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

St. Thomas real estate analysis for July: Tight market is the result of several long-term trends that won’t change soon

Current trends, including the low number of moderately priced homes, are expected to continue through the end of 2017.mortgages

Current real estate trends in the 13-county Twin Cities region, including the historically low number of moderately priced homes available to purchase, are the result of several long-term trends that are expected to change slowly over time. That’s the conclusion reached by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. The center examined the Twin Cities’ long-term trends, expected to continue through the end of 2017, in its monthly analysis of metro area real estate data. “The historically low-supply-of-homes-for-sale situation has been with us for the last several years although it has been most acute since mid-2015,” said Herb Tousley, director of real estate programs at the university.

He cited five statistics that illustrate the housing supply-and-demand situation in the Twin Cities:

  • Days on Market:       It was 53 days in July. That’s 15 percent less than a year ago and the fastest turnover since 2007.
  • Month’s Supply: It was 2.9 months in July. That’s 24 percent less than a year ago and the lowest 12-month average since 2005.
  • New Listings: It was 7,522 in July. Down 14 percent from June and 6 percent from a year ago.
  • Closed Sales: It was 6,030 in July. The annualized number of homes sold has increased 59 percent since early 2011.
  • Homes for Sale: It was 14,457 in July. The annualized number of homes for sale has decreased 48 percent since early 2011.

The shortage of homes is most pronounced for homes selling for less than $200,000 and for those selling between $200,000 and $399,000.

For example, in July there was only a two-month supply of homes selling for less than $200,000 and a 2.6-month supply for homes selling between $200,000 and $399,000. However, there was 5.2-month supply of homes selling between $400,000 and $599,000 and a 10.5-month supply of homes selling for more than $600,000.

Also in July, 56.3 percent of homes available for purchase were under $400,000 while 81.7 percent of homes sold were under $400,000.

The median price for homes sold in the Twin Cities in July was $239,000. That’s down $6,000 from the all-time high median sale price of $245,900 that was set in June. However, it still is in record territory; the previous high was $238,000 set in June 2006.

Supply Side Trends

The Shenehon report cited these long-term underlying trends on the supply side of the Twin Cities market.

  • Americans are keep their homes longer. CoreLogic reported recently that the number of years homeowners owned their homes increased by three years between 2007 and 2013 and it has increased an additional year since then.
  • The homeownership in the Twin Cities, as reported by the U.S. Census Bureau, was 68.6 percent in the second quarter of 2016. That’s the highest rate of any major metro area in the nation. Nationally, the rate is 62.9 percent.

“Since we have a very high ownership rate and homeowners are keeping their homes longer, the result is fewer existing homes being listed and a shortage of homes available for sale,” Tousley said.

Demand Side Trends

According to this month’s Shenehon report, “On the demand side the simple answer is that people want to live here.”

  • The Twin Cities population has been increasing and is expected to increase for at least the next 10 to 15 years. This is mainly due to migration from rural areas and other parts of the country, and immigration.
  • Housing is affordable. According to a recent Bloomberg News report, the Twin Cities area ranks fourth in the top-10 list of most affordable places for people between the ages of 24 and 44 to purchase a home.

“These people are going to need a place to live here,” Tousley said. “Our diverse economy, strong job growth and high median income attracts people to the area.

“Favorable economic conditions coupled with historically low interest rates and an increasing number of potential home buyers will continue to create strong demand for single-family homes.”

How long will the shortage last?

According to the Metropolitan Council, the Twin Cities region had 1,176,600 owned or rented households in 2015, up almost 59,000 since 2010. During that time, however, only 43,000 housing units were added. The remaining 16,000 new households moved into existing housing, and that in turn reduced the vacancy rate. “This growth pattern is expected to continue for at least the next five years,” Tousley said. “It is unlikely that we will be able to build our way out of this situation in the near term. “Single family home builders have not yet returned to pre-recession production levels. Over the last several years there has been a great deal of multi-family construction but much of this new product has been high-end luxury units, beyond the financial reach of many households. “For the housing market to become more balanced between buyers and sellers we are going to have to add a significant number of affordably priced rental and for-sale housing units. “These units need to be affordable to households who earn the area median income in order to keep up with the expected population growth in the Twin Cities market area. As this happens the market should begin to slowly come back into balance. “However, this is a process that is going to take a number of years and until then we should expect similar market conditions to what we have experienced over the last couple of years. “In the meantime, expect to see solid annual price appreciation for existing homeowners. As you can see from the table below in the past year the supply of homes for sale has become even tighter, especially for homes are priced at less than $400,000

The St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for July 2016. 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 July 2016 index score for traditional sales was 1,192, up .3 percent from June 2016 and up 5.7 percent from July 2015.

 

  • The July 2016 index score for short sales was 1,031, up 2.1 percent from June 2016 and up 5.9 percent from July 2015.

 

  • The July 2016 index score for foreclosures was 875, which is unchanged from June 2016 and up 7.1% from July 2015.

For the third consecutive month, the score for traditional sales set new record highs. “Although the increase was small in July, it is the result of a continuing tight supply of homes for sale couple with very low interest rates,” Tousley said in Shenehon Center’s July report.

 More information online

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

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

 

 

 

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

Twin Cities Sets Records for Median Sale Price and Number of Homes Sold

Are we seeing another bubble in the Twin Cities housingMarket Report

market? Not this time, says St. Thomas’ monthly analysis  

With median sale prices hitting a record high in June, is the Twin Cities housing market experiencing the kind of bubble we saw back in June 2006? According to a monthly analysis conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business, the short answer is no. The median sale price of homes sold in the 13-county Twin Cities region reached $242,000 in June. That tops the previous high-water mark of $238,000 set in June 2006. On top of that, the 7,110 homes sold in June was another record high.

Each month the St. Thomas 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.

Herb Tousley, director of real estate programs at the university, said the reasons for the current run up in housing prices are much different than the conditions that led to the run up in values in the mid-2000s followed by the subsequent crash. “Before 2008, lending standards were very lax,” he said. “Little to no down payments were required since everyone believed that home prices would always keep going up. There were many low-documentation or ‘no-doc’ loans that were made to people who were not qualified, resulting in high numbers of foreclosures and short sales. “Additionally, overbuilding, speculation, and excessive flipping of homes were major contributors to the housing market crises of 2008. “Today, mortgages are only being made to qualified buyers, home flipping has returned to normal levels, and overbuilding is not a problem. The current run up in home prices can be attributed to market fundamentals. There is a shortage of homes for sale and a historically high level of demand fueled by low interest rates and an improving economy. “One concern is the affordability issue; that occurs when home prices rise faster than family income. When this occurs over an extended period of time it becomes more difficult for families to afford to purchase a home due to higher required down payments and higher monthly payments,” Tousley said.

It has taken 10 years for the median sale price of a Twin Cities home to recover to its previous peak level. Where do we go from here?

Number of sales: In 2015 there were just over 56,000 homes sold in the Twin Cities. Tousley predicts that the second half of 2016 should continue to see a high sales volume. Look for a total of about 58,000 homes sold in 2016.

 Median sale price: In most years, the peak median sale price occurs in June. Maybe not this year. With the low number of homes for sale and continued low interest rates, Tousley feels that median sales prices should be at or above record levels in July and possibly August before tapering off in September. At the end of the year, look for an annual increase in the median sale price of 5 percent to 6 percent, with the median sale price settling in the low $230,000 range.

One reason for the higher median selling price recently is because the percentage of distressed sales – foreclosures and short sales – has finally returned to pre-crash levels. In June, only 5 percent of home sales were distressed. Before 2007, the level of distressed sales was in the 3 percent to five percent range. But during the recession, and especially from 2008 to 2013, the level of distressed sales was in the 40 percent to 60 percent range. Since the median price of distressed homes is considerably lower than nondistressed homes, when there are fewer distressed homes sold the overall median selling price goes up.

In addition to robust home sales, the Twin Cities is seeing more remodeling and more new homes being built. In 2015, the Twin Cities saw the construction of 4,680 new single-family homes. So far this year single-family “starts” are up about 15 percent. “Look for a 2016 year-end total of 5,300 to 5,500,” Tousley said. That would make 2016 the best year for new-home construction since before the recession.

Meanwhile, the Leading Indicator of Remodeling Activity, calculated by the Harvard Joint Center for Housing Studies, estimates that this year the growth in home improvement and repair spending will reach 8 percent, well above the average of 4.9 percent. Tousley said there are two main reasons for the increase.

First, because of the shortage of homes for sale, many potential homeowners are opting to stay where they are and enlarge or remodel their existing homes.

Second, rising home prices and the current “seller’s market” is encouraging some homeowners to upgrade or remodel their home in anticipation of listing it for sale.

“In either case,” Tousley said, “it is good news for remodeling contractors in our area. Many are booked ahead with work well into the fall.”

The St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for June 2016. 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 June 2016 index score for traditional sales was 1,188, up 2.1 percent from May 2016 and up 6.3 percent from June 2015.

The June 2016 index score for short sales was 1,010, up 2.8 percent from May 2016 and up 4.2 percent from June 2015.

The June 2016 index score for foreclosures was 875, up 1.86 from May 2016 and up 7.86 from June 2015.

The score for traditional sales hit record highs in May and June. “It is a result of a continuing tight supply situation and high sales activity indicating the ongoing health a resurgence of the Twin Cities housing market,” Tousley said in Shenehon Center’s June report.

Index Chart June 2016

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Survey of Twin Cities’ home builders finds them in a slightly more optimistic mood than six months ago

The composite score of this new forecasting tool increased slightly, but there were more significant changes found in the six individual questions that St. Thomas asked industry leaders.

Leaders in the Twin Cities single-family-home-construction industry were “slightly less pessimistic” about market conditions in June than they were last December. That’s according to a survey conducted by the University of St. Thomas Shenehon Center for Real Estate in partnership with the Builders Association of the Twin Cities (BATC). Last December’s survey produced a composite index of 45. The second survey, conducted in June 2016, produced a slightly more optimistic 46. The Twin Cities Home Builders Survey is patterned after St. Thomas’ Minnesota Commercial Real Estate Survey that began in 2010. The home builders survey polls the same panel of 35 industry leaders every six months about their expectations in six key areas of the housing market one year in the future.  The first survey was conducted in December 2015.

“The participants were strongly optimistic in their expectation of increasing sale prices per square foot and the number of single-family housing starts, and they were moderately optimistic about an increase in availability of finished lots in the coming year,” said Herb Tousley, director of Real Estate Programs at the University of St. Thomas. “However, the expectation of increasing land prices and a belief that the cost of building materials will increase over the next year was a cause for concern that tempered the composite index,” according to David Siegel, executive director of the Builders Association of the Twin Cities.  “Increasing prices of land and building materials increase total building costs which in turn creates a drag on single-family housing construction and is reflected in the survey as a pessimistic score. There is also an expectation that mortgage rates are going to increase moderately over the next year. This is also reflected pessimistically in the survey as it adds to the total cost of purchasing a home,” said Siegel.

Tousley noted that these first two surveys are providing a baseline to compare with future surveys. “As we accumulate more survey results over the next few years, the results will begin to reveal market trends that will be useful as a forecasting tool,” he said. “The industry leaders we poll are actively engaged in studying both the demand and supply side of the housing market,” said Tousley. “Since they are involved in creating new housing units and adjusting supply-to-demand conditions, these individuals are close to the actual changes taking place in the market.” These experts are asked to assign a number of zero to 100 for each of the six questions. A midpoint score of 50 is neutral; scores higher than 50 indicate a more favorable outlook and scores lower than 50 indicate a more pessimistic outlook. The survey also provides a composite score, or overall average, for the six questions.

Here are the scores for each of the six questions:

Housing Starts: 63 (up 3 from December)

This score indicates an increasingly optimistic expectation by the panel that the number of new single-family housing starts will increase in the coming year.

Square-foot sale price: 69 (same as December)

This reflects the panel’s strong belief that sale prices will be significantly higher a year from now. The net result is the expectation that when compared to previous years, 2016 will be a much better year for single-family home builders.

Land prices: 31 (up 1 from December)

This pessimistic score changed little from the first survey in December. The score reflects a belief that the rate of increase for land prices is going to be greater than the rate of increase for home prices in general.

Availability of finished lots: 56 (up 6 from December)

This indicates an increasing optimism that there will be more finished lots available over the next 12 months. That’s a good thing for the market since it helps moderate land prices and encourages more construction.

Cost of building materials: 36 (up 2 from December)

Like land prices, this score is just slightly less pessimistic and continues to reflect a concern that some of the gains from increased sale prices and more building starts could be offset by the higher costs of building materials.

 Mortgage rates: 32 (up 2 from December)

This reflects the panel’s expectation that mortgage rates are going to increase moderately over the next year. Most panelists are expecting an increase of .5% to 1%.

June 2016 Homebuilders Image

More Information

Additional details can be found on the Shenehon Center’s website: http://www.stthomas.edu/centers/shenehon/wp-content/uploads/sites/7/2014/07/Twin-Cities-Home-Builders-Survey-June-2016.pdf.

 

Affordable Housing, 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: Super-tight Housing Market Drives Metro Area Median Sale Price to Near Record Levels

High demand and low supply helped drive the median price of a Twin Cities home in

May 2016 to within $1,000 of the record set back in the bubble days of June 2006.

mortgagesIt has taken a full decade, but the median sale price of a home in the Twin Cities in May 2016 almost reached the all-time record high set back in the housing-bubble days of 2006, according to a monthly analysis conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Fueled by low supply and brisk demand, the median sale price of a home in the 13-county Twin Cities region reached $237,000 in May. That’s just shy of the highest median price on record, which was $238,000 back in June 2006. While the selling prices are similar, there are many differences in the 2016 market when compared to 2006. Each month the St. Thomas 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, observed that the supply of homes on the market dropped to its current low level in early 2013 and has remained historically low since then. He said possible reasons include difficulty in finding and purchasing a replacement home at a reasonable price; higher standards to qualify for a new mortgage; lackluster wage growth over the last several years; and homebuilders not building as many single-family homes as they used to. Meanwhile, on the demand side, Tousley said low interest rates, an improving economy, and a tight rental market are key reasons why the number of sales has steadily been increasing to near pre-recession levels.

“In spite of all of the new apartments that have been built over the last few years we remain in a very tight rental market,” he said. “The area has been absorbing all of the new units and vacancies continue to remain historically very low. The result of a low vacancy and a tight rental market is high rent growth. In 2015 the average rent in the Twin Cities increased by 5 percent. Repeated large rent increases over the last several years have many renters considering the idea of homeownership as an alternative, creating additional potential homebuyers.”

Comparing 2016 to 2006

The Shenehon Center for Real Estate compared May 2016 housing-market statistics with those of 2006. While the selling prices are very similar, some characteristics are quite different. A few examples: in May 2006 there were 5,079 closed sales and in May 2016 there were 6,234; in May 2006 there was a 6.7-month supply of homes for sale and in May 2016 there was a 2.8-month supply; in May 2006 there were 11,458 new listings and in May 2016 there were 8,676; and in May 2006 there were 30,235 homes for sale and in May 2016 there were 13,501.

10 yrs after- then & now

Another way of looking at the impact of low inventory on sale prices is to create a ratio for the number of homes available for sale divided by the number of homes sold that month. For example, if the ratio was 5, it means there were 5 homes available on the market for each buyer. A lower number indicates a tighter market. There were months back in 2007 to 2010 when the ratio was 10 to 14; it has dropped significantly. Tousley said that for most of the previous 14 months the ratio in the Twin Cities market has been less than 4, and in May 2016 the ratio hit an all-time low of 2.17. “When the ratio gets lower and the market gets tighter, the median sale price increases,” he said.

 

Sales Pressure - May 16

The St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for May 2016. 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 May 2016 index score for traditional sales was 1,163, up 3.7 percent from April 2016 and up 8.6 percent from May 2015.

The May 2016 index score for short sales was 980, up 1.6 percent from April 2016 and up 7.7 percent from May 2015.

The May 2016 index score for foreclosures was 859, up 3.2 percent from April 2016 and up 9.4 percent from May 2015.

The May 2016 score was the highest ever for the traditional sale index. “It is the result of a very tight supply situation and continuing high sales activity, indicating the continued health and resurgence of the Twin Cities housing market,” Tousley said. There are far fewer distressed sales now than there were during the height of the Great Recession. In May, the 79 short sales represented 1.3 percent of total sales and the 341 foreclosure sales represented 5.5 percent of total sales. “As the number of distressed sales continue to return to pre-crash levels, the foreclosure index will continue to diminish in importance,” Tousley said.

Index Chart June 2016

Data - May 2016

 

 

 

 

 

 

 

 

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

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

 

 

Commercial Real Estate, Commercial Real Estate Index, Development, Economics, Industrial Real Estate, Industry News, Investment Real Estate, Office Real Estate, Real Estate Trends, Retail Real Estate, Twin Cities Real Estate

Semiannual Survey of the Twin Cities Commercial Real Estate Experts Predicts Continued Favorable Market Conditions

Test of a caption

Leaders in the field of Minnesota commercial real estate expect to see a continuation of the favorable market conditions for commercial real estate that we have been experiencing for the past two to three years.

May 2016 Results

The semi-annual Minnesota Commercial Real Estate Survey conducted in May 2016 has produced some interesting results. Overall, the survey continues to indicate a slightly less than neutral expectation looking ahead two years to spring 2018 for commercial real estate. The composite index was recorded at 46. This is the sixth consecutive survey where the composite index has been in the 46 – 48 range. Index values greater than 50 represent a more optimistic view of the market over the next two years, with values of less than 50 indicating a more pessimistic view. Although the composite index level is similar to previous surveys the pattern of the individual indexes in the current survey is very different.

As was done with all ten of the previous surveys, the same group of 50 commercial real estate industry leaders involved in development, finance, and investment were polled regarding their expectations of near-term, future commercial real estate activity. One thing we have observed in the current survey is there is less variation in the responses and that has caused a more uniform response rate reflecting the panel’s increased certainty in their views. The individual indexes are detailed below:

Rent Expectations

Less optimistic outlook that rents will continue to increase at current rates. Market conditions expected in spring 2018 are best described by the price for space (rental rates) and the supply of space (occupancy levels). The index for rental rates has declined from a highly optimistic 66 to a somewhat less optimistic 60. This is an indication of an expectation of a moderation of rent growth over the next two years. Higher rents help to offset the increased costs of new construction. A slowdown in rent growth puts pressure on expected returns that will be achieved by developers and owners.

Occupancy Expectations

A continued neutral outlook on expected occupancy levels. The index for occupancy levels increased slightly from 50 to 52. Despite the increase, the panelists continue in their expectation that occupancy levels will remain steady at current levels. As new buildings have been completed it takes some time for the market to absorb the new space. Over the last 2 years the occupancy index has been drifting downward towards a neutral expectation concerning the demand for space.

Land Price Expectations

Increases in land prices are expected to moderate. The panel’s outlook for land prices reveals an expectation that land prices will increase at a slower rate between now and spring 2018. The land price index has increased (become less pessimistic) for the third consecutive survey moving from 37 last fall to 40 this fall this spring. The low point for the index was recorded at 31 in the fall 2013 survey. This sentiment while still in pessimistic territory indicates an expectation that land prices will moderate their rate of increase during the next two years. Increasing land prices increase total project costs and are a hindrance to new development, making it more difficult to obtain financing and adequate returns for investors.

Building Material Price Expectations

Increases in the price of building materials are also expected moderate.  The spring 2016 survey reveals that for the fourth consecutive survey our panel continues to become less pessimistic about the rate of increase in price of building materials. The building material index moved from a strongly negative 32 to a somewhat less negative 37, reflecting the panel’s opinion that building material price increases are expected to moderate. Since building materials are a major cost component of any development project any improvement in prices will be favorable for future development.

Return on Investment Expectations

Investors return expectations remain unchanged over the next two years. The index for investor’s return expectations has increased slightly for the third consecutive survey at 48. Although this index value is slightly pessimistic, it is essentially neutral.  The consensus among survey respondents continues to indicate that investors expected returns will not change significantly in the next two years. Investors will continue to seek out quality investments but they are being much more diligent about how they price risk and evaluate return when considering their investment options.

Lending Expectations

More equity is expected to be required.  The index for the amount of equity required by lenders decreased significantly, falling from 51 in to 42. This indicates the panel’s strong belief that credit will be available for good projects but lenders will increase their equity requirements in the coming two years. The good news is that more equity should result in better rates and terms; however, the bad news is that in many cases equity is harder to find and more expensive than debt.

 Summary

To summarize the panel is expecting to see a continuation of the favorable market conditions for commercial real estate that we have been experiencing for the last 2 to 3 years, however there will be some differences as to why this will happen. The panel has moved from a positive to a neutral position on occupancy. With all of the new product coming on line it is expected that given a little time the market will be able to absorb all of the new space but while this happens occupancy rates will be depressed in the short run. Additionally, the panel expects to see continued rent growth, however, that growth will be at a slower rate as new product comes on line and is absorbed. Development efforts will be helped by an expected moderation in the rate of increase in land prices and building materials. The panel is also expecting to see lenders tighten their lending standards somewhat. That results in lower loan amounts and higher equity requirements on development projects. Higher equity requirements makes development more difficult since equity dollars are more expensive and using less debt financing tends to reduce the rate of return on a project. Overall, our panelists see continuing activity at or near present levels in most categories of commercial real estate during the next two years.

May 2016 Commercial Survey

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Entry Level Home Construction Makes a Comeback

The number of U.S. home builders offering entry-level housing last year rose 25% compared to the year before.

An entry level home from D.R. Horton Express
An entry level home from D.R. Horton Express

Maybe the starter home isn’t dead. Our analysis of the latest Builder 100/Next 100 data shows a surprising trend in one type of housing offered by U.S. home builders last year: an uptick in entry-level. This segment of the market, which has been floundering since the recession, prompted BUILDER to declare starter homes nearly extinct last year.

So editors were surprised to see a rise in the number of builders on our 2016 Builder 100/Next 100 list that reported devoting at least 50% of their business to entry level product. It was a substantial increase, with 45 builders reporting entry level work compared to 36 the year before, a 25% rise. (Click here for a report on one entry-level builder.)

To be sure, the number of builders engaged in the entry-level market is still way short of the 70 builders that reported working in that segment in 2010, and it remains to be seen whether this year’s numbers become a trend or are just a blip. But it appears that more young buyers are coming into the market, according to Metrostudy’s Brad Hunter. “The re-entry of the entry-level buyer has begun, but this group’s next moves will be gradual. Income challenges remain, and there are still relatively few new home developments who target this group,” he says in this BUILDER article.

This graphic illustrates the top product types over the past six years:

Entry Level HomesIn addition, 2016 Builder 100 data shows that two other important product types—move-up and luxury/custom–leveled off in 2015. Nevertheless, move-up housing continued to dominate the list with 107 builders reporting activity in that sement in 50% or more of their business. ( Click here for a report on one of them.)

Three firms reported building 50% or more of their homes for affordable housing–Habitat for Humanity, NeighborWorks America, and Tropicana Properties. One builder—Stock Development—reported at least 50% of its business was in the vacation market.

Jennifer Goodman is Senior Editor at BUILDER. Connect with her on Twitter at @Jenn4Builder.
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

Economy is Good, Interest Rates are Low, but Where are the Homes to Buy?

St. Thomas real estate analysisHomes for Sale Inventory

There are about half as many homes available to buy in the Twin Cities compared to pre-crash days. Things should improve, but slowly.

The chronic shortage of homes available to buy in the 13-county Twin Cities region — especially moderately priced homes — is expected to improve but not overnight, according to a monthly analysis conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business.

How bad is the home shortage?

According to Herb Tousley, director of real estate programs at the university, there were 12,179 homes on the market in March. That compares to 14,983 homes in March of 2015, and compares to the 25,000 to 30,000 homes that typically were on the market back in the pre-crash years of 2005 to 2007. Tousley’s report for March lists three reasons for the current home drought:

 

  • Homeowner’s equity still has not completely recovered from the Great Recession and crash in housing values. Despite three years of steady price increases, some homeowners still owe more than their house is worth.
  • A somewhat greater number of homeowners, meanwhile, have “near negative equity,” which means that while they are not technically underwater, if they sold their home they would not have enough equity to move up to their next home.
  • And then there are some homeowners who know they could easily sell their current home, but are concerned about finding their next home under current market conditions.

The shortage is most acute for lower- to moderately priced homes. In a normally balanced market there typically is a six-month supply of homes. Right now there is less than a two-month supply of homes being sold for less than $200,000 and between $200,000 and $300,000.

Home Shortage

Will this change, and when?

“As median sale prices continue to increase, the equity position for all homeowners will improve,” Tousley said. “That should encourage more homeowners to list their homes for sale, improving the supply situation. “The short-supply situation will take time to correct itself and our expectation is that it will slowly improve through the end of 2016. In the meantime, continued low interest rates and improving economic conditions will keep buyers active in the market,” he said. The Shenehon Center updated its graph that illustrates the historical relationship in the Twin Cities between the number of homes for sale, the number of homes sold and the median sale prices. The chart shows that when the market gets tighter – or in other words when buyers increasingly outnumber sellers – the median sale price of homes increases.

To see the chart, visit the Shenehon Center’s online report for March at: http://www.stthomas.edu/business/centers/shenehon/research/default.html. The entire monthly report also is available free via email from Tousley at hwtousley1@stthomas.edu.

The St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for March 2016. 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 March 2016 index score for traditional sales was 1,091, up 1.9 percent from February 2016 and up 4.6 percent from March 2015.

The March 2016 index score for short sales was 973, down 2 percent from February 2016 but up 10 percent from March 2015.

The March 2016 index score for foreclosures was 808, up 2.9 percent from February 2016 and up 5.8 percent from March 2015.

There are far fewer distressed sales now than there were during the height of the Great Recession. In March, the 96 short sales represented 2.5 percent of total sales and the 427 foreclosure sales represented 10.9 percent of total sales.

Read the Entire Report at: http://www.stthomas.edu/business/centers/shenehon/research/default.html.

UST Indexes

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.