MINNEAPOLIS, (June 21, 2017)— According to the First-Time Homebuyer Market Report recently released by Genworth Mortgage Insurance this segment of the market is having a big influence on the national housing market. The report found that this demographic accounted for 424,000 single-family home sales, or 38 percent of the total homes sold in Q1 of 2017. This amount is an 11 percent increase from Q1 2016, and the most since 2005. Their source data dates back to 1994 and analyzes over 20 million records. The survey tracks home sales for first-time homebuyers on a monthly basis, publishes quarterly, and compares the data against national housing market indicators.
“The first time home buyer segment is poised for additional growth in the Twin Cities. In fact, historically low interest rates and a strong local economy are all feeding demand in this market segment.” said Herb Tousley, director of real estate programs at the University of St. Thomas.
There are some head winds that are creating a drag on the willingness and ability of first time buyers to jump into home ownership. Student loan debt is a major factor making it very difficult to save for a down payment, qualify for a mortgage, and afford a mortgage payment. Additionally, the extreme shortage of moderately priced homes is making it difficult for first time buyers to find affordable homes in good locations.
The limited availability of homes to buy is creating upward pressure on sale prices. Home prices have been rising faster than wages for the last several years. This situation is starting to create affordability issues for first time buyers who typically do not have large down payments. The idea of home ownership is still very much alive among younger potential home buyers. However, due to the aforementioned factors many are needing to delay their first home purchase by several years.
Setting New Records
The Twin Cities housing market continues to set new records in May. Record high median sales prices and historically low supply continue to dominate the market. The overall median sale price jumped from $245,500 in April to $250,000 in May.
The traditional, non-distressed median sale price is at a new all-time high at $254,500, a 4.3% increase compared to May 2016. On the supply side in May there were 11,678 homes available for sale, 16.9% less than May 2016. Again, the shortage is most acute in the low to moderately priced homes.
The number of homes sold in May was 6,265 compared to 4,787 in April and 6,314 in May 2016. That is 10% less than the number of sales recorded in same period a year ago. We believe that this is a reflection that extreme the low supply of homes for sale continues to impact the number of homes that were sold in May. This this the second consecutive month since 2011 that the number of closed sales has declined on a year over year basis. We believe that the changes observed in April and May are the beginning to show that the supply and demand sides of the market are becoming slightly less imbalanced. As we continue through the summer months look for the number of homes for sale to increase slightly, the number of sales to be at or near the previous year’s levels, and the rate of increase in median sale prices to moderate.
The UST Residential Real Estate Indices
At a level of 1215, the May UST Residential Real Estate Traditional Sale Composite Index is up significantly, registering a 3.7% monthly increase compared to the level of 1172 that was recorded in April. It has increased 4.7% since April 2016. Our index is based on a rolling 3 month average of the last three months and the May index is based on March 2017 – May 2017 data. This increase is a reflection of the continuing shortage of homes for sale and increased demand putting upward pressure on home prices.
The UST Residential Real Estate Short Sale Composite Market Health Index was 1104 in May, up 5.7% from the 1045 recorded in April. The index has increased 12.5% compared to one year ago. There were only 66 short sales in May representing 1.1% of the total metro sales.
The UST Residential Real Estate Foreclosure Composite Index was observed in May at 959 a significant increase over the 924 recorded in April. The foreclosure index has increased 12.8% since May 2016. The number of foreclosures at 172 represented 2.7% of the total sales recorded in May.
Written by Herb Tousley, MBA, CCIM, Director of the University of St. Thomas, Shenehon Center for Real Estate