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 http://www.stthomas.edu/business/centers/shenehon/research/. The report is also available for free via email from Tousley at firstname.lastname@example.org
The latest report, just published today by the Shenehon Center for Real Estate is not a significant shocker. Current trends of single family housing supply shortages continue. Herb Tousley, Director of the University of St. Thomas’ Shenehon Center for Real Estate, gave interesting insights this month. Many people have attributed the shortages to simple reasons such as increased demand due to millennials and generation X’ers beginning to settle down which are true, but Mr. Tousley brings up a point seemingly looked over, the recent actions of investment vehicles.
“Nationally, over the past five years, the single family rental home has become its own institutional asset class with over $50B invested
The CRE Cycle – Are we headed over the top?
Working in the new consolidated CRE environment
Mike Ohmes, Cushman & Wakefield
Executive Vice President, Brokerage
Earning an undergraduate Bachelor of Arts degree in economics and speech communications from Macalester College in St. Paul and an MBA from the Carlson School of Business at the University of Minnesota, Mike Ohmes has a wealth of commercial real estate experience from a broker to a manager.
Today as Executive Vice President Mike Ohmes is responsible for leading Cushman & Wakefield’s Transaction and Advisory Services business. This group includes the company’s Brokerage, Capital Markets and Real Estate Advisory.
Since joining the Cushman & Wakefield in 1991 as a broker in the office division, Ohmes consistently was among the top producers. He has received the company’s Offshore Club designation for his performance a total of 7 times (each year from 1993-1999). In 2000, Ohmes earned the company’s President’s Award for his outstanding contributions to the company, and in 2003, he was recognized by The Minneapolis/St. Paul Business Journal as one of their “40 Under Forty.”
The Shenehon Center for Real Estate is proud to present this opportunity to gain insights into the commercial real estate industry. Founded in 2000, the Shenehon Center for Real Estate looks to provide both resources and a public forum for real estate industry professionals and the public.
Tuesday, November 28th, 5:30PM
University of St Thomas, Minneapolis Campus
Shulze Hall, Room 127
The September Residential Index report from the Shenehon Center for Real Estate came out last week. Mr. Tousley, director of the Shenehon Center, was not surprised by the continuation of the supply glut, but in this latest report, he pointed out that the housing market is now being driven by the Millennial generation and Generation Z. Some key takeaways,
- Over half of home sales this year have been to people 36 years old or younger
- Home price appreciation continues to outpace income growth
- Inventory remains significantly below demand
- Price and inventory are affecting the “typical” renter
As seen in Minneapolis, many major cities are being pressed by a combination of decreased household sizes, sociocultural trends for “more” space, and an influx of people coming to live in the cities not seen since the 1940’s. The report states, Millenials and Generation Z’ers while interested in buying
According to Minnesota Compass, 48.4 percent of Minneapolis households are overburdened by housing costs. To explain, these households pay more than 30% of their gross income towards housing. Just for reference, a house in Minneapolis is averaging around $200,000 which for a first time home buyer with 10 percent down payment amounts to a monthly mortgage around $1,400 including an estimates for coverages and taxes.
There are many factors affecting this overburdened number. According to a Minneapolis City Council housing report, the city’s current population [approx. 412,000] has not been this high since the 1970’s which is still lower than the peak seen in 1950 [reported 521,718]. Further exacerbating the issue is the fact that there are about the same amount of units today as in 1950 in conjunction with a decrease in average household size. In 1950, it was roughly 3.3 persons per household compared to today’s 2.3 persons per household.
The most recent residential housing report from the University of St. Thomas and the 2017 Housing Market Comprehensive Analysis by HUD, give evidence that the cost burden is a result of the simple economic principle of supply and demand. The influx of demand for housing within Minneapolis has increased the risk of displacement. Housing prices are up year over year and there remains record low vacancy levels of 4 percent. Talks with a political liaison, Mark Stenglein, and local developer and founder Bob Lux of Atalus, LLC, reinforced the challenges to affordable housing
The time has come, the 2017 Hall of Fame inductees have been announced. Congratulations to Ralph Burnet, Jack Rice, and Howard Shenehon!
Join in the recognition of the accomplishments Burnet, Rice and Shenehon have done for Minnesota real estate. Members of the Minnesota Real Estate Hall of Fame are chosen for their outstanding business performance, high standards of ethics and community activities. The three new members are:
Ralph began his real estate career at Bermel Smaby Realtors. After leaving Bermel Smaby Realtors, he started his own realty company, Burnet Gagner Realty and built it to the largest in the Twin Cities. In 1983, Burnet merged his company with Merrill Lynch and for the next 7 years Burnet served as its Eastern Regional President. But when Merrill Lynch Real Estate was sold to Prudential in 1990, Burnet and his partner Dar Reedy bought back the Minnesota-based company. In 1996, Burnet expanded into the Chicago market, merging with Prudential Preferred Properties of Chicago. By 1998, Burnet Realty had grown to the 4th largest residential brokerage in the United States, and expanded though merging with the Coldwell Banker name. Today, Coldwell Banker Burnet is one of
Affordable housing is and has been a buzzword in the real estate industry for years. It carries many misconceptions. Let’s clear up these misconceptions before going further.
- First, affordable housing is not typically affordable to everyone. It is affordable in that rent or sale value is reduced from market rates in order to allow individuals and families below the median income level to not be “overburdened” by rent or mortgage payments.
- Second, the majority of people assisted HAVE jobs and ARE productive members of their communities in which they reside. The idea that affordable housing induces crime and the lowering of community home values, to name a few, is false.
- Third, affordable housing is just like any other rental or purchase agreement with the addition of a historical income check. Owners and tenants undergo credit checks and asked of employment. Just in case you weren’t convinced when I stated earlier that a majority of affordable housing owners and tenants are employed.
So, why is this topic being brought up? Of almost 116 million households surveyed by the 2013 American Housing Survey, 36 percent are by definition overburdened by housing costs. To be overburdened by Federal government definition, a household must pay more than 30 percent of their yearly income. There are multiple perspectives to even this number, but before “Part 2” of this discussion, we ask the reader to do some research.
Do you think more affordable housing is needed? Is it a policy issue? Is it a supply and demand issue?
Our reason to talk about affordable housing is simple. With more than a third of the United States overburdened by housing costs and as a part of the University of St. Thomas, the Shenehon Center for Real Estate serves as a resource to the commercial, industrial, residential and corporate segments of real estate industry and the community to advance the public interest in real estate issues and to advance the common good.
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
Last evening, I watched the Delano fireworks. The show was excellent and the lightning made it even more interesting. It got me thinking about the past, and how 10 years ago, my family would get there 5 or 6 hours early to get prime sitting/parking real estate to see fireworks up close. Whereas, now, as long as we can see the fireworks it is a good spot. To be honest, the effort to get a good spot doesn’t have the same value as before.
Although, my preferences have changed, finding a spot to park a car or a lawn chair seems like it is even harder to find than 10 years ago. Granted, Delano hosts one of the oldest annual 4th of July festivals in the state, the town has grown substantially, and they don’t seem to ever hold back on the fireworks. A couple years back at the 100th anniversary, the Delano fireworks show had a finale “end-of-show” firework which my friends and I felt from 10 miles away. I digress. Despite my own preferences, people want prime viewing real estate to watch the fireworks up close, but there isn’t enough. As the effort [price] to acquire the sitting space rises, people, like my family, have decided to locate farther away.
To the point, the fireworks show reminded me of the current housing market. Low housing inventories with high demand. From a simple economic standpoint, people should be entering the market as the price rises, but like the fireworks show there is an intangible element to housing. Individually, we all value these intangible attributes of living differently. For example, some people in a median priced house may value geography and education opportunities higher than the house alone, and they may not be able to find a home with similar geography and education. Therefore, they do not enter the market keeping inventory low.
FRED reports the average American family can afford a mortgage. So, why are we not seeing more sales? Can people not afford or not willing to pay current prices? Could it be trends changing social norms (Home ownership)? Whatever the reason, it will be interesting to see at what point housing inventories truly begin to climb.
MINNEAPOLIS, (June 21, 2017)— According to the First-Time Homebuyer Market Report recently released by Genworth Mortgage Insurance this segment of the market is having a big influence on the national housing market. The report found that this demographic accounted for 424,000 single-family home sales, or 38 percent of the total homes sold in Q1 of 2017. This amount is an 11 percent increase from Q1 2016, and the most since 2005. Their source data dates back to 1994 and analyzes over 20 million records. The survey tracks home sales for first-time homebuyers on a monthly basis, publishes quarterly, and compares the data against national housing market indicators.
“The first time home buyer segment is poised for additional growth in the Twin Cities. In fact, historically low interest rates and a strong local economy are all feeding demand in this market segment.” said Herb Tousley, director of real estate programs at the University of St. Thomas.
There are some head winds that are creating a drag on the willingness and ability of first time buyers to jump into home ownership. Student loan debt is a major factor making it very difficult to save for a down payment, qualify for a mortgage, and afford a mortgage payment. Additionally, the extreme shortage of moderately priced homes is making it difficult for first time buyers to find affordable homes in good locations.
The limited availability of homes to buy is creating upward pressure on sale prices. Home prices have been rising faster than wages for the last several years. This situation is starting to create affordability issues for first time buyers who typically do not have large down payments. The idea of home ownership is still very much alive among younger potential home buyers. However, due to the aforementioned factors many are needing to delay their first home purchase by several years.
Setting New Records
The Twin Cities housing market continues to set new records in May. Record high median sales prices and historically low supply continue to dominate the market. The overall median sale price jumped from $245,500 in April to $250,000 in May.