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University of St. Thomas Real Estate Analysis for April 2017: High Demand and Low Supply Continue to Put Upward Pressure on Sale Prices

Negative Equity – Continued Improvement in 2016 but Still an Issue

The number of homeowners with negative or near negative equity continues to decline but is still high by historical standards. Lack of equity is a reason that many homeowners are not willing or able to put their homes up for sale which is a contributing factor to the very low number of homes for sale in the Twin Cities. As can be seen in the table below about 1 in 5 homeowners in the metro area with a mortgage is in a negative or near negative situation.

% of Home Owners in the Twin Cities with Negative or Near Negative Equity

County Negative Equity* Near Negative Equity**   County Negative Equity* Near Negative Equity**
Hennepin 8.0% 20.4% Scott 6.1% 20.1%
Ramsey 6.6% 18.7% Carver 5.9% 21.3%
Dakota 6.6% 20.5% Chisago 8.5% 22.9%
Washington 6.6% 21.1% St. Croix (WI) 7.9% 23.0%
Anoka 7.0% 23.6% Pierce (WI) 11.3% 27.5%
Twin Cities 7.3% National 10.5%

     Source: Zillow

* Negative Equity – Owes more than the house is worth

** Near Negative Equity – Equity is less than 20% of value

“The problem with near negative equity is that home owners are not actually underwater, but in many cases they do not have enough equity after they sell their home to pay for the costs of buying a new home, including a down payment, commissions and taxes” said Herb Tousley, director of real estate programs at the University of St. Thomas. In 2017, home prices are expected to increase about 5% – 6% in the Twin Cities, which will free many more homeowners from negative equity Rising prices and loan repayments will also continue to improve the equity position for homeowners, but this will be a slow process and we should be prepared for higher than normal negative and near negative equity to be a part the housing market for a long time to come.

 High demand and low supply of homes for sale continue to put upward pressure on sale prices in April. The overall median sale price jumped from $237,300 in March to $246,000 in April. The traditional, non-distressed median sale price is at a new all-time high at $250,000, a 4.2% increase compared to April 2016. On the supply side in April there were 10,969 homes available for sale, 19.9% less than April 2016. Again, the shortage is most acute in the low to moderately priced homes. See the table below.

Homes For Sale vs. Closed Sales –  Where The Action Is

Price Range Number of Homes For Sale % of Total Homes For Sale Number of Closed Sales % of Total Sales Months Supply
0 – $200,000 1992 18.2% 1449 30.7% 1.2
$200,000 – $400,000 4554 41.5% 2484 52.5% 1.9
$400,000 – $600,000 2270 20.7% 563 11.9% 4.2
$600,000 + 2095 19.0% 230 4.9% 8.5
       Total 10969 4726

The number of homes sold in April was 4,726 compared to 4,348 in March and 5,252 in April 2016. That is 10% less than the number of sales recorded in the same period a year ago. We believe that this is a reflection that extreme the low supply of homes for sale is beginning to impact the number of homes sold in April. This this the first time since 2011 that the number of closed sales has declined on a year over year basis. The number of new listings was 7,747, which is 8.3% less than recorded in April 2016. That decrease is a sign that the short supply situation is likely to continue for at least the next several months. We believe that the changes observed in April are the beginning of an indication that the supply and demand sides of the market are becoming slightly less imbalanced.

 The St. Thomas Indexes

Here are the Shenehon Center’s monthly composite index scores for April 2017. 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.

At a level of 1172 the April UST Residential Real Estate Traditional Sale Composite Index is up significantly, registering a 3.1% monthly increase compared to the level of 1137 that was recorded in March.

The UST Residential Real Estate Short Sale Composite Market Health Index was 1045 in April, up 3.1% from the 1014 recorded in March.

The UST Residential Real Estate Foreclosure Composite Index was observed in April at 924 a significant increase over the 901 recorded in March.

For more information, visit the Shenehon Center’s complete report for March 2017 at http://www.stthomas.edu/business/centers/shenehon/research/default.html.The report is also available for free via email from Tousley at hwtousley1@stthomas.edu.

 

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.

 

 

 

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.

 

 

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

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.
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.

 

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.

 

 

 

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.

 

Affordable Housing, Architecture & Design, International Real Estate, Real Estate Trends, Think Outside The Box

Could 3D Printing Revolutionize Building Construction?

3D printing has been around since the 1980’s, but in the last few years the technology has become much more affordable and accessible. Many are now speculating on the ways 3D printing could revolutionize the global manufacturing landscape. But could the technology have a similar disruptive impact on how buildings are constructed? Innovators and entrepreneurs across the globe are already trying to find out.

Last week, a Chinese company demonstrated the capabilities of a giant house-building 3D printer it has been researching for 10 years. The machine has the capacity to construct 10 houses in less than 24 hours, using predominantly recycled materials. The homes cost less than $5,000 to build, which means the technology could have a huge impact on improving housing conditions in the country. Despite rampant skyscraper construction in major cities across China, the country still has a massive need for quick, cheap housing, particularly outside of the major urban areas.

Workers in China assemble a house built by Winsun with a 3D Printer

Rather than printing the homes in one go, Winsun’s 3D printer creates building blocks by layering up a cement/glass mix in structural patterns (watch the process here). The diagonally reinforced print pattern leaves air gaps to act as insulation. The blocks are printed in a central factory and then assembled on site, with comparatively little labor required.

Back in the U.S., a University of Southern California professor is testing its own giant 3D printer. Unlike the Chinese technology, this printer would complete the entire construction process on-site. Professor Behrokh Khoshnevis’s design replaces construction workers with a nozzle on a gantry that squirts out concrete and can quickly build a home according to a computer pattern. It is “basically scaling up 3D printing to the scale of building,” says Khoshnevis, who labels the technology “Contour Crafting.”

Rendering of Contour Crafting technology being used to build a home

The Contour Crafting system is essentially a robot that automates age-old building tools normally used by hand. Once a site is prepared, the contour crafter system would be laid down on two parallel rails just beyond the eventual width of the building. From there, the computer-controlled system would take over, laying down concrete in layers with a gantry-type crane and a hanging nozzle. Once the frame is built, construction workers would hang doors and insert windows.

Contour Crafting could potentially slash the cost of home construction. It could also be a major help in responding to housing crises related to emergencies like natural disasters, where thousands can be left without shelter. Khoshnevis is particularly hopeful that the technology could be used to improve housing for the nearly one billion people across the globe currently living in slum conditions.

3D printing could reduce the labor required for building construction

It seems that it will only be a matter of time as to when 3D printing will begin to make a major impact in building construction. As Khoshnevis points out, “if you look around you pretty much everything is made automatically these days – your shoes, your clothes, home appliances, your car. The only thing that is still built by hand are these buildings.”

 

Affordable Housing, Upcoming UST Events

2014 Minnesota Affordable Housing Conference

Now in it’s 2nd year, the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business will host the 2014 Minnesota Affordable Housing Conference in partnership with the Minnesota Housing Finance Agency.Mary Tingerthal

Join us for a conference bringing together various professionals working in all facets of real estate to exchange ideas, network and learn from one another’s successes.  Hone your skills with our specially selected workshops offering beginners and advanced practitioners information and resources needed to adapt and thrive. Learn from the experts and make valuable connections through networking opportunities.

Each breakout session will feature a finance track and a development track to address the various needs and interests of the affordable housing community.

The conference will be held on Thursday, May 8 at the downtown Minneapolis campus of the University of St. Thomas.

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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

Would rising interest rates and home prices put the Twin Cities housing recovery in jeopardy?

 Researchers at the Shenehon Center for Real Estate think not, but they are keeping an eye on theMarket Report historically low inventory of homes for sale and what that could mean for asking prices.

Would a predicted increase in mortgage interest rates, coupled with a low-inventory-fueled jump in home prices, be enough to kill the housing recovery that has been under way in the Twin Cities for the last two years? That question is examined in the February Residential Real Estate Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Even with a potential increase in both interest rates and the asking price of homes, “the housing market may slow down but the recovery will not be derailed since home ownership will remain affordable for most households,” according to Herb Tousley, director of real estate programs at the university.

What might happen to mortgage rates?

According to many sources, interest rates and mortgage rates are expected to increase moderately during the course of 2014. “Mortgage rates have been extremely low for the last several years and at some point they are going to have to return to more historically normal levels,” Tousley said.  A chart showing the change in mortgage rates since 1980 can be found on the Shenehon Center’s website at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

What might happen to home prices?

The number of homes for sale continues to remain at a historic low level with just 12,131 properties for sale in the 13-county metro area. “We will be keeping a close eye on the inventory because the number of homes for sale will have a direct impact on the percentage of increase in median sales prices during 2014,” Tousley said.  “We have been expecting an increase in inventory of homes for sale in the 15 percent to 20 percent range as we move into the spring and summer selling seasons due to a healthy increase in sale prices over the past year and generally improved economic conditions in the region. “If inventory levels remain stubbornly low throughout the year, the lack of supply will cause prices to increase more aggressively.”

Will homes remain affordable?

“If mortgage rates do increase moderately as expected in 2014, home ownership will still remain affordable for Twin Cities residents,” Tousley said. “Home ownership in the Twin Cities has traditionally been very affordable compared to many other areas of the country,” he added. In Minneapolis-St. Paul the home-price-to-income ratio (the median sale price of a home compared to the area median household income) as of December 2013 was 2.97 compared to the national average of 3.86.A chart on the Shenehon web site illustrates the impact of potential increases in mortgage rates and asking prices. For an example, the chart assumes: a current mortgage rate of 4.5 percent increasing to 5.5 percent by year-end; a 5 percent increase in the median home sale price; a 2 percent increase in median household income for a buyer who puts 5 percent down. In this case, the median sale price in February 2014 of $213,250 would increase to $223,912 by December 2014. During that time, meanwhile, median household income would increase from $63,564 to $64,835.  When principal, interest, insurance and taxes are added to the mix, the monthly payment increases from $1,326 to $1,507. As a result, the debt-to-income ratio in this case increases from 25 percent in February to 28 percent in December. “Payments do increase,” Tousley said, “however they remain within most mortgage lenders’ guidelines that the total payment is at or less than 28 percent of household income. Under this scenario, homeownership will remain affordable for most households.”

 Traditional Home Median Sale Price

How the Twin Cities market looked in February.

February’s severe weather “continued to have an outsized dampening effect on the Twin Cities’ housing market,” Tousley said. Median sale prices were essentially flat and sales volume was down slightly. The percentage of distressed sales (foreclosures and short sales) ticked up slightly to 30 percent in February, but an improvement over the nearly 44 percent recorded in February 2013. “If all this sounds a lot like the report from December and January, there is a good reason for that,” Tousley said, “but look for things to improve in March as the spring selling season gets underway.”

The UST indexes

Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

The St. Thomas Traditional Sale Composite Index continued to decrease, moving from 1005 in January to 995 in February. Despite the monthly decrease, the index remains 2.9 percent above the level recorded in the previous year.

The short sale index was 851 in February, down 10 points from January; however it was a 9.24 percent increase compared to one year ago.

The foreclosure index also decreased in February, moving from 726 in January to 721 in February, a decrease of .7 percent. The index is up 5.68 percent compared to January 2013.

 Feb-2014-Chart

More information online

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

Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu.