person.

SPCase-Shiller-20-City-Composite-Home-Price-Index

There’s some trepidation among industry professionals as to whether Millennials will buy homes in the numbers that previous generations have, and it’s reflective of the marketplace. Furthermore, there are questions surrounding the possibility of them using the Internet to purchase their homes, which would cause a major shift in how the real estate industry operates in the U.S. and later in the rest of the world. At the same time, there is also an increased emphasis on the foreign investors who have purchased real estate in the U.S. for years and years – the Japanese in the 1980s, the Russians at the turn of the 21st Century, and the Chinese today. The Chinese, in fact, may be in a much better position to make future purchases online thanks to a recent deal with the most popular real estate auction site in America, Auction.com.   The Advancement of Auction.com

Follow this link to read the entire article: http://www.forbes.com/sites/omribarzilay/2015/09/01/will-millennials-buy-their-homes-online-the-chinese-are-already-doing-it/

 

Affordable Housing, Housing, Housing Trends, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Twin Cities Real Estate

Minneapolis / St. Paul is One of only 3 U S Major Metros Where Owning is Cheaper than Renting

As you can see from the headline below from John Burns Consulting in most U S cities homeownership is more expensive than renting. If you look at the image below you will see that Minneapolis / St. Paul is one of three major metro areas where homeownership is less expensive than renting.

 Owning Costs More than Renting

by Erik Franks, Manager John Burns Consulting

In most areas of the country, homeownership costs more than renting. Many economists with calculators claim the opposite, but the calculations and conclusions are often highly misleading. As is often the case, the devil is in the details.

We recently reviewed one highly publicized calculation that owning was cheaper than renting in almost all markets. That calculation had a number of outdated assumptions, including:

  • Outdated assumption #1: Buyers put down 20%.
    • In reality, own versus rent is a first-time buyer decision, and the vast majority of first-time buyers today make down payments of 10% or less.
  • Outdated assumption #2: Buyers are in a 25% tax bracket and thus save 25% of their interest payment in taxes.
    • Today, half of all home buyers obtain a mortgage less than the median resale price of $236K, and 100% of the annual interest on that mortgage is less than the standard itemized deduction of $12K per couple, so many entry-level buyers actually save ZERO dollars in taxes. Those that itemize likely only save a small percentage of the interest payment in taxes.
  • Outdated assumption #3: Future home price appreciation should be included in the own-versus-rent decision.
    • Most indices show that home prices have historically appreciated 1%–2% faster than incomes, but over a 30-year period of falling mortgage rates. Assuming you believe rates will rise or at least stay flat, price appreciation might be an aggressive assumption.

Don’t get me wrong. We believe homeownership is a great long-term investment for those with stable employment. It is just not less expensive than renting.

Not All Markets Are the Same

The premium homeowners pay to own versus rent varies across all cities. While the average US homeownership premium over renting is $146 per month, the premium varies widely:

  • In San Francisco, housing payments are over $2,500 more per month to own an entry-level home than to rent an apartment, which is also expensive. In San Jose, the gap is almost $1,800 per month!
  • In some markets in the Midwest and the Southeast, the monthly payments (excluding maintenance) are currently cheaper to own than rent. These areas are still extremely affordable, thanks to ultra-low mortgage rates and home prices that have increased over the past few years but not enough to return to their long-term average.

Below is a chart of major US markets and the premium it costs to own versus rent as seen through the eyes of most first-time buyers. We assume that the decision is between renting an apartment in a large apartment complex and buying a home valued at 80% of the median home price (a reasonable assumption for first-time buyers) with a 95% LTV loan.

Homeownership vs Renting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion

Potential entry-level home buyers focus on saving a small down payment and affording the homeownership costs. They compare the monthly cost of renting to the monthly cost of owning, realizing that the owned home is usually much nicer than the rental and is thus more expensive. If owning were truly cheaper than renting, far more renters would be buying homes. Never forget that headlines can be misleading.

 

Housing Trends, Minneapolis / St. Paul Housing

St. Thomas Real Estate Analysis: Home Prices Take A Small Seasonal Dip In July

There just aren’t enough low- to moderately priced homes for sale

A scarcity of lower-priced homes for sale in the Twin Cities is putting upward pressure
on asking prices; that’s good news for sellers, bad news for buyers looking for a deal.

Minneapolis, Minn. – For the third year in a row, the median sale price for a Twin Cities home took a seasonal dip in July after peaking in June. That … and a pronounced lack of homes available in the sub-$200,000 range … were among the findings in the monthly housing-market analysis of the 13-county Twin Cities region conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the center tracks the median price for three types of sales: non-distressed or traditional; foreclosures; and short sales (when a home is sold for less than the outstanding mortgage balance). Here’s what the center found:

Key numbers for July.

The median sale price of a traditional home in July 2015 was $231,000. That is down 1.91 percent from $235,500 in June 2015 but up 2.67 percent from $225,000 in July 2014.

“So far in 2015, the traditional median sale price has been running a relatively stable 2.5 percent to 3.5 percent increase over 2014 levels,” said Herb Tousley, director of real estate programs at the university. “We continue to expect a 4 percent to 6 percent overall median sale price increase for 2015. However, our outlook could change to the extent that interest rates increase this fall.”

In the two distressed categories: the median price for short sales dropped 10.2 percent, from $171,500 in June 2015 to $154,000 in July 2015; the median price for foreclosure sales increased 1.75 percent, from $137,591 in June 2015 to $140,00 in July 2015. The distressed-type sales are comprising a progressively smaller portion of all sales as the housing market returns to pre-crash health. The short sales in July represented just 2 percent of all home sales in the Twin Cities and foreclosures were 5.4 percent.

Traditional Home - Median Price

Low inventory.

The Twin Cities housing market saw 6,301 closed sales in July 2015. That’s down slightly from June 2015 but up 19.2 percent from July 2014. In addition, there were 5,736 pending sales at the end of July 2015; that’s up 12.5 percent over July 2014. The 16,998 homes on the market at the end of July 2015 remains historically low. “Before the market crash of 2005 to 2007, there were many more new listings coming into the market than there were closed sales leaving the market,” Tousley said. “In 2015 the number of closed sales is rebounding to pre-crash levels, yet the number of new listings has not recovered.” He said that for inventory levels to return to more normal levels, the number of new listings will need to increase to at least 10,000 per month in the peak selling months.

“Until that happens the low levels of homes available for sale will persist. In the meantime, the low number of homes for sale and the high volume of closed sales are being reflected in the higher number of multiple offers and sale prices at more than the original asking price.

“Good news for sellers; bad news for buyers looking for a deal,” he said.

Supply and demand of modest homes.

The Shenehon Center examined the median sale price of the homes that actually sold in July (the demand) and compared that with the prices of homes that were for sale in July (the supply).

“We found that in July 40 percent of the homes that were sold were less than $200,000. Yet only 27 percent of the homes available for sale fell into that range,” Tousley said. “That means that in comparison, as a percentage, there were more buyers wanting to purchase a home under $200,000 than there were homes available for sale in that price range.”

For more expensive homes, those selling for $400,000 or more, there were many more homes available for prospective buyers to choose from.

“The conclusion is that there are more buyers chasing a relatively smaller percentage of low- to moderately priced homes available for sale and that is another reason why we are seeing a very active market for moderately priced homes in the Twin Cities market.”

July 2015 - Price of Homes Sold vs. Price of Homes Available For Sale

The St. Thomas indexes.

As part of its monthly analysis, the Shenehon Center creates a monthly composite index score by tracking nine data elements for those three types of sales (traditional, short sales and foreclosures). The data categories include things like the number of closed sales, how many days that homes are on the market, and what percent of the asking price sellers receive. The center started the index at January 2005 and for that month gave each of the three indexes a value of 1,000.

July’s composite score for traditional sales was 1,128, which is the highest since the index began in 2005.

“We expect increases in the index to moderate as summer moves into fall,” Tousley said. “However, the continued increase of the traditional-sale index is an indicator of expected ongoing improvement in the health and resurgence of the Twin Cities housing market.”

The short-sale index was up a few points, from 971 in June to 974 in July. The foreclosure index was up a couple, from 817 in June to 819 in July.

More information online

The Shenehon Center’s charts and report for July can be found at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

The index is available free via email from Tousley at hwtousley1@stthomas.edu.