St. Thomas real estate analysis for April: Mixed signals as second quarter begins
Researchers at the university’s Shenehon Center for Real Estate report that inventory is up and rates are down, but other factors are not quite as positive.
As the second quarter of 2014 begins, the housing market in the Twin Cities continues to show mixed signals according to the Shenehon Center for Real Estate at the University of St. Thomas. Single family housing starts rebounded in April, but year-to-date numbers remain barely ahead of last year at this time. Mortgage rates have touched a seven-month low, but the volume of closed sales remains below last year’s levels. Median sale prices overall have increased but the median sale price of a non-distressed home in the Twin Cities has decreased compared to April 2013. The news is not all bad, according to Herb Tousley, director of real estate programs at the university. The inventory of homes for sale has increased, the number of new listings has increased sharply, and the percentage of distressed sales and new foreclosures continues to fall.
“In April we observed something that we have not seen in over two years,” said Tousley. While overall median sale prices for all sale categories in the Twin Cities metro increased moderately compared to last April, the median sale price of non-distressed homes sold in April of 2014 was actually slightly less than the median sale price in April 2013. “If this phenomenon were to continue into the late spring and summer months we will have to seriously reexamine our expectations of price increases for non-distressed homes for the remainder of the year,” said Tousley. On a positive note, the number of closed sales was down compared to a year ago. However, the decrease was mainly due to a reduction in the number of distressed sales as traditional non-distressed sales were up slightly compared to a year ago. The change in the proportion of non-distressed sales is also reflected in the fact that the percentage of distressed sales dropped from 26.8 percent in March to 21.1 percent in April. In comparison, the April 2013 the percentage of distressed sales was 31.5 percent. “We expect the percentage of distressed sales to continue to moderate, falling below 20 percent in the second quarter of 2014,” said Tousley.
The inventory of existing homes for sale is improving slightly. At the end of April there were 14,675 homes for sale. This is a 3.25 percent increase over the number of homes available in April 2013. This is the second month in a row and the first time since the summer of 2012 that there has been a year over year increase in the number of homes for sale. Another encouraging sign is the number of new listings increased sharply this month, according to Tousley. In April there were 7,777 new listings, which is a 19.7 percent increase from March and is 10.2 percent higher than March of 2013. “This is a healthy development as a continued increase in the number of homes for sale will lead to a better balance between the supply of homes for sale and the demand in the market,” said Tousley.
During April of 2014, the number of single-family home permits reported by Keystone Report increased significantly over both the March and April 2013 levels. In April, single-family home permits were up 37.5 percent. “This verifies our expectation that the spring construction season will see a flurry of new construction activity as home builders seek to make up for time lost due to harsh weather conditions in January and February,” said Tousley. Year to date the number of single family permits is only up .65 percent compared to the same period in 2013. Look for the year to date increase in permitted single family homes to improve as the construction season moves into its peak months this summer, according to Tousley.
Mortgage rates have decreased to the lowest rates seen in the last seven months. The 30-year-fixed rate is near 4.2 percent and the 15 year rate is less than 3.5 percent. Recently the federal regulators have instructed Fannie Mae and Freddie Mac to direct their focus to making more credit available to more homeowners. That is a major change in direction from previous directives to pull back from the mortgage market. Policymakers at the Federal Reserve have expressed worries that the housing sector, which in the past has been a key driver of an economic recovery, is struggling to shift into a higher gear. They are also concerned that first time home buyers will be unable enter the housing market due to high levels of student debt. Expectations are that in order to sustain the economic recovery mortgage rates may not increase as much this year as was originally expected, according to Tousley. “Originally, rates were expected to increase to around 5 percent by year end,” he said. “However, if the recovery begins to falter during the year, rates may not increase by quite that much.”
The UST Indexes
The UST Traditional Sale Composite Index continued its upward trend in April, moving from 1,005 in March to 1,021 in March—a 1.6 percent increase. The index is 1.2 percent above the level recorded in April 2013.
The UST Residential Real Estate Short Sale Composite Market Health Index was 887 in April, up 23 points from the 864 recorded in March—a 10.05 percent increase compared to one year ago.
The foreclosure market’s health as represented by the UST Residential Real Estate Foreclosure Composite Index increased in April, moving from 738 in March to 757 in April, an increase of 2.5 percent. The index remains 3.7 percent higher when compared to March 2013.
More information online
The Shenehon Center’s charts and report for April can be found at: http://www.stthomas.edu/business/centers/shenehon/pdf/MplsStpResREIndex5272014.pdf