Browsing Category

Real Estate Trends

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

Latest Survey of Twin Cities Home Builders Finds Them Optimistic for 2018, but with Some Concerns

St. Thomas’ fourth semiannual survey of 35 industry leaders measures sentiment and is designed to be a forecasting tool.

 Leaders in the Twin Cities single-family home-construction industry are generally optimistic about market conditions for the coming year although they have concerns about increasing mortgage rates and higher costs of land and building materials. That’s according to a new survey conducted by the University of St. Thomas Shenehon Center for Real Estate in partnership with the Builders Association of the Twin Cities.

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 annually in June and again in December about their expectations for the upcoming year in six key areas of the housing 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 industry leaders we poll every six months are actively engaged in studying both the demand and supply side of the housing market,” said Herb Tousley, director of real estate programs at the university. “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 results align closely with what we are hearing from the market and our members.” Said David Siegel, Executive Director of the Builders Association of the Twin Cities. “While there is a great need for residential construction in the Twin Cities, there are still several factors holding it back including land prices, the regulatory burden and a shortage of labor.”

Here are the scores for each of the six questions that were asked in August 2017:

Housing Starts: 65

This score increased increased from 61 in December 2016 to 65, it indicates a high expectation that the number of single-family housing starts will show a marked increase in 2018. Last year was one of the best in recent years with about 5,300 permits issued.

Sale Price per S F: 74

This score is even more optimistic than last December’s score of 72. It reinforces the panel’s continued expectations that home prices will continue to increase. The net result is the belief that sale prices will increase at a rate that will more than offset the expected increases in project costs.

Land prices: 23

At 23 this index has decreased sharply from last December’s score of 31 moving even deeper into the pessimistic range. Indications are that the rate of increased land prices will accelerate in 2018. While there may be enough finished lots available, the higher land prices will squeeze profitability.

Availability of finished lots: 60

This index increased from 51 last December to 60 in June reflecting builders increased optimism that there will be an increase in the availability of finished lots in 2018. An adequate supply of well-located finished lots is crucial to the health of the home building industry.

Cost of building materials: 24

The outlook for the expected increases in the costs of building materials continues to persist. This index moved from 29 in December 2016 to an even more pessimistic score of 24 in June 2016. This score is an indication of increased concern by our panelists that much of the gain from increased sale prices and more building starts will be offset by higher costs. These expected increases in costs could depress profitability and could reduce the number of new homes built.

Mortgage rates: 28

This index remains unchanged at 28. It is an indication that the panel continues to expect mortgage rates to increase in the next 12 months. Although mortgage rates increased during the fourth quarter of 2016, most panelists are expecting an additional increase of ¼% to ½% half a percent within the next year. The affordability issues created by higher rates could put a damper on home-building activity.

More Information

Additional details can be found on the Shenehon Center’s website: http://www.stthomas.edu/business/centers/shenehon/research/default.html

 

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

University of St. Thomas Real Estate Analysis for June 2017

Could You, Would You, Buy a House Sight Unseen?

First Half of 2017 – 3 Major Home Price Trends

 The extreme shortage of homes available for sales is resulting in a new phenomenon of buyers who are purchasing homes sight unseen. Twenty years ago, virtual tours and 3D graphics were mainly science fiction in movies like The Fifth Element, and a “sight-unseen” purchase literally meant a buyer had no experience of the property other than static photographs. Buyers were in essence blindfolded. Today, 3D and virtual technologies have become a reality. They are able to bring a property experience to the “sight-unseen” purchase. A number of local real estate brokers have noted this ingress of technology into the real estate industry and how it has given them a new tool to present properties. One Minneapolis based broker who has personally sold 3 properties sight-unseen in the last year, said the Minneapolis market has recently seen buyers more willing to at least offer sight-unseen. All of our conversations with Minneapolis realtors shared the opinion that technology is impacting the industry. They stated that listing price and anticipated time on the market are main factors on whether a virtual tour is created. The description of the Minneapolis “sight-unseen” buyer was someone looking to relocate from out of state or internationally and has experience in home buying (i.e. not a first time home buyer). An interesting point, technology can actually be a drawback for certain listings. We were told technology removes the interactive sales process; buyers experiencing a virtual tour may never visit the property in isolation from the neighborhood experience.

 Twin Cities Home Price Trends Through the First Half of 2017

 Price Appreciation is Outstripping Income Growth 

    • Median sale prices continue to increase at record rates. Between May and June the median sale price increased 3.6%. For the first ½ of 2017 through June median sale prices increased at the red hot pace of 15.1%. The year over year increase for homes sold between June 2016 and June 2017 was 7.0%. These rates of increase are far exceeding wage and income growth and will begin to cause affordability issues for homebuyers if these trends continue
  • Market Still Lacks Adequate Inventory 
    • While the availability of homes for sale has improved slightly the number of homes for sale has been consistently running 15% – 20% less than a year ago and 20% – 25% less than 2 years ago. While the construction of new homes has picked up notably this year we are still not building enough new homes to build our way out of the current short supply situation. It will take many more new listings to get the housing market more balanced in terms of supply and demand.
  • Tight Inventory Also Impacting Rental Markets
    • The lack of homes available to purchase is creating a situation where potential home buyers are unable to find a home to buy causing them to remain in rental housing for a longer period of time. Even though there were over 4,000 new apartment units delivered in 2016 and given that 2017 is expected to be another record year for new units delivered, the market is expected to absorb all of the new construction. Vacancy rates may increase slightly in the short run in some areas as new developments come on line, but overall occupancy will remain high through the end of this year. Minneapolis / St. Paul is one of the tightest rental markets in the country. Rent growth was 4.8% in 2016 and is expected to be at least that much in 2017. That rate of increase is higher than the expected wage and income growth of 2% – 3%. Continuation of this trend over time will continue to create an affordability gap resulting in renters having to pay an increasingly larger percentage of their income for housing.
Economics, Housing, Housing Trends, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate, Uncategorized

Sight-Unseen Home Buying: Trend or Consequence

Twenty years ago, virtual tours and 3D graphics were mainly science fiction in movies like The Fifth Element, and a “sight-unseen” purchase literally meant a buyer had no experience of the property other than static photographs. Buyers were in essence blindfolded. Today, 3D and virtual technologies have become a reality. They are able to bring a property experience to the “sight-unseen” purchase. Local Minneapolis real estate broker Aleksa Montpetit of Downtown Resource Group noted this ingress of technology into the real estate industry, and how it has given realtors a new tool to present properties. Montpetit, who has personally sold 3 properties sight-unseen in the last year, said the Minneapolis market has recently seen buyers more willing to at least offer sight-unseen.

An article posted in the Wall Street Journal by Katy McLaughlin cites increases in sight-unseen purchases are nationally becoming more common. The annual Redfin survey showed 33 percent of those surveyed said they had made at least an offer on a house “sight-unseen” in the last year. However, this survey did not include the Minneapolis market.

Both Scott Parkin of Verve realty and Scott Stabeck of Sotheby International agreed with Montpetit that potential buyers are more willing to make offers “sight-unseen,” and they added Continue Reading

Architecture & Design, Commercial Real Estate, Development, Real Estate Trends

Minnesota: Commercial Development Hub

A recent post by the New York Times blog, shows Minneapolis is among the leaders in urban development. One may ask, why and how does Minneapolis keep attracting people to the city? Simple, the city’s diverse population allows for vibrant restaurants and events, and municipal transportation creates accessibility to and from these destinations. Looking deeper, destinations and even housing were only possible through recent Minneapolis commercial development. You can see from almost any point in the city a construction crane or sign saying, “Opening Soon.”

Setting aside apartment and condo developments, the last 15 years has seen revitalization of major Minneapolis buildings. The old Sears building on Lake Street is now the Midtown Global Market which hosts over 1.5 million visitors a year, and the Foshay Tower is now the W-Hotel. Recently, the Minneapolis Armory, also on the national landmark registrar, looks to be renovated into a venue hosting large crowds as an event center. The Armory was recently sold for $6 million dollars to Nedal Yusuf Abul-Hajj who has submitted plans to convert the 80 year old building.

Affordable Housing, 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

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.

 

Commercial Real Estate, Development, Economics, Executive Insight Series, Housing, Industry News, Investment Real Estate, Real Estate Programs, Real Estate Trends, Think Outside The Box, Twin Cities Real Estate, Upcoming UST Events

Real Estate Executive Insight Speaker Series Bob Lux – Inside the Mind of A Developer

 

Real Estate Executive Insight Series

Bob Lux – Inside the Mind of A Developer 

Event Details Tuesday, March 28th 2017 5:30 p.m. University of St. Thomas, Minneapolis Campus Schulze Hall, Room 127

A candid conversation with industry leader Bob Lux, Founder Alatus LLC

Quality real estate development requires innovative thinking. Bob Lux, founder of Alatus LLC, has been in the real estate development and investment business for over 30 years. His company’s mission is to provide innovative solutions and high quality projects by wisely using his team’s talents and strengths to achieve the client’s vision and form a better community.   Lux will discuss the challenges, opportunities and trends in developing residential and commercial real estate in the Twin Cities. Lux will also share his views on the condo market and as the largest private owner of parking facilities in Minnesota Bob will outline his expectations for future parking and infrastructure needs in the downtown area.

Agenda 5:30-6 p.m. Networking 6-7 p.m. Presentation by Bob Lux

Register Today
 
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: More Twin Cities Homes for Rent Means Fewer are Available to Purchase

The growing number of single-family rentals is contributing to a chronic shortage of moderately priced homes on the market.

More and more single-family rental homes — a trend that has been developing locally and nationally since the start of the Great Recession in 2008 – means there are fewer and fewer single-family homes available for purchase. According to the most recent market analysis by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business, this increased percentage of rental homes is yet another factor contributing to a historically low supply of homes for sale in the 13-county Twin Cities region. In earlier reports, the center examined other causes that contribute to the shortage: low or negative equity during the recession, concerns about job or financial situations, and a trend of keeping homes longer than in the past. Earlier this year, the center predicted that the persistent low availability of homes for sale, coupled with strong demand, will result in a 5 percent increase in the median sale price of Twin Cities homes this year.

“On a national and local basis we have seen the formation of companies and funds such as Blackstone’s Invitation Partners and American Homes 4 Rent that are buying large numbers of single-family homes for investment purposes,” said Herb Tousley, director of real estate programs at the university. “Blackstone is the largest of single-family investors; they currently own about 50,000 homes across the country,” he said. “Their strategy was to purchase single-family homes at deeply discounted prices during the recession, rehab the property, and then hold the property longterm as a rental property. Even though home values have increased since the end of the recession, many of these companies are still actively buying. “Institutional investors have largely figured out how to maintain and efficiently operate ‘scattered-site single family rentals’ on a professional basis. Most of these homes are in established neighborhoods. Renovation and a regular maintenance schedule preserves the housing stock and maintains the quality of the surrounding neighborhood,” Tousley said.

This is a trend that is not only occurring in the core cities of Minneapolis and St. Paul, it is happening all across the Twin Cities metro area. The total number of single-family homes being rented in suburban neighborhoods has increased from 12,000 in 2000 to over 28,000 in recent years, according to data compiled by the Metropolitan Council. Of the 93 cities that were tracked, all but 32 saw their single-family rentals grow by at least 100 percent between 2000 and 2013.

Where are the Single Family Rentals in the Twin Cities?         Top 5 Cities by %

City Single Family Homes as Rentals in 2000 % of Rentals in 2000 Single Family Homes as Rentals in 2013 % of Rentals in 2013
Minneapolis 5864 8% 10278 14%
St Paul 3976 7% 7416 13%
Brooklyn Center 193 3% 867 12%
Columbia Heights 153 3% 610 12%
Anoka 177 5% 449 11%

Meanwhile, the number of homes available for sale that are priced between $150,000 and $350,000 has been steadily declining since 2008. Tousley said that homes in this price range are very attractive to the large institutional investors because they make good rental properties that provide a good return to their investors. However, homes in that same price range also are the most attractive to first-time homebuyers and first-move-up buyers. “The homes that are purchased by the institutional investors are going to be held longterm as rental properties so they in effect would be ‘off the market’ and will not be available for sale for a long period of time. The institutional ownership of large numbers of homes as single-family rentals is a relatively new development in the housing market and it is one more factor that is contributing to the chronically low number of homes available for sale,” he said.

February Market Summary

The housing market in the Twin Cities continued on its normal seasonal pattern in February. As expected the overall median sale price was essentially the same as January at $223,000. The traditional, non-distressed median sale price was $230,000, a 4.2 percent increase compared to February 2016.

The number of homes sold in February was 2,696 compared to 2,814 in January and 2,716 in February 2016. The percentage of distressed sales (foreclosures and short sales) ticked up slightly in February at 9.2 percent, however that percentage should continue to decline to pre-recession levels as we move into the spring selling season.

As noted earlier, the continued shortage of homes available for sale continues to be an issue. As buyers become more active in the spring-summer selling season, the shortage will create additional upward pressure on sale prices.

“The concern is that if this continues over a long period of time … where median sale prices are increasing faster than wages and income … it will begin to create affordability issues especially if interest rates begin to rise,” Tousley said.

The St. Thomas indexes.

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

 

  • The February 2017 index score for traditional sales was 1,114, down 0.4 percent from January 2017 and up 4.1 percent from February 2016.

 

  • The February 2017 index score for short sales was 993, down 2.5 percent from January 2017 and up .1 percent from February 2016.

 

  • The February 2017 index score for foreclosures was 842, up .2 percent from January 2017 and up 7.5 percent from February 2016.

 

More information online

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

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

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

Minnesota Commercial Real Estate Outlook Showing Few Changes Following Election, says University of St Thomas Minnesota Commercial Real Estate Survey

The December 2016 University of St. Thomas/Minnesota Commercial Real Estate Survey, taken entirely after the November 8th election, shows few changes in commercial real estate leaders outlook. The biannual survey projects a two-year-ahead outlook for Minnesota’s commercial real estate industry and forecasts potential opportunities and challenges affecting all commercial real estate sectors.

In all 12 surveys the same group of 50 industry leaders have been polled on their expectations for future commercial real estate activity in six categories: rents, occupancy levels, land prices, cost of building materials, rate of return, and equity requirements. Their responses are used to create index scores that can be compared over time. Scores higher than 50 represent a more optimistic view of the market over the next two years; scores less than 50 represent a more pessimistic view.

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 two to three years. The results of the November 8th presidential election does not appear to have significantly changed their outlook for the next two years

Observations from 2016 have recorded few major changes in expectations from before the election compared to after the election. “The natural cycle in commercial real estate appears to be running its course somewhat independent of the presidential contest” says Herb Tousley, Director of the Real Estate Programs at the University of St Thomas. “While the forecast for 2017 still looks good, the increase in online shopping, higher interest rates, and the continued redefinition of the office environment will remain major factors in the performance of commercial real estate in 2017.”

Here is a look at the panel’s responses for each of the questions.

Rent Expectations

An outlook that rents will continue to increase at current rates. The index for rental rates has increased from a highly optimistic 60 to a slightly more optimistic 61. This is an indication of an expectation of continued rent growth over the next two years and that the economy will continue to grow and that business conditions will continue improve.

Occupancy Expectations

A moderately positive outlook on expected occupancy levels. The index for occupancy levels increased moderately from 52 to 54. This indicates the panelists continue in their belief that occupancy levels will increase slightly over the next two years. This is a continuation of a trend that began 1 ½ years ago that reflects their expectation that business will continue to expand and will need more 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 fall 2018. The land price index has increased (become less pessimistic) for the fourth consecutive survey moving from 40 last spring to 46 this fall.

Building Material Price Expectations

Increases in the price of building materials are expected accelerate.  The index for the price of building supplies took a sharp turn downward, moving from a strongly negative 32 to an even more negative 29. This reflects the panel’s strong belief that rate of increase in building material prices will accelerate over the next two years.

Return on Investment Expectations

Investors return expectations are expected to increase slightly over the next two years. The index for investor’s return expectations has decreased slightly moving from 48 to 46. This slight decline indicates that investors will be looking for higher returns. The consensus among survey respondents indicates that investors will be seeking higher returns due to their expectation of increasing interest rates over the next two years.

Lending Expectations

More equity is expected to be required.  The index for the amount of equity required by lenders decreased significantly, falling from 42 in to 36. This indicates the panel’s strong belief that credit will be available for good projects but lenders will be more risk adverse by increasing their equity requirements in the coming two years.

 More Information

Additional details can be found on the Shenehon Center’s website: http://www.stthomas.edu/business/centers/shenehon/research/default.html.

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

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

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.