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Business Valuation, Development, Investment Real Estate

Do you need some leisure time?

Last week the Minnesota Business Journal reported, Lutsen Resort, a staple of Minnesota tourism for over 125 years, went on the market for just under 10 million dollars. However, it is not the first resort in the Great North to go on the market recently. The Star Tribune reports Gunflint Lodge sold for over 6 million dollars and Superior Shores and Resort, just south of Lutsen, in Two Harbors is also currently on the market.

Is this a trend? Why are resorts going on the market? Should consumers be worried about their options for North Shore leisure?

Herb Tousley, of the University of St. Thomas’ Shenehon Center for Real Estate, commented that these resorts often times require a “hands-on”  approach to management of the site. He also noted, “due to this approach, many owners see the opportunity to sell, in what they perceive to be, a high value market in order to exit the business.”

Statistics from the U.S. Travel Association show that domestic leisure travel is up from 2 billion trips in 2007 to 2.28 billion trips reported in 2016. More specifically, the Minnesota average household income has returned to pre-recession levels at $79,893. The private sector employment numbers (FRED) also seem to indicate the economy is in relatively good health. These indicators are great for resorts and the hospitality industry in general. Even with the ominous question of, “are we due for an economic adjustment?” It is not a predictable event. From general market signs, a resort may be an investment for some leisure.

 

Shenehon Center for Real Estate has been enabled Graduate level Business and an Undergraduate Major program in real estate for more than 15 years. The University of St. Thomas is dedicated to creating leaders who are morally responsible, think critically, act wisely, and work skillfully to advance the common good. 

 

 

Home Prices, Housing

4th of July Real Estate Matters

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.

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

Low Home Inventory Beginning to Affect Sales Volume: First Time Home Buyers Fueling Growth

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.

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Architecture & Design, Development, Twin Cities Real Estate, Urban Planning

Former Washburn-McReavy Funeral Home Development Remains Postponed

If you take a leisurely drive east over the 3rd Street bridge, you will see a familiar building. Familiar in the sense, the building is 90 years old. Your grandparents likely could have seen it as children. However, today unlike 90 years ago, fences surround the building with visible graffiti and construction equipment. It is the sight of one of many development projects in historic Northeast Minneapolis. 

The plan for the 90 year old building, previously occupied by Washburn-McReavy funeral home, was demolition to make way for a 40 story high rise. The project thus far is similar to the redevelopment efforts of Nye’s Polonaise which occupied the historic Harness shop and 112 Hennepin building. The Nye’s Polonaise project originally planned a high rise building, but in the end scrapped 24 of the original 30 floors to accommodate the neighborhood and Heritage Preservation Commission.

While it is not the same building as Nye’s, the project has been postponed now for almost a year. It will be interesting to see what happens, but recent history and potential project pressures may indicate serious alterations to the original plans.

 

http://www.bizjournals.com/twincities/news/2017/05/31/court-blocks-teardown-for-alatus-40-story-condo.html

 

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

St. Thomas Real Estate Analysis: Super-tight Housing Market Drives Metro Area Median Sale Price to Near Record Levels

High demand and low supply helped drive the median price of a Twin Cities home in

May 2016 to within $1,000 of the record set back in the bubble days of June 2006.

mortgagesIt has taken a full decade, but the median sale price of a home in the Twin Cities in May 2016 almost reached the all-time record high set back in the housing-bubble days of 2006, according to a monthly analysis conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Fueled by low supply and brisk demand, the median sale price of a home in the 13-county Twin Cities region reached $237,000 in May. That’s just shy of the highest median price on record, which was $238,000 back in June 2006. While the selling prices are similar, there are many differences in the 2016 market when compared to 2006. Each month the St. Thomas center tracks the median price for three types of sales: non-distressed or traditional; foreclosures; and short sales (when a home is sold for less than the outstanding mortgage balance). In addition, it looks for trends in the market and creates a monthly composite index score by tracking nine data elements for those three types of sales.

Herb Tousley, director of real estate programs at the university, observed that the supply of homes on the market dropped to its current low level in early 2013 and has remained historically low since then. He said possible reasons include difficulty in finding and purchasing a replacement home at a reasonable price; higher standards to qualify for a new mortgage; lackluster wage growth over the last several years; and homebuilders not building as many single-family homes as they used to. Meanwhile, on the demand side, Tousley said low interest rates, an improving economy, and a tight rental market are key reasons why the number of sales has steadily been increasing to near pre-recession levels.

“In spite of all of the new apartments that have been built over the last few years we remain in a very tight rental market,” he said. “The area has been absorbing all of the new units and vacancies continue to remain historically very low. The result of a low vacancy and a tight rental market is high rent growth. In 2015 the average rent in the Twin Cities increased by 5 percent. Repeated large rent increases over the last several years have many renters considering the idea of homeownership as an alternative, creating additional potential homebuyers.”

Comparing 2016 to 2006

The Shenehon Center for Real Estate compared May 2016 housing-market statistics with those of 2006. While the selling prices are very similar, some characteristics are quite different. A few examples: in May 2006 there were 5,079 closed sales and in May 2016 there were 6,234; in May 2006 there was a 6.7-month supply of homes for sale and in May 2016 there was a 2.8-month supply; in May 2006 there were 11,458 new listings and in May 2016 there were 8,676; and in May 2006 there were 30,235 homes for sale and in May 2016 there were 13,501.

10 yrs after- then & now

Another way of looking at the impact of low inventory on sale prices is to create a ratio for the number of homes available for sale divided by the number of homes sold that month. For example, if the ratio was 5, it means there were 5 homes available on the market for each buyer. A lower number indicates a tighter market. There were months back in 2007 to 2010 when the ratio was 10 to 14; it has dropped significantly. Tousley said that for most of the previous 14 months the ratio in the Twin Cities market has been less than 4, and in May 2016 the ratio hit an all-time low of 2.17. “When the ratio gets lower and the market gets tighter, the median sale price increases,” he said.

 

Sales Pressure - May 16

The St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for May 2016. The index, which tracks nine data elements for the three types of sales (traditional, short sales and foreclosures), started in January 2005. For that month, the center gave each of the three indexes a value of 1,000.

The May 2016 index score for traditional sales was 1,163, up 3.7 percent from April 2016 and up 8.6 percent from May 2015.

The May 2016 index score for short sales was 980, up 1.6 percent from April 2016 and up 7.7 percent from May 2015.

The May 2016 index score for foreclosures was 859, up 3.2 percent from April 2016 and up 9.4 percent from May 2015.

The May 2016 score was the highest ever for the traditional sale index. “It is the result of a very tight supply situation and continuing high sales activity, indicating the continued health and resurgence of the Twin Cities housing market,” Tousley said. There are far fewer distressed sales now than there were during the height of the Great Recession. In May, the 79 short sales represented 1.3 percent of total sales and the 341 foreclosure sales represented 5.5 percent of total sales. “As the number of distressed sales continue to return to pre-crash levels, the foreclosure index will continue to diminish in importance,” Tousley said.

Index Chart June 2016

Data - May 2016

 

 

 

 

 

 

 

 

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

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

 

 

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

Semiannual Survey of the Twin Cities Commercial Real Estate Experts Predicts Continued Favorable Market Conditions

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Leaders in the field of Minnesota commercial real estate expect to see a continuation of the favorable market conditions for commercial real estate that we have been experiencing for the past two to three years.

May 2016 Results

The semi-annual Minnesota Commercial Real Estate Survey conducted in May 2016 has produced some interesting results. Overall, the survey continues to indicate a slightly less than neutral expectation looking ahead two years to spring 2018 for commercial real estate. The composite index was recorded at 46. This is the sixth consecutive survey where the composite index has been in the 46 – 48 range. 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. Although the composite index level is similar to previous surveys the pattern of the individual indexes in the current survey is very different.

As was done with all ten of the 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. One thing we have observed in the current survey is there is less variation in the responses and that has caused a more uniform response rate reflecting the panel’s increased certainty in their views. The individual indexes are detailed below:

Rent Expectations

Less optimistic outlook that rents will continue to increase at current rates. Market conditions expected in spring 2018 are best described by the price for space (rental rates) and the supply of space (occupancy levels). The index for rental rates has declined from a highly optimistic 66 to a somewhat less optimistic 60. This is an indication of an expectation of a moderation of rent growth over the next two years. Higher rents help to offset the increased costs of new construction. A slowdown in rent growth puts pressure on expected returns that will be achieved by developers and owners.

Occupancy Expectations

A continued neutral outlook on expected occupancy levels. The index for occupancy levels increased slightly from 50 to 52. Despite the increase, the panelists continue in their expectation that occupancy levels will remain steady at current levels. As new buildings have been completed it takes some time for the market to absorb the new space. Over the last 2 years the occupancy index has been drifting downward towards a neutral expectation concerning the demand for 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 spring 2018. The land price index has increased (become less pessimistic) for the third consecutive survey moving from 37 last fall to 40 this fall this spring. The low point for the index was recorded at 31 in the fall 2013 survey. This sentiment while still in pessimistic territory indicates an expectation that land prices will moderate their rate of increase during the next two years. Increasing land prices increase total project costs and are a hindrance to new development, making it more difficult to obtain financing and adequate returns for investors.

Building Material Price Expectations

Increases in the price of building materials are also expected moderate.  The spring 2016 survey reveals that for the fourth consecutive survey our panel continues to become less pessimistic about the rate of increase in price of building materials. The building material index moved from a strongly negative 32 to a somewhat less negative 37, reflecting the panel’s opinion that building material price increases are expected to moderate. Since building materials are a major cost component of any development project any improvement in prices will be favorable for future development.

Return on Investment Expectations

Investors return expectations remain unchanged over the next two years. The index for investor’s return expectations has increased slightly for the third consecutive survey at 48. Although this index value is slightly pessimistic, it is essentially neutral.  The consensus among survey respondents continues to indicate that investors expected returns will not change significantly in the next two years. Investors will continue to seek out quality investments but they are being much more diligent about how they price risk and evaluate return when considering their investment options.

Lending Expectations

More equity is expected to be required.  The index for the amount of equity required by lenders decreased significantly, falling from 51 in to 42. This indicates the panel’s strong belief that credit will be available for good projects but lenders will increase their equity requirements in the coming two years. The good news is that more equity should result in better rates and terms; however, the bad news is that in many cases equity is harder to find and more expensive than debt.

 Summary

To summarize 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 2 to 3 years, however there will be some differences as to why this will happen. The panel has moved from a positive to a neutral position on occupancy. With all of the new product coming on line it is expected that given a little time the market will be able to absorb all of the new space but while this happens occupancy rates will be depressed in the short run. Additionally, the panel expects to see continued rent growth, however, that growth will be at a slower rate as new product comes on line and is absorbed. Development efforts will be helped by an expected moderation in the rate of increase in land prices and building materials. The panel is also expecting to see lenders tighten their lending standards somewhat. That results in lower loan amounts and higher equity requirements on development projects. Higher equity requirements makes development more difficult since equity dollars are more expensive and using less debt financing tends to reduce the rate of return on a project. Overall, our panelists see continuing activity at or near present levels in most categories of commercial real estate during the next two years.

May 2016 Commercial Survey

Commercial Real Estate, Economics, Industry News, Real Estate Trends, Twin Cities Real Estate

St. Thomas’ Commercial Real Estate Survey Finds “Essentially Neutral” Outlook with Gradual Improvement Ahead

water color MPLS SkylineData shows the semiannual survey of 50 commercial real estate industry leaders correctly predicted this year’s higher rents, occupancy rates and building materials.

Leaders in the field of Minnesota commercial real estate don’t foresee drastic changes in their industry over the next two years. What they do predict is relatively slow growth and gradually improving conditions. That is the theme of the eighth Minnesota Commercial Real Estate Survey, a semiannual poll of 50 Minnesota commercial real estate leaders from the fields of development, finance and investment. The survey has been conducted each fall and spring since 2010 by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business.

In all eight surveys the same group of 50 industry leaders have been polled on their expectations of future commercial real estate activity. 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 November 2013 composite score stands at 47 and continues a “slightly less than optimistic” trend for the third-consecutive survey.   “This fall’s results reflect a mixed bag of optimism in some areas and pessimism in others,” said Herb Tousley, director of real estate programs at the university. “This is similar to the pattern that was observed last spring. However, the degree of optimism and pessimism has become slightly more moderate.”

Price for Space

The index score for rental rates remains positive but dropped slightly, from 69 to 66, as did the index for occupancy levels, which moved from 66 to 62. “Despite the decrease, the panelists remain optimistic that rents and occupancy levels will continue to improve, albeit at slower rates,” Tousley said. This marks the fifth-consecutive survey with scores above 60 in these two areas, indicating, he said, “continued optimism that the economy is going to continue to improve and there will be a greater demand for space.”

Land Prices

The land-price index dropped from 33 last spring to 31 this fall. It was the third-consecutive decrease and, Tousley said, “reveals a strong expectation that land prices will continue to increase. “Increasing land prices increase total project costs and are a hindrance to new development, making it more difficult to obtain financing and adequate returns for investors.”

Building Materials

The building-material index moved from a strongly negative 22 to a slightly less negative 24. “That reflects the panel’s opinion that building-material price increases are expected to moderate,” Tousley said. “An improvement in prices will be favorable for future development.”

Return for Investors

The index for investors’ returns has remained at 48 for the past four surveys. That is seen as essentially neutral and indicates the panel does not see a significant change in expected returns over the next two years. “Investors will continue to seek out quality investments but they are being much more diligent about how they price risk and evaluate return,” Tousley said.

Required Equity

The index for the amount of equity required by lenders dropped significantly, from 64 to 57. “This indicates the panel’s belief that credit will be available for good projects but lenders will increase their equity requirements in the coming two years,” he said

 Accuracy

With eight surveys completed since the Minnesota Commercial Real Estate Survey began in 2010, the researchers compared the panel’s past predictions with how things actually turned out. It turns out that market conditions in 2013 are very close to what the panel predicted in 2011. Some examples:

  • In 2011 the panel predicted higher rents in 2013. Rents for class A office property in the Twin Cities went from $14.88 in 2011 to $15.74 in 2013.
  • In 2011 the panel predicted higher occupancy in 2013. The average retail vacancy in the Twin Cities went from 8.4 percent in 2011 to 7.8 in 2013.
  • In 2011 the panel predicted higher costs for building materials in 2013. The price for lumber increased from $252 per 1,000 board feet in November 2011 to $396 in November 2013. 

Summary

“Panelists don’t see any drastic changes in the next two years,” Tousley said. “It can be interpreted that things will continue to progress forward, but at a slightly slower pace due to higher development costs in land and materials. “Overall, our panelists do not foresee a commercial real estate recession coming in this market, but we will likely see two years of relatively slow growth and gradually improving conditions in the commercial real estate market in the Twin Cities.

“One thing we have observed in the current survey is there is less variation in the responses and that has caused a more uniform response rate reflecting the panel’s certainty in their views.”

The survey is conducted and analyzed by Tousley and Dr. Thomas Hamilton, associate professor of real estate at St. Thomas. Additional details can be found on the Shenehon Center’s website: http://www.stthomas.edu/business/centers/shenehon/research/default.html

 

 

Economics, Industry News, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

St. Thomas Residential Real Estate Analysis for September

 mortgagesSt. Thomas real estate analysis for September: the market is

taking its seasonal dip …  but running ahead of 2012 numbers

Here’s one dip that is actually good news: the number of foreclosures and short sales is down considerably from last year. Also, this month’s analysis takes a look at what’s happening to the price-to-income ratio.

Home prices in the Twin Cities real estate market took an expected, seasonal dip in August, but in many respects the market is doing better than this time a year ago, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

 This year compared to last

In his analysis for the month of September, Herb Tousley, director of real estate programs at the university, said that “from August to September all of the market indicators for the Twin Cities housing market are showing the normal seasonality that we expect to see every fall.  “September’s median sale prices, and the number of closed sales, new listings and pending sales are all down from the August 2012 levels. What is important is that compared to a year ago most of these indicators continue to show a healthy increase,” he said. The median price of a traditional home in September 2013 was $217,000. That’s down $11,000 or 4.8 percent from the previous month, but is up $10,125 or 4.4 percent from September 2012.  “As we have reported previously, the annual rate of increase in the sale price of traditional homes (not foreclosures or short sales) is expected to moderate and remain in the 3 percent to 5 percent range for the remainder of the year,” Tousley predicted. 

MSP Traditional Home

 

 Low number of homes to buy helps boost prices

 A factor that continues to put upward pressure on home prices is the historically low number of them for sale. In September there were 16,184 homes for sale in the 13-county area, which is 5.9 percent lower than the 17,197 homes available in September 2012. “Historically the number of homes for sale peaks in mid-summer then declines through the fall, bottoming out in December,” Tousley said. “It appears that this year is following the same pattern, and the inventory of homes for sale will remain near all-time low levels.  “As long as interest rates remain steady, look for the number of closed sales to continue to exceed last year’s levels. These conditions indicate that the market will continue to be tight through fall and winter into early spring,” he said.

 Affordability and the price-to-income index

 In this month’s report, the Shenehon Center for Real Estate looked at affordability and the price of homes compared to the income of homebuyers.  Tousley said the combination of low inventories of homes for sale, historically low interest rates and the perception of a slowly improving economy have been fueling the recent recovery in home prices. In many markets the increase in home prices has been outpacing growth in household income. The price-to-income ratio is a measure of affordability that compares the median price of homes to median household income.  “The price-to-income ratio has risen above its historical average in the Twin Cities and many other markets,” Tousley said.

 “In the Twin Cities, historically the median price of a home has been 2.6 times the median household income. As year-over-year home prices have been increasing at a double-digit rate for a good share of the last two years, the ratio has now increased to 3.0. That puts our market in the middle of the pack compared to other major U.S. markets.” He added that the price-to-income ratio is a good indicator of home ownership affordability and can be a predictor of a future housing bubble.

 Home builders are busy

 In September the number of construction permits for single-family homes continued to track about 30 percent ahead of last year. September saw about 3,800 permits issued for new single-family homes in the metro area. The dollar volume for those permits is running about 35 percent ahead of last year. “This indicates that there are not only more homes being built but on average the homes being built this year are more expensive than they were last year,” Tousley said.

 The St. Thomas indexes

 The St. Thomas Traditional Sale Composite Index, the one that tracks nine data elements, came in at 1,070 for September. That’s 20 points lower than August’s 1,090 (the highest recorded level since August 2005) but like most of the real estate measures, it is running well ahead of September 2012 when it was 1,012.

Composite indexes for the distressed sales also are improving over last year. The foreclosure index for September 2013 of 775 is up 10.2 percent from September 2012. The short sale index for September 2013 of 885 is up 12.2 percent from September 2012.

 More information online

 The Shenehon Center’s complete report for September (found at http://www.stthomas.edu/business/centers/shenehon/research/default.html) includes charts showing the median sale price of homes, the ratio of sales compared to the number of homes for sale, and the price-t0-income ratios for the Twin Cities and 20 other major U.S. markets.

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

Economics, Industry News, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

UST Minneapolis / St. Paul Housing Report – More Good News in August

home-for-saleSt. Thomas real estate analysis: increase in traditional (non-distressed) home prices moderate as median price approaches pre-housing-crash levels in the Twin Cities market

 The improving local economy and job creation will keep demand strong for both existing and new homes. Expect the supply to remain tight through next spring, and a shortage of vacant developed lots in the metro area could be an issue.    

The monthly increases seen in the price of traditional homes (those not under threat of foreclosure) in the Twin Cities real estate market are beginning to moderate as recent sale prices approach the pre-housing-crash prices recorded back in 2006. According to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business, the August median sale price for a home not affected by foreclosure was $228,000. That’s up 1.38 percent from July and is approaching the pre-crash peak of $239,900 in June 2006.

Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance). In his analysis for the month of August, Herb Tousley, director of real estate programs at the university, said that “we are also continuing to see the median price of short sales and foreclosed sales close the gap with traditional, nondistressed sale prices. This is a healthy trend as the price gap between foreclosed sales and traditional sales has returned closer to pre-crash levels.” Overall in the Twin Cities, distressed sales represented 20.68 percent of homes sold in August 2013. Compared with the same period in previous years, that’s far higher than the 1.17 percent in August 2005 but less than half the 44.96 percent recorded in August 2011.

August-2013-Chart

The St. Thomas Traditional Sale Composite Index, the one that tracks nine data elements, now has reached 1,090; that tops its previous highest recorded level of 1084 that was set in August 2005. “This is a reflection of the sustained recovery of traditional home median sale prices and a number of other favorable market factors including low levels of inventory, the decreasing percentage of distressed sales and historically low interest rates,” Tousley said. Composite indexes for the distressed sales also are improving. The foreclosure index for August 2013 of 792 is up 12.8 percent from August 2012. The short sale index for August 2013 of 889 is up 13.2 percent from August 2012.

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Commercial Real Estate, Economics, Industry News, Real Estate Trends, Twin Cities Real Estate

Survey of Leading Experts Reveals Lingering Concern About the Future of Twin Cities Commercial Real Estate

water_color_MPLS_Skyline_155pxSpring 2013 Commercial Real Estate Survey

According to a semiannual survey commissioned by the University of St. Thomas, industry leaders remain slightly pessimistic about market conditions moving forward

 The University of St. Thomas Opus College of Business released its seventh Minnesota Commercial Real Estate Survey today, and results of the forecast indicate lingering concern about commercial real estate conditions two years from now. Data for the semiannual survey was gathered from a group of 50 commercial real estate industry experts who work in development, finance and investment in the Twin Cities.

The survey polled their expectations regarding vacancy rates, rental rate growth, land prices, building material prices, new project financing criteria and rates of return. The survey revealed a composite score of 47 based on a 0-100 index. An index score higher than 50 represents a more optimistic view of the market over the next two years, while a score lower than 50 indicates a more pessimistic view. This is the second time the score has measured below 50, indicating a less than neutral expectation regarding the future market forecast.

“We’re continuing to see the same trend that emerged last year,” said Herb Tousley, University of St. Thomas director of real estate programs and conductor of the survey along with Associate Professor Tom Hamilton. “However, there are some key differences in the survey this year, including a higher level of confidence among leaders that rental rates and occupancy will continue to grow into 2015.”

Panelists believe those are the two areas most primed for growth. The index for rental rates increased from 67 to 69 in this latest survey, reflecting a growing confidence in the market. A separate index for occupancy levels decreased by a point this year, though experts remain optimistic that those levels will turn around as the economy continues to recover and the demand for space increases.

A downside to the market forecast continues to be high land prices and the rising cost of building materials. The land price index dropped to its lowest level since the survey began in 2010, revealing panelists’ concern about how increased land prices will affect new development. Also, panelists expect the high cost of building materials, which scored a 22 in the index this year, may negatively impact the rate of new development.

The Minnesota Commercial Real Estate Survey originated in Spring 2010. Now in its third year, researchers have year over year data and can make valuable predictions and comparisons regarding the real estate market. So far, the panelists have been prescient about forecasting market conditions. For example, the two-year forecast from June 2011 accurately cited optimistic commercial real estate outlooks for rents, occupancy and new project financing and pessimism surrounding land and building material prices. These accurate predictions have reinforced the quality of the survey and its value as an industry tool.

The full Minnesota Commercial Real Estate Survey is available at: http://www.stthomas.edu/business/centers/shenehon/pdf/MNCRE_Spring2013_Web.pdf