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

Is the Twin Cities Housing Market Really Beginning to Change?

What really drives the need for housing?    

Since the June and July housing numbers have been published there seems to be much more uncertainty about the current state of the housing market. People are beginning to ask questions about the housing market. Is the decrease in sales volume a warning sign? Are we in a bubble? Will there be another housing market correction? One or two months data by themselves doesn’t signal a major change in the direction of the housing market. We will need to look at several more months data to understand more about where the market is headed.

 The number of closed sales were down 12.5% between June and July of this year. However, number of home sales in the Twin Cities was essentially unchanged in July 2018 compared to July 2017. If you look at the overall seasonal pattern for the number of homes sold is following a very similar pattern compared to previous years. Looking at the data for the median sale price, the number of closed sales, and the number of homes available for sale you will notice that the pattern for 2018 is very similar to 2016 and 2017. People have expressed

             Homes Sold YTD 2018 vs. YTD 2017
Jan 2017 2018       +/-
Feb 2805 2787 -18
Mar 2744 2671 -73
Apr 4304 4033 -271
May 4726 4688 -38
Jun 6265 5775 -490
Jul 7527 7160 -367
Aug 6046 6278 232
 
Total 34417 33392 -1025

concern that the number of sales is declining. When you look at 2018 year to date sales there have been just over 1,000 fewer homes sold this year compared to last year. About half of this amount occurred in May. I think that we are going to need to see a few more months data to understand if this is a long-term change in the market. At this point much of the decrease in the number of homes sold seems to be a result of the continued decrease in the number of homes available for sale. The number of homes available for sale was 12.3% less than last July. Median sale prices continue to increase, up 6.6% year over year compared to July 2017.

What really drives the need for housing?

Many people correctly point to increasing population and job growth as the primary reason. Job growth doesn’t drive housing demand, housing demand responds to job growth. Few people are against job growth, it is considered by many as sign of “progress”. There are many local economic development groups trying to attract new jobs by offering incentives for potential employers. Almost all communities are in favor of job growth but what about the housing needs that are created by this job growth? In many of the communities where people want to live creating more housing translates to more density. The truth be told, many people are in favor of more housing and more affordable housing as long as it not near them. According to recent DEED statistics employment in the Twin Cities metro area in the last 12 months has increased by 30,800 jobs. We have not been creating enough new housing units to keep up with that growth rate. As a result, we have a chronic shortage of homes available for sale, median sale prices are increasing faster than wage growth, a very low vacancy rate for rental housing, and rents that continue rise faster than the cost of living. It’s becoming increasing difficult and expensive to develop and create any type of for sale or rental housing. If we are going to continue to have strong economic growth, then we are going to have to figure out a way to create enough new housing units at all price levels to keep up with the increasing employment growth.

 What about new housing? Why does it take so long? Why is it so expensive?

  •      Lack of entitled land
  •      Difficulty and length of the entitlement process
  •      Excessive impact and local fees
  •      Zoning and bias against density
  •      Inclusionary zoning
  •      Rapidly increasing construction costs
  •      Rapidly increasing land costs

As long as our local economy continues to grow and is creating more jobs these are some of the issues that need to be addressed if we are going to come up with meaningful solutions to our housing market issues.

For more information, visit the Shenehon Center’s complete report for July 2018 at http://www.stthomas.edu/business/centers/shenehon/research/. The report is also available for free via email from Tousley at hwtousley1@stthomas.edu

Government Policy, Residential Real Estate, Uncategorized

A Look at Property Taxes Nationwide

With income tax returns completed and filed (hopefully on time), the next big tax payment many people across the country will make will be property taxes. According to the findings of a new residential property tax study from the Tax Policy Center, in 60% of U.S. counties the reported property tax burdens average between $500 and $1,500 a year. But that might only cover a month’s worth of taxes on a home in the most highly taxed counties.

Property Taxes by County

Average Residential Property Taxes by County (source: CNN)

Some of the highest average property tax burdens can be found in the New York. Westchester County, N.Y. ($9,647 a year) and Nassau County, N.Y., ($9,080) (both New York City suburbs) had the highest average residential property tax burdens. Many other counties in New York also have high property taxes, a result of duplicative local government units (one county alone had 941 separate governments, including towns and villages as well as police, fire, and school districts) and an education funding system that relies predominantly on property taxes.

On the other end of the spectrum, 24 counties nationwide had annual property taxes below Continue Reading

Government Policy, Industry News, Residential Real Estate, Uncategorized

Banks Cutting Back on Mortgage Business as Rates Rise

U.S. mortgage interest rates have climbed since May

U.S. mortgage interest rates have climbed since May
(Source: Bankrate)

Applications for U.S. home loans plunged last week as mortgage rates matched their high of the year, according to the Mortgage Bankers Association (MBA). Refinancing activity has also fallen to its lowest level in over four years. The MBA seasonally adjusted index of mortgage application activity (which includes both purchases and refinances) fell 13.5 percent last week, the worst performance for the index since 2008.

As a result, many banks are cutting their mortgage divisions and closing units that had been created to service customers during the recent refinancing boom. JPMorgan laid off more than 2,000 employees in early August, about half of them in its originations division. Bank of America, Wells Fargo, and Citigroup have also made major staff cuts in their mortgage lines of business in the last quarter.

Wells Fargo, which currently makes about one out of every four home loans in the United States, recently announced layoffs of 1,800 staff, including about 350 Twin Cities-based employees. The company employees about 20,000 in the state of Minnesota, 8,000 of which are in its mortgage operation. Company officials said the recent layoffs would not impact Wells Fargo’s interest in the proposed Ryan Cos. development in Minneapolis’ Downtown East; Wells Fargo has been linked as the potential anchor tenant for the project’s 1.1 million s.f. of office space.

Affordable Housing, Government Policy, Multifamily, Property Management, Real Estate Law, UST Real Estate in the News

Should Property Owners Be Required to Provide Air Conditioning to Tenants?

Steve Katkov, UST Real Estate Professor and business and real estate attorney at Thompson Hall, talks to Fox 9 about renter’s rights in the summer months. Should landlords be required to provide air conditioning to their tenants in the summer similar to the cold weather rule in the winter? Here is what Professor Katkov had to say:

Development, Government Policy, Industry News, Real Estate Law, Urban Planning

How Will Supreme Court Decision in Koontz Impact Land Use Policy?

In a decision that many believe will have broad implications for how land-use agencies obtain concessions from landowners who wish to develop their property, the U.S. Supreme Court last month sided with a Central Florida property owner who challenged the terms of a state-issued development permit for wetlands property he owned. The 5-4 decision in Koontz v. St. John’s River Water Management District overturned a Florida Supreme Court decision that found in favor of local regulators and against the landowner.

U.S. Supreme Court

In this case, Coy Koontz sought to develop a portion of 15 acres of property, which included some wetlands. He proposed to develop 4 acres of the property and offer the remaining 11 acres as a wetlands conservation area. The local Water Management District, however, refused to approve his project unless he made additional concessions. The St. John’s River Water Management District offered Koontz two options: either limit his development to 1 acre and devote the remaining 14 acres to wetlands preservation, or pay for off-site mitigation of 50 acres of wetlands elsewhere in the district. Koontz thought these conditions excessive, so he sued under a state law permitting him to seek damages. The Florida Supreme Court held that Koontz did not have a claim because existing court standards limiting local land use authority did not apply to the denial of permits or to monetary concessions.

Prior to the Koontz case, courts did not give heightened scrutiny to the denial of land use permits or the imposition of monetary concessions on developers by land use authorities. Heightened scrutiny had been limited only to “title exactions,” which are are a requirement that an easement or title to some of the property be dedicated to the public, such as a conservation easement to preserve a wetlands area. In Nollan v. California Coastal Commission, the Court established that title exactions must bear an “essential nexus” to the harm prevented, meaning land use authorities cannot require title exactions which are unrelated to the negative impacts created by a development. In Dolan v. City of Tigard, the Court found that exactions  imposed must be “roughly proportional” to the adverse impact of the project on the community. The Koontz decision extends those standards to include not just title exactions, but also permit denials and monetary exactions by land use authorities.

In writing the opinion for the majority, Justice Samuel Alito reasoned that Continue Reading

Economics, Government Policy, Industry News, Real Estate Trends, Residential Real Estate

Housing Has Bounced Back, but Capitol Hill Holds the Key to a Sustained Recovery

Houseforsale

The following article was reposted from Knowledge@Wharton

Published: April 30, 2013 in Knowledge@Wharton

The U.S. residential real estate industry is showing signs of a recovery. Demand for homes is growing stronger, driven by historically low interest rates and government subsidies. Job growth would, of course, accelerate that rebound. However, for a sustained recovery, housing supply must increase with both new construction and regulatory reforms that could bring to market homes that are “under water,” or those whose market prices are lower than their outstanding loans. Those were the main highlights from a panel discussion on real estate industry trends at the Wharton Economic Summit 2013, held in March in New York City.

A crucial element of the legislative reforms is to find ways to shield the federal government from home financing losses, the panelists said. The government ended up becoming the country’s biggest home financier after the 2008 housing collapse, when it bailed out secondary mortgage finance agencies Fannie Mae and Freddie Mac at an estimated taxpayer cost of up to $360 billion. Bipartisan political consensus holds the key to the reforms, panelists stressed.

The panel included Jeff Blau, CEO of Related Companies, a New York City-based real estate development firm; Jonathan D. Gray, global head of real estate at New York City-based financial advisory firm Blackstone; Jim Millstein, chairman and CEO of New York City-based financial advisory firm Millstein & Co.; and Richard A. Smith, chairman, CEO and president of Realogy Holdings Corp., a New Jersey-based real estate franchising and services company. Joseph Gyourko, Wharton professor of real estate, moderated the discussion.

Unexpected Recovery

“The metrics certainly indicate a much stronger interest in residential housing than it seemed in the previous six years,” said Smith. His firm Realogy operates in all 50 U.S. states and 102 countries and has a 26% market share of the U.S. housing market in sales volume. The recovery has gathered pace since the first quarter of 2012 and is “completely unexpected,” he added.

Consequently, home prices have strengthened and the overhang of unsold homes is bottoming out, but something “much more dramatic” is occurring, according to Smith. “We literally have markets where we have no supply, no inventory,” he said, citing New York City as an example of this phenomenon. He saw that across the country — a week’s supply of homes in San Francisco, no inventory to sell in Miami and an outpouring of open houses “in every market” where Realogy operates. “We feel very strongly that this is a strong recovery and it is sustainable.” In Phoenix, home prices are up 25% and they have risen in the “very high double-digit percentages” in Southern California, added Blackstone’s Gray.

Smith said the housing recovery is occurring despite impediments. He cited two issues relating to the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act. One is a decision on what constitutes a “qualified residential mortgage,” or QRM, because that would set the criteria for the down payment for home loans that underwriters require. A related second issue is whether a decision about QRM could encourage developers to resume homebuilding.

Increased housing inventory is critical for a sustained recovery, Smith argued. A resolution to the QRM issue could release some of the 10.8 million homes that are under water, he explained. “If we do not have the increase in inventory, then we will still have a recovery, [but] that will be anemic.”

Since 2009, underwriters have been wary of risk and are lending only to “the highest possible standard” of borrower creditworthiness, Smith noted. He called for a speedy resolution of the matter and hoped the new debt-to-income criteria would be less onerous than people fear they might be. He clarified that he did not expect underwriting standards to become more lax. He only wanted to get back to the “pre-bubble” days, when underwriters required credit scores about 100 basis points lower than current expectations of about 750, he said. (Credit rating agencies award scores from 300 to 850.)

Follow this link to read the rest of the article:  http://knowledge.wharton.upenn.edu/article.cfm?articleid=3243

 

Commercial Real Estate, Development, Government Policy, Urban Planning

9 worst urban planning moves in Twin Cities history

block e wikipedia-thumb-250x187

This article came to my attention recently.  It was written by Marlys Harris and it appeared on December 18th, 2012 in MINNPOST.  I think it is an interesting look at what happened and what might have been.

Herb Tousley

 

 This coverage is made possible by grants from the Central Corridor Funders Collaborative and The McKnight Foundation. By Marlys Harris | 12/18/12

Since I began writing this column last spring, I envisioned two year-end pieces. One would itemize the worst things that planners, bureaucrats, politicians, developers and We the People have done to our Twin Cityscape; the second would list the best. My thought was that both might provide some lessons about what improves the urban environment and what doesn’t — though, such is life that sometimes even the best ideas turn into misbegotten messes — and vice-versa.

Over the last year, I’ve been asking practically every person I interview for his or her suggestions. And, I have added a few I’ve collected since moving back here two years ago. Herewith, the baddies, in no particular order:

No. 1: The destruction of the Gateway District.

Located near the Mississippi, this area stretches south to the library and from Hennepin to Third Avenue S. Once upon a time, it was a park with an elaborate pavilion that welcomed those arriving at the nearby train station. During the Depression, however, it became Minneapolis’ version of the Bowery, complete with flophouses, taprooms and sleazy hotels.

 By the 1950s, the city decided it had to do something. The buildings were dilapidated and supposedly impossible to renovate. So Minneapolis won a grant from the Feds and over the next six or seven years razed 200 buildings and leveled 22 blocks, leaving a third of downtown vacant. Among the casualties: the Metropolitan Building, a then 80-year-old landmark whose central atrium was adorned with incredible iron grillwork. Buildings have gone up in the area, but it has never become vital. Much of the acreage is still devoted to surface parking lots.

“It’s now a dead area between two neighborhoods,” says Sam Newberg, founder of Joe Urban, Inc., a market research company.

The takeaway: I see two lessons here. First, you don’t knock down buildings until you have something compelling to put in their place. Second, large-scale projects are blunt instruments that destroy the good along with the bad. Among the flophouses and taprooms probably existed salvageable small buildings and rooming houses that these days, with an infusion of dough, could be turned into a walkable neighborhood of interesting stores that would give us some relief from chains. When it comes to urban renewal, it’s probably always better to go small and see what happens.

View of the State Capitol in St. Paul, 1974Minnesota Historical Society/Eugene Debs Becker

A view of the State Capitol from I-94, circa 1974.

No. 2: The slicing of downtown St. Paul in two.

The U.S. interstate highway system is considered one of the marvels of the modern age. On its broad lanes drivers can speed without interruption from city to city, almost as though they were in a tunnel. But those same concrete byways can and have blighted cities. Take St. Paul, which has a beautifully compact and navigable downtown. How much better would it be if I94 did not cut off the Capitol and its campus from the rest of the city?

“Separating downtown from the Capitol was obviously a terrible decision,” said Mayor Chris Coleman at a meeting of the Urban Land Institute a couple of months ago. Those lousy decisions, he added, can be with us for 100 years.

The takeaway: Freeways should transport people to cities, not churn through their guts. Highway engineers: Figure out a way to go around downtown, not through.

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Economics, Government Policy, Industry News, Real Estate Trends, Residential Real Estate

Economists in Survey Oppose Strategic Default, Principal Forgiveness

The article below is by Esther Cho at DSNews.com.  It points out that most economists surveyed would continue to make their mortgage payments even if their property was underwater.  Strategic default is the practice of walking away from a property that is underwater even though the borrower has the financial ability to continue making the payments. I find it interesting that in the commercial real estate, in many cases companies will use a strategic default as a business tactic with little stigma attached. For individuals, however, the situation is much different, the stigma associated from voluntarily walking away from a debt obligation is a major detriment.

Nearly three-quarters of economists surveyed said they would continue making their mortgage payments even if they were deeply underwater, Zillow reported Thursday.

Strategic default, which is when homeowners decide to stop paying their mortgage even though they can afford it, is oftentimes motivated by negative equity.

In Zillow’s Home Price Expectation survey for June, 71 percent of economists said they would not choose strategic default, even if they owed at least 40 percent more on their mortgage compared to the home’s current value.

The survey, which was conducted by Pulsenomics, included 114 responses from economists, real estate experts, and investment and market strategists.

The industry experts were also questioned on their position concerning a government-sponsored program to forgive principal for underwater homeowners.

Coming close to the percentage of those who said they would not strategically default, 72 percent said they opposed a principal reduction program, while 28 percent were in favor of one.

Read the entire article:  http://www.dsnews.com/articles/zillow-three-fourths-of-economists-surveyed-oppose-strategic-default-principal-reduction-2012-07-26

 

Development, Economics, Government Policy, Green Building, Real Estate Trends, Residential Real Estate, Think Outside The Box, Urban Planning

A Sense of Place: Spaces Designed For People

This is a reposting of a blog entry that appeared recently on The Cornerstone Group blog(see link below).  It presents an interesting look at how project planners, architects, and developers can make cities a better place a better place to live.

http://www.tcgmn.com/blog/

Imagine a perfect day in your city or hometown.  What does it look like?  Where would you go?  How would you get there?  What would you do?  Who might you see along the way?

Place making, an evolving multi-disciplinary approach to planning, design, and management of public spaces, seeks to transform average spaces into high-quality places where people can relax, interact, collaborate, and participate.

After years of designing cities for the automobile, astute planners and developers are once again designing for people.

Cornerstone staff recently attended a Project for Public Spaces (PPS) event, where instructors gave participants insights about how great public spaces take shape.   

“Value created by the public realm will drive the success of a city.”

“How do we get from inadequate to extraordinary?”  The process starts with listening to the community, because neighborhood residents truly are the experts.  They know what is needed and what will or won’t work.

New York City has witnessed the redesign of several public spaces for greater pedestrian visibility and accessibility, which promotes increased activity and improves levels of public safety and comfort.  Setting back corners from the street edge, away from cars, can be an important aspect to the design.

Recognizing that cities and developers alike are strapped for cash, PPS advises for the “lighter, quicker, cheaper” approach.  Adding simple elements to plazas such as moveable furniture encourages people to customize a space for their specific use and group size, enabling collaboration.

Programming public spaces with a variety of activities from markets to fitness and games to performance arts and crafts
brings life to a place and attracts even more people to a neighborhood.  In New York City, Bryant Park was formerly home to several drug-dealing gangs and underwent a major renovation.  Committed to change, business owners supported redevelopment of the plaza through a special taxing district and created a more welcoming, accessible design, with the park booked morning, noon, and night with activities for all ages and cultural backgrounds.

Candy Chang, an artist and urban planner, recently spoke at the Walker Art Center and shared her vision for community spaces as inspiring places where citizens are both contemplative and engaged.  One of Chang’s most successful projects, a wall that encourages passerby’s to fill in the blank answering the question “Before I die I want to…” has expanded to cities on several continents.  A “Before I die” wall launched in Minneapolis in the Whittier neighborhood just hours before Chang’s arrival and was completely filled by eager citizens on the first day.

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