Real Estate Matters - News and views about the world of real estate
Best of Real Estate Matters, Commercial Real Estate, Development, Economics, Industry News, Minneapolis / St. Paul Housing, Minnesota Real Estate Hall of Fame, Real Estate Programs, Twin Cities Real Estate, Upcoming UST Events, UST Program News

Real Estate Hall of Fame is Seeking Nominees for 2019

University of St Thomas

Minnesota Real Estate Hall of Fame

Award Criteria

The basic criterion for acceptance into the Hall of Fame is outstanding business performance coupled with a high standard of ethics. Usually the honorees are responsible for successful and/or innovative business activities and have made major life-long contributions to our industry.

– All nominees must be retired from their primary business   or

– Must be at least 65 years of age   or

– Be deceased

Nominations are not limited to University of St Thomas graduates.

Nominees can represent any discipline related to real estate in Minnesota.  The nomination committee is encouraged to nominate candidates from all  disciplines of both commercial and residential real estate.  The committee is encouraged to solicit recommendations from the real estate community and to encourage others from outside the committee to make nominations to insure a wide variety of candidates.

The Selection Committee will consider the following when making their selection of honorees:

  • Business: the nominee has made a significant contribution as a leader in the field of real estate;
  • Nominees are expected to have made a significant impact in their particular area of real estate and be recognized primarily as a person that is an exceptional role model in their discipline.
  • Weight will be given to such accomplishments as starting and building a business, leading an established business to significantly greater achievements, major transactions, and innovative projects.
  • Among the factors to be considered are industry recognitions and accomplishments, being an industry pioneer and/or leader, and recognition by others for achievements.
  • Community: the nominee has had concern for improving his/her community as a business leader
  • Ethics: the nominee has displayed the highest level of ethics in their business practices.

Beyond the criteria noted here, the Selection Committee has the responsibility   and discretionary power to make their determinations from the pool of nominations submitted.

Access the Nomination Form:

Nomination deadline: June 14th 2019

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

iBuyers are Changing The Landscape of the Housing Market

April 2019

University of St Thomas Twin Cities Housing Market Update

What is an iBuyer?

An iBuyer is a company, in many cases an institutional investor, that will make an offer on your home within hours (or days) based on a proprietary valuation model. If you choose to accept the offer, you can close the sale in as little as a couple of days. The recent big news in the Twin Cities market is that last Monday Zillow began offering its Zillow Offers service to home sellers in the Twin Cities. The Twin Cities is the 10th metro area in the nation where they are offering this service. In addition to Zillow there are a number of local and national iBuyers here already with a number of new companies on the way.

How is the iBuying process different?

Traditionally, home values are calculated by using recent comparable sales of similar homes in the nearby area. The issue is that no two homes are identical and adjustments need to be made to account for the differences. Some of these adjustments are hard to calculate and can be somewhat subjective. Many of the newer, well capitalized iBuyers use “automated valuation models” or algorithms using computers to process massive amounts of home sales data to arrive at a value. Based on that value and information that home sellers upload about their homes they can close a sale in as little as a few days. There are some iBuyers may require a visual inspection by a local real estate partner.

Is iBuying the apocalypse for traditional agents and brokers?

The short answer is No. Nationally, in 2018, iBuyers accounted for 0.2 percent market share. At this point, even in markets where iBuyers has been operating longer they are only accounting for 3 – 6% of the sales volume. As more home sellers become more familiar and comfortable with the iBuying process that percentage will undoubtably increase. While a few iBuyers work directly with home sellers many of the iBuyer’s business models include working with and paying commissions to local real estate partners. Additionally, local Realtors do have the advantage of local market knowledge and are able to spot emerging neighborhood trends. As an example, look at what happened to the travel industry when technology made travel booking information directly available to individuals. At the time some were saying that it would be the end of travel agents. In reality travel agents have survived, however the industry has consolidated, become more sophisticated and has changed the way it does business.

Should I use an iBuyer?, What is the cost?, What is the Value Proposition?

Sellers are looking for a faster, simpler, less stressful way to sell their home. They want the process to be more efficient. Not all iBuyers offer the same services, some are full service, they want to be able to offer a one stop experience. Their process works like buying a car where you can buy a car, trade in your car, obtain financing and insurance all in one place. Since the larger iBuyers are buying and selling homes all the time, their business model works well taking trade ins. There others in the market who offer varying levels of service including those at the other end of the service spectrum who will only buy your home.

Average commissions using an iBuyer are about 7%, additionally their offer is discounted below fair market value. They expect to make necessary repairs and make a profit when they sell the home. In contrast commissions are about 5% – 6% for traditional sale listings. Sellers need to consider the trade off between convenience and maximum offer price.

The following are situations where a seller may consider using an iBuyer;

  • If the purchase of your next home requires the sale of your current home, you may need access to the equity tied up in your current home. Many Americans can’t quality for two mortgages at the same time meaning they have to sell their current home before they buy the next one. In today’s tight housing market contingent on sale offers are rarely successful.
  • If you can’t or don’t want to do the work to repair or upgrade your property before you sell.
  • If you’re moving to a new city and need to be on the job ASAP, you may not have time to wait for your home to sell
  • You’ve inherited a home you don’t want to own or manage

iBuying can provide a quick cash option but this speed and convenience comes at a price. In many cases a local agent may be able to get you a higher price for your home if you have the time available. Is it worth it? That depends on your priorities and circumstances.

There is more to come

Look for more large iBuying companies to come to town. Much of recent iBuying activity is being driven by multi-billion dollar organizations. In addition to Opendoor, who entered the Twin Cities market last fall, there will be other new arrivals such as Knock, OfferPad and Redfin. With technology advancing at such a rapid rate there will be more concepts and companies entering the market like Ribbon and Eave that work on the other side of the transaction helping buyers compete with cash offers.


Where Have All The Renters Gone?

Is there a change coming in attitudes about renting vs. home ownership?

The following is a re-post by Daniel McCue at the Harvard Joint Center for Housing Studies on Dec 14, 2018

After more than a decade of strong growth, the number of renter households in the United States fell in 2017, according to the three government surveys that track household formation. Specifically, the latest 1-Year American Community Survey (ACS) estimates from the Census Bureau indicate that the number of renter households dropped by 459,000 from 2016 to 2017 (from 43.84 million to 43.38 million households). Somewhat similarly, the Housing Vacancy Survey (HVS) showed a decline of 129,000 in that time while the biannual American Household Survey (AHS) found that the number of renter households declined by 111,000 between 2015 and 2017.

What is causing this decline and what might it mean for markets?

Is it due to a drop in new households being formed by young adults, who are most likely to become renters? If so, this could signal that the demand for rental housing is falling and/or that rental affordability is a growing barrier to establishing a household. Alternatively, could the decline in renter households be due to an increase in first-time home buying? If so, that might be a sign that many young renters whose homeownership aspirations have been delayed are now finding it possible to buy rather than to rent, which might also reduce the upward pressure on rents. Or is the decline due to something else altogether, such as the aging of the population, which could result in rising numbers of renter households lost each year due to mortality or moves into nursing homes.

The AHS, which asks people who moved since the last survey whether they owned or rented their previous home, can help answer these questions. It suggests the major factor behind the loss of renter households is an increase in the number of renters switching to homeownership. Notably, compared to the 2015 AHS, the 2017 survey shows a 20 percent increase in the number of renters who moved into homeownership and a 15 percent decrease in the number of owners who moved into rentals. As a result, among existing households, there was a net shift of 1.7 million households from renting to owning, a more than three-fold increase from 2015, when, on net, only 0.7 million existing households moved from renting to owning

In addition, AHS also showed a slight decline in the number of newly formed renter households in 2017 relative to 2015 and a modest increase in the number of newly formed households that went directly to homeownership. Indeed, while the vast majority of newly formed households are renters, and the total number of moves among newly formed households held at just over 5 million in 2017, the number of those newly formed households that were homeowners grew by about 16 percent (from 900,000 in 2015 to 1.0 million in 2017), while the number that were renters dropped by six percent (from 4.3 to 4.0 million).

ACS data also suggest that increased transitions to homeownership among renters age 30 and over —rather than a decline in new renter household formations —  is the primary cause of the decline in renter households. This data show that losses of renter households among households age 30 and over have increased in the past 3-5 years, while renter growth among younger cohorts held consistent.  Additionally, on net, the number of homeownership households has increased for cohorts of those age 25 and over each year since 2013. (This, in turn, helped increase homeownership rates for the 25-34 and 35-44 year old age groups as documented in our 2018 State of the Nation’s Housing report.)  The data also show that net losses of renter households among renters age 75 and over have remained stable, suggesting that an increased rate of losses due to the mortality of a growing aging population is causing the recent drop in renter households.

In sum, the decline in the number of renter households as measured in the three major Census Bureau household surveys over the past year does not appear to be due to a drop in new demand, as the number of net new renter household formations among the youngest households remains level. Instead, it appears to be driven by a surge in the number of renter households headed by people in their 30s and 40s transitioning to homeownership, a transition that has been less common since the mid-2000s.

Given that the renter households that are transitioning to homeownership have above-average incomes, this dynamic seems likely to contribute to a softening in high-end rental markets (which was also documented in this year’s State of the Nation’s Housing report. Moreover, it could have the potential to reduce pressures that drive increases in rents, which have continued to rise, albeit at somewhat slower rates than in previous years. And if rent increases slow (and incomes continue to rise) there may also be more units affordable for the many younger, less affluent people who are forming (or want to form) renter households in the next few years.

To see the entire report:



Affordable Housing, Appraisal, 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

University of St. Thomas Housing Market Analysis for November 2018

Will A Computer Tell You How Much Your House Is Worth?

Lower Mortgage Rates for Energy Efficient Homes?

Market Update – Is the Twin Cities one of the top markets in the country where you should buy this winter?


Will A Computer Tell You How Much Your House Is Worth?

Federal regulators have proposed loosening real-estate appraisal requirements to enable a majority of U.S. homes to be bought and sold without being evaluated by a licensed human appraiser. That potentially opens the door for cheaper, faster, but largely untested property valuations based on computer algorithms.

Appraisals help lenders ensure that the estimated value of the property supports the purchase price and the mortgage amount. An appraisal that is off by a few percent could leave a homeowner owing more than their house is worth or lenders with insufficient collateral to cover defaulted loans.

Will this automated approach work? It is hard to see how an appraisal can be done without a human appraiser involved. There is so much variation in condition and functionally that cannot be assessed by a computer algorithm. There’s still no computer that can see, hear, taste, smell and touch the property. Until that happens appraisals with humans involved will continue be necessary to do accurate appraisals.

Lower Mortgage Rates for Energy-Efficient Homes?

Mortgage guarantors, insurers, underwriters, and security owners have recently observed that home buyers with lower monthly utility costs default less. Do these lower-risk home buyers deserve a lower interest rate? Lenders are starting to consider the idea of offering a lower interest rate for mortgages on energy efficient homes. Energy efficient mortgages (EEMs) encourage energy efficiency by giving buyers a better rate or more borrowing capacity to buy an energy efficient house or to cover the cost of new energy improvements.

There are several types of EEM products in use today; however, adoption remains limited. Developing programs in several states inject capital into traditional mortgage products to “buy down” the interest rate that is charged to borrowers as an incentive to finance energy retrofits. A third structure being tested assumes that the energy savings and reduced exposure to energy costs reduce the risk profile of the loan and on average should lead to better loan performance. The reduced risk justifies a lower interest rate, which in turn improves the loan pricing for borrowers, while leaving underwriting criteria unchanged.

There are now quantitative standards available to measure a home’s efficiency. The HERS Index is the industry standard by which a home’s energy efficiency is measured. The HERS or Home Energy Rating System was developed by RESNET and is the nationally recognized system for inspecting and calculating a home’s energy performance. Certified RESNET Home Energy Raters conduct inspections to verify a home’s energy performance and determine what improvements can be made to increase it. Home buyers will be attracted to buy homes that are not only more efficient, saving utility costs, but also being able to qualify for lower mortgage rates.

November Market Update

According to a recent Zillow report the Twin Cities was one of the top ten markets in the country where it makes the most sense to buy this winter. This ranking is based on an index they developed using the factors below. For potential buyers looking to make a move before rents and mortgage payments rise further, the report indicates our market compares favorably to most other markets in the country.

Here are the three factors that went into the index:

  • The share of price cuts compared to a year ago: (In the Twin Cities the year over year over year actual selling price compared to the asking price has been declining since June indicating that sellers are beginning to cut prices.)
  • Rent appreciation forecast: Metros where rents are expected to rise more over the next year are ranked higher on the index, because they offer the greatest opportunity for buyers to save money by picking up a mortgage rather than continuing to pay rising rents. (Year over year rents in the Twin Cities continue to increase modestly and are expected to continue to do so, although the rate of increase is expected to moderate.)                      
  • Mortgage affordability: Metros that already have bad mortgage affordability will become harder for buyers as mortgage rates rise, so they are prioritized on this index. (Relative to other markets in the country the Twin Cities does not already have “bad” mortgage affordability. In our market mortgage rates have increased and median sale prices continue increase faster than income making mortgage affordability more difficult.)

The median sale price increased .4% between October and November, however the median sale price of homes sold in the Twin Cities has increased by 8.6% in the past year to $266,000. In comparison, the average annual increase for the previous 12 months has been 7.8%.

The number of closed sales decreased .2% between November of 2017 and November of 2018, continuing a trend of decreasing year over year sales that has been observed for 10 of the last 12 months. The combination of the low number of homes available for sale and higher interest rates continues to take its toll on the number of homes sold. The number of pending sales decreased by 5.7% however the number of new listings increased 11.8% compared to the same period last year. The increase in new listings is a hopeful sign that will be more homes available for sale in the coming few months and that the slide in the year over year sales volume will begin to reverse itself.

For more information, visit the Shenehon Center’s complete report for November 2018 at The report is also available for free via email from Tousley at








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

University of St. Thomas Housing Market Analysis for October 2018

Twin Cities Rents Continue To Increase As The National Average Decreases

Median Home Sale Price Up 8.6%

Number of Homes for Sale – Beginning to Stabilize?


Twin Cities Rents Continue To Increase As The National Average Decreases                    In September, the Zillow national median rent index fell 0.2% year-over-year to $1,440, the first decline recorded since July 2012. However, during the same period the Twin Cities median rent index bucked the national trend, increasing by .5% to $1,638. Despite the addition of a near record number of new rental units the Twin Cities rental market remains one of the tightest in the nation. The outlook for rent growth next year is showing some signs of moderation. The expectation for new apartment supply in some sub-markets will peak as the year comes to a close and then are expected to flatten in 2019. Pockets of increasing supply may persist but demand is expected to remain strong. Any slowdown in rent growth will be good news to renters, putting more spending money in their already stretched pockets. There has been growth in the percentage of renewed leases, as well as a historically low turnover rate. This is a positive sign for apartment owners, as renters are choosing to remain in their units resulting in lower vacancies.

For the first time in six years, the median rent nationwide is slightly less than it was 12 months earlier. In the Twin Cities rents climbed steadily from 2013 through the end of 2017. Since then the rate of growth has moderated considerably. (See the chart above)

October Market Update

The median sale price increased 1.2% between September and October. The year over year median sale price of homes sold in the Twin Cities increased by 8.6% to $265,000. This is the highest year over year increase seen since earlier this year. This rate increase continues to exceed wage growth in the Twin Cities region. While good for sellers, higher median sale prices combined with higher interest rates will continue to make home ownership less affordable for many homebuyers.

The number of closed sales increased 3.8% between October of 2017 and October of 2018, reversing a trend of decreasing year over year sales that has been observed for 8 of the last 12 months. The number of pending sales decreased by 1.4% and the number of new listings decreased 7.8% compared to the same period last year. The combination of higher closed sales volume and the lower number of new listings will continue to put upward pressure on median sale prices in the coming months.

 Number of Homes for Sale – Beginning to Stabilize? 

The number of homes available for sale was down slightly (1.8%) compared to last October. This year 11,758 homes were available compared to 11,978 last year. Over the last four months the number of homes for sale appears to be stabilizing. Although still historically low, the number of double digit year over year decreases that has been observed over most of the last 3 years appears to be moderating.

For more information, visit the Shenehon Center’s complete report for October 2018 at The report is also available for free via email from Tousley at

Best of Real Estate Matters, Commercial Real Estate, Industry News, Minnesota Real Estate Hall of Fame, Twin Cities Real Estate

Tom Holtz, Jim Nelson, and Russ Nelson Inducted into Minnesota Real Estate Hall of Fame

Three new members were inducted into the Minnesota Real Estate Hall of Fame at an awards breakfast this morning: Russ Nelson, an industry groundbreaker who was among the first to exclusively represent tenants; Jim Nelson, who helped spearhead the new US Bank Stadium; and Tom Holtz, a driving force behind industry giant CBRE.

The Minnesota Real Estate Hall of Fame was established in 2010 by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business. Members of the Hall of Fame are chosen for their outstanding business performance, high standards of ethics, and community activities.

The annual event, held at the Golden Valley Golf and Country Club, drew over 200 people including real estate professionals and friends and family members of the inductees. Robert J. Strachota, president of the real estate valuation firm Shenehon Company, acted as emcee and Steve Cramer, president and CEO of the Minneapolis Downtown Council, was the keynote speaker. The awards were presented by Patrick Ryan, President and CEO of builder/developer Ryan Companies.

After the awards presentation and a brief video about each recipient, the event concluded with Herb Tousley, director of the Shenehon Center, presenting scholarships to five students, the winners of this year’s Boyd Stofer & Ken Stensby Real Estate Student Competition. The competition challenges undergraduate and graduate students to develop a business concept that has potential to become a viable, high-growth business or make a meaningful contribution to existing real estate companies. Scholarship recipients are current UST students Ethan Finger, Issac Kuehn, Charles Bird, Holly Spaeth and Matt Michalski.

About the Inductees

Tom Holtz

For nearly 40 years, Tom Holtz has played a pivotal role in developing CBRE into one of the world’s leading real estate services companies. He is personally credited with approximately $11 billion in investment transactions during a career that has touched every major Twin Cities building.

Holtz’s advice is sought by some of the most successful people in the industry, both in Minnesota and across the country. Colleagues praise his sharp intellect and unwavering ethical barometer. Lifelong friends laud Holtz as a deeply spiritual family man who has dedicated his support and leadership to many local and national organizations, including St. Andrew’s Lutheran Church in Eden Prairie and Luther Seminary in St. Paul.

Jim Nelson

Known as “the quiet leader that everyone listens to,” Jim Nelson has spent more than half a century in real estate advisory services, finance, and investment. He played a pivotal role in such transformative projects as the Midtown Exchange, the Walker Art Center expansion, and the new US Bank Stadium, and he is a valued counselor to the City of Minneapolis, Hennepin County, the state of Minnesota, and the University of Minnesota, among others.

In addition to being the principal of Eberhardt Advisory, Nelson has served on numerous civic and industry boards, and he helped shape and guide the Mortgage Bankers Association of America. He is often praised for his devoted mentorship of real estate industry leaders across the state and the country.

Russ Nelson

Known for his energy, enthusiasm, and coveted book of connections, Russ Nelson helped shape the skylines of Minneapolis and St. Paul during his 35-year career. He recently retired from real estate and project management firm NTH, one of the first Twin Cities firms to exclusively represent tenants, which he cofounded in 1993.

Nelson is legendary for his devotion to the downtown Minneapolis core, including one of the largest land sales in the city’s history: the five-block StarTribune megadeal that launched the redevelopment of the Downtown East Commons. Just as legendary is his enthusiasm for serving the community, such as his recent role in helping Como Park Zoo and Conservatory’s raise $8 million for its polar bear exhibit and Japanese garden.

 About the Minnesota Real Estate Hall of Fame

The Minnesota Real Estate Hall of Fame honors, preserves and perpetuates the names and outstanding accomplishments of real estate leaders who have made significant contributions in real estate and demonstrated care and concern for improving their communities as business leaders.

Appraisal, Commercial Lending, Commercial Real Estate, Commercial Real Estate Index, Development, Industry News, Twin Cities Real Estate

Minnesota Commercial Real Estate Outlook Showing Increased Signs Of Pessimism


The October 2018 University of St. Thomas / Minnesota Commercial Real Estate Survey is continuing to show to show changes in the sentiment of our panelists as they look out over the next two years. 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.

As was done with all fifteen of our previous surveys, the same group of 50 commercial real estate industry leaders involved in development, finance, and investment were polled regarding their expectations of near-term, future commercial real estate activity. The decisions that these industry leaders are making today will determine what the CRE markets will look like two years from now.

Fall 2018 Results

Observations from October 2018 have recorded several notable changes in the panel’s expectations that were observed in the last survey conducted in December 2017. “There is some concern that we are near the top of the cycle and that overbuilding and increased vacancies may occur in some product types and submarkets.” says Herb Tousley, Director of the Real Estate Programs at the University of St Thomas. “While the forecast for 2020 has become slightly less optimistic, there is no expectation of a major downturn in the commercial real estate market in the Twin Cities. The increase in online shopping, higher interest rates, changes in housing trends and the continued redefinition of the office environment will remain major factors in the performance of commercial real estate in the coming two years.”

Our panelists seem to be most concerned about the expected increase in the cost of building materials and the impact of rising interest rates on values and expected returns for developers and investors. The panel has changed to a more pessimistic outlook on all categories (see the chart at the end of the report). While our respondents are not expecting a major downturn, they are more concerned about future prospects than they have been in our previous surveys.

The composite index of all the other indices the survey continues to indicate a slightly less than neutral expectation looking ahead two years to late 2020. The composite index was recorded at 42. This is slightly less optimistic than the 43 that was recorded a year ago. Index values greater than 50 represent a more optimistic view of the market over the next two years, with values of less than 50 indicating a more pessimistic view. More detailed information about each of the individual indices may be found below.

The individual indexes are detailed below:

Rent Expectations

The outlook for rental rates has become less optimistic. Market conditions expected in late 2020 are best described by the price for space (rental rates) and the supply of space (occupancy levels). The index for rental rates was 62 compared to 67 one year ago. This means the panel now has a lower expectation of the rate rents will increase for all property types over the next two years. The panel’s sentiment is that the economy will continue to grow and that business conditions will continue improve at slower pace, creating less competition for commercial space.


The outlook for occupancy levels has changed significantly moving from slightly optimistic 52 to more pessimistic 43. This indicates the panelist’s belief that occupancy levels and space absorption may not remain at current levels during the next two years. As a great deal of new product has been delivered the panel is beginning to be concerned about the market’s ability to absorb the new space. This is especially noticeable in the multi-family, office and industrial segments. It is a continuation of a general trend that began 4 years ago. Businesses will continue to grow but they are concentrating on reducing their cost of occupancy by doing more with less space.

Land Price Expectations

The rate of increase in land prices is expected moderate. The land price index has increased (become less pessimistic) in the current survey moving from 38 last in December 2107 to 46 this fall. The lowest point for the index was recorded at 31 in the fall 2013 survey. This index has become somewhat less pessimistic. Although land prices are expected to continue to increase during the next two years, any moderation in the rate of increase would help to keep total project costs in check. Higher land prices are a hindrance to new development, making it more difficult to obtain financing and adequate returns for investors.

Building Material Price Expectations

There is a continued expectation that increases in the price of building materials will continue to accelerate. The index for the price of building supplies remains strongly negative, moving from 24 in December 2017 to 27 in October 2018. The panel believes that commodity prices for lumber, concrete, steel and many of the other materials used in construction will continue to increase due to shortages and newly imposed tariffs. Since building materials are a major cost component of any development project any increases in prices will make it difficult to provide adequate returns on future developments.

Return on Investment Expectations

Our panel expects that investors return on investment expectations will increase. The index for investor’s return expectations has become more pessimistic moving from 42 to 39. This indicates that investors will be expecting to achieve higher returns. The consensus among survey respondents indicates that investors will be seeking higher returns due to their expectation of increasing interest rates and concern about market fundamentals over the next two years. Investors will continue to seek out quality investments but they will be much more diligent about how they price risk and evaluate return when considering their investment options.

Lending Expectations

Equity and loan to value requirements are expected to remain essentially unchanged. The index for the amount of equity required by lenders has decreased slightly, moving from 42 to 41 in December 2017 to 42 in October 2018. Although interest rates have increased somewhat since our last survey, the panel’s belief that is even if interest rates continue to increase moderately credit will still be available for good projects. However, they expect lenders will continue be more risk adverse by tightening their underwriting criteria in the coming two years.







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

Latest Survey of Twin Cities Home Builders Finds Them Slightly Less Optimistic For 2019

Latest Survey of Twin Cities Home Builders Finds Them Slightly Less Optimistic For 2019

Industry Leaders Have Some Concerns About Higher Interest Rates and Increasing Costs

St. Thomas’ fifth semiannual survey of 30 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 BATC Housing First Minnesota

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 semiannually in spring and again the following fall 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 BATC Housing First Minnesota. “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 our most recent survey:

Housing Starts: 57

This score decreased from 65 in our previous survey to 57, it indicates an expectation that the number of single-family housing starts will begin to slow down in the next 12 months. While still optimistic, home builders are concerned about the impact of rising interest rates and the rapidly increasing cost of building materials.

Price Per Square Foot: 70

This score is still very optimistic, however the drop from 74 to 70 reflects the expectation that the rate of increase will begin to moderate in the next 12 months. It shows the panel’s expectations that home prices will continue to increase at a slightly lower rate. At that level there is a continued belief that sale prices will increase at a rate that will more than offset the expected increases in project costs.

Land prices: 33

While still well into pessimistic territory at 33 this index has increased sharply from our last survey’s score of 23. This could be an indication of our panel’s expectation that the rate of the increase in land prices will moderate. It will be interesting to look at future surveys to see how this plays out. While there may be enough finished lots available, the higher land prices will continue to squeeze profitability.

Availability of finished lots: 53

This index decreased from 60 last December to 53 in our current survey reflecting the panel’s increased concern that there will be an adequate supply of finished lots in 2019. An adequate supply of well-located finished lots is crucial to the health of the home building industry.

Cost of building materials: 31

The outlook for the expected increases in the costs of building materials continues to be a major concern. This index moved from 24 in December 2017 to a slightly less pessimistic score of 31 in current survey. This score is an indication of ongoing concerns 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 in 2019.

Mortgage rates: 27

This index has declined slightly to 27 compared to 28 in our last survey. Although interest rates have been rising in 2018 the indication is that the panel continues to expect mortgage rates to increase in the next 12 months. Most panelists are expecting an additional increase of ¼% to ½% 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:





Affordable Housing, Economics, Home Prices, Housing, Housing Trends, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

University of St. Thomas Real Estate Housing Report for September

Home Affordability Being Stressed By Higher Interest Rates, Higher Median Sale Prices And Higher Construction Costs

30-year mortgage rates reached a new high this week at 4.9%. A year ago, at this time 30-year rates were about 4%. A 1% increase rates makes owning a home less
affordable, especially for first time and first move up buyers. When you look at what that difference means a 1% increase would increase the monthly payment of a homebuyer purchasing a median priced house with 5% down by $155.00. In other cases, a potential buyer would have to come up with an additional $15,900 down payment to get to the same $1,250 payment level when rates were at 4%.

Although the median sale price declined 2.25% between August and September, despite the increase in interest rates, the year over year median sale price of homes in the Twin Cities increased by 7.4% to $262,000. A continuing trend of higher median sale prices and higher interest rates will make home affordability more difficult for homebuyers.

The number of closed sales decreased 5.26% between September of 2017 and September of 2018 and the number of pending sales has decreased by 1.4%during the same period. This decrease may be an early sign that the housing market may be starting to cool down returning to a more even balance between
sellers and buyers. The number of new listings has increased by 5.9% compared to a year ago. The number of homes available for sale was down slightly (4%) compared to last September with 12,623 homes available compared to 13,151 last year.

A Perspective on Interest Rates

By recent standards 30-year mortgage rates near 5% seem high. There has been almost a whole generation of younger homebuyers that have experienced an environment of very low interest rates (3% – 4%). While to these younger homebuyers a 5% rate may seem high, it was not that long ago that 5% -7% rates were considered normal. As can be seen in the chart below there have been periods in the past when rates have been much higher. If interest rates
continue to increase toward historical norms we will begin to see major adjustments in the housing market as higher rates impact affordability.

New Home Construction Prices

The gap between new construction prices and existing housing prices continues to widen. The adjoining table shows the national annual increase in sale price and price per square foot between 2015 and 2017. In the Twin Cities September, the median price of new homes sold was $397,383 compared to a median sale price of existing homes was $252,000. Since new homes tend to be
larger it is helpful to compare the price per square foot. The price per square foot for a new house sold in September was $175 per square foot as opposed to $139 per square foot for existing homes. Much of the cost increases for new construction have been driven by higher land costs, higher material costs and higher impac t fees. Building new housing that is affordable to homeowners in the low to median price brackets will continue to be a challenge tosupply the ever increasing need for affordable housing.

For more information, visit the Shenehon Center’s complete report for Sept ember 2018 at The report is also available for free via email from Tousley at

Commercial Real Estate, Economics, Multifamily, Real Estate Trends

Emerging Trends: The Two Sides of Multifamily

The following is reposted from The 2019 “Emerging Trends in Real Estate”  the annual real estate report put together by the Urban Land Institute and PwC published on October 16th.

The 2019 “Emerging Trends in Real Estate” is the annual real estate report put together by the Urban Land Institute and PwC. When it comes to overall housing, the recently-released report offered good news and not-so-good news.

On the good news front, fundamentals continue driving demand for apartments. “Millions of 20-somethings are still funneling along at high amplitude into rentals, now solidly supported by a macro economy that has reached virtually ‘full’ employment,” the report notes. Also adding to the demand influx is the growing pool of renter-by-choice baby boomer demographic.

The not-so-good news? Scarcity of product for certain populations. “Even at 360,000 multifamily starts (in 2018), we’re not building enough units in the right places to meet demand, and keep rents in check, and now construction costs are going up faster than we can raise rents,” observed a CEO of one of the nation’s top multifamily developers.

Additional trends impacting the multifamily sector include:

  • Technology increase. Technologies are impacting all facets of multifamily, from property management to automated building. “Technology provides one of the biggest opportunity areas to address the decoupling of household budgets and development expense,” the report observed.
  • A plethora of regulations. Legislative and regulatory issues such as density and rent control are becoming issues on the municipal and county level. While rent control is being used as a method to control affordability, regulating rent increases negatively impacts NOI which, in turn, can suppress development.
  • New renting models. Four new models pertaining to long-term living leases are Airbnb units, co-living, single-family rentals and micro apartments — as well as hybrids between them all. These are “on the fringes of the long-term lease, cash-generation business models that dominate the multifamily space today,” the report noted.

Read the article at