By Aubray Erhardt on Monday, September 14th, 2015

What a summer it has been. Home sales reached 10-year highs, prices continued to rise but at a more sustainable pace and interest rates and job growth have both been favorable. With housing, the labor market and the broader economy all performing relatively well, the Federal Reserve seems committed to lifting their key rate off zero by year-end.

As the busy summer season draws to a close, activity levels have begun to cool month-to-month, but most indicators continue to show year-over-year improvement. Pending sales rose 12.2 percent to 5,347 for August, but are up 17.9 percent so far in 2015. Closed sales increased 7.8 percent to 5,811, but have risen 15.7 percent so far this year. Seller activity was flat compared to last year, new listings fell 0.3 percent from 6,945 to 6,922. Inventory levels tumbled 13.6 percent to 16,398 active listings.

“The August numbers show that homes are selling in near-record time and that sellers are getting close to full list price,” said Mike Hoffman, Minneapolis Area Association of REALTORS® (MAAR) President. “The average time a property spends on the market fell to 64 days, just above the 9-year record pace of 63 days.”

Strong demand combined with low supply levels means homes don’t linger on the market for long. It also means prices are still feeling upward pressure, though to a lesser extent compared to the initial phases of recovery. The August 2015 median sales price rallied 2.7 percent to $224,900. The average price per square foot also increased 2.7 percent to $129. Sellers are accepting offers at a median of 98.0 percent of their original list price but 99.3 percent of their final list price, which indicates near-full price offers arrive quickly once the home is priced right.

The Twin Cities region has 3.5 months’ supply of inventory, which means sellers are firmly in the driver’s seat. That figure sank 23.9 percent since August 2014. However, not all local areas, market segments and price points reflect that metropolitan-level reality.

During August, mortgage rates hovered just under 4.0 percent, compared to a long-term average of over 7.0 percent. The Department of Commerce reported that national construction spending rose to its highest level in seven years. The economy added 173,000 new private payrolls in July while the unemployment rate fell to 5.1 percent. The latest Bureau of Labor Statistics figures show the Minneapolis-St. Paul-Bloomington metropolitan area had the second lowest unemployment rate of any major metro at 3.7 percent.

“Anxiety surrounding interest rates might be overblown,” said Judy Shields, MAAR President-Elect. “Yes, we have likely seen the bottom in terms of mortgage rates. But they will go up very slowly and incrementally and won’t affect the typical borrower very much. We see it as a positive sign that our economy has improved and is resilient enough to withstand it. We’ve come a long way and we knew this was coming.”
From The Skinny Blog.

By David Arbit on Tuesday, August 18th, 2015

“Accept certain inalienable truths: Prices will rise. Politicians will philander. You, too, will get old. And when you do, you’ll fantasize that when you were young, prices were reasonable, politicians were noble and children respected their elders.” – Mary Schmich

We hear a lot about home prices and how they change over time. But by far the biggest pitfall of dealing in absolute dollar terms is that a dollar in 2015 does not buy what a dollar used to get you in 1960 or even in 2010. If you’ve ever purchased the same product or service even just several years apart, you implicitly know this, though you may not be familiar with some of the rationale and technical aspects of tracking and adjusting for inflation. And let’s be clear here: that is ok!

While the nominal (not inflation-adjusted) home price has certainly increased in absolute terms, the typical home that cost $15,977 in 1960 dollars would actually cost exactly $127,635 in 2014 dollars. So a lot of what appears to be price gains is actually attributable to inflation, though not all of it. This is why it’s important to separate out inflation-adjusted prices from nominal, reported prices. It’s the best way to answer the question: excluding the effect of inflation, how much did real home prices actually increase?

The Consumer Price Index (CPI) is the most common method to account for inflation when dealing with time-series data stated in currency units. Using the Bureau of Labor Statistics (BLS) CPI, we’ve adjusted historic home prices and restated them in constant 2014 dollars. Note how far apart the trendlines start versus where they end up. Only when nominal prices approach 2014 do the trendlines converge—since, at that point, both nominal and adjusted prices are stated in 2014 dollars.

Enough with the buildup. So what’s really going on here?

Between 1960 and 2015, nominal home prices increased from $15,977 to $261,963, a gain of 1,539.6 percent. During the same period, inflation-adjusted prices increased from $127,635 to the same $261,963 for a more modest gain of 105.2 percent. That’s a big difference, and shows just how much of the run-up in prices can be attributed to inflation.

But it’s also important to note that home prices more than doubled during the 54 year study period (1960-2014) even after adjusting for inflation and despite the downturn. That means after factoring for inflation, home prices kept pace with inflation AND doubled in 54 years. An increase of 105.2 percent spread out across 54 years translates into a 1.95 percent real annualized average growth rate. That finding supports the roughly 2.0 percent annual home price increase that is referenced quite often. It also supports the fact that real estate is an effective inflation hedge.

Equally or perhaps even more importantly, while nominal home prices are quickly nearing their 2006 highs, inflation-adjusted or real home prices are still well below their previous peak in 2005. In other words, while nominal prices seem to be approaching their previous peak, real home prices are still a bargain, especially compared to 2004-6 prices stated in 2014 dollars. That means real home prices have to increase 26.4 percent before they break even with 2005 levels. Nominal home prices have about 6.6 percent to go before reaching 2006 levels.

But life is all about choices, and choices—at least in the strict economic sense—represent a series of opportunity costs. An opportunity cost of a choice, such as buying a house, is what you give up to get it. Most of us have to choose between two major investments at any given time. Sure, gold and other precious metals might also keep pace with inflation and then some, but you can’t live in a pile of bullion. You can only visit your gold periodically. Investing in a home is one of the most effective inflation hedges out there. Plus, while you’re quietly slaying the inflation dragon and enjoying some appreciation, you’ve got a place to live!
From The Skinny Blog.

By Erin Milburn on Thursday, August 13th, 2015

Minneapolis, Minnesota (August 13, 2015) – After purchase demand reached a 10-year record high in June, the Twin Cities metropolitan housing market continued to delight in July. With the spring and summer peak buying season coming to a close, activity levels should begin to cool month-to-month, though most indicators should continue to show year-over-year improvement. The number of signed purchase agreements rose 12.1 percent to 5,716 for July, but are up 18.7 percent so far in 2015. Closed sales increased 17.7 percent to 6,275, but have risen 16.7 percent so far this year. Seller activity was flat compared to last July, new listings fell just 0.4 percent from 7,997 to 7,963. Given that combination of supply and demand movement, the number of available properties for sale fell 11.0 percent to 16,940 homes.

“While those selling their home are yielding top dollar, others wonder if today’s younger generation will be renters forever,” said Mike Hoffman, Minneapolis Area Association of REALTORS® (MAAR) President. “But a National Association of REALTORS® (NAR) survey found that millennials comprised 32.0 percent of all home buyers and 68.0 percent of first-time buyers—both the largest share of any group.”

As interest rates continue to normalize this year, even more pent-up demand from all age brackets will likely be released during this period of historic affordability.

Since demand increased while supply indicators fell—and because a larger share of sales came from the higher-priced traditional segment—the July 2015 median sales price rallied another 4.7 percent to $225,000. The median price per square foot increased 3.4 percent to $120. While the July 2015 median sales price was slightly lower than the June 2015 price, the July 2015 price per square foot was slightly higher than June 2015.

Again due to the factors mentioned above combined with a sense of urgency among buyers, the number of days a property spent on the market fell 7.4 percent to 63 days. Sellers are accepting offers at a median of 98.5 percent of their original list price but 99.7 percent of their final list price, suggesting near-full price offers come quickly once a seller is priced right.

The Twin Cities metropolitan area has 3.7 months’ supply of inventory, which means the region as a whole is a seller’s market. That figure dropped 19.6 percent since July 2014. However, not all local areas, market segments and price points reflect that metropolitan-level reality. This metric is a ratio of supply and demand and indicates how long it would take to completely clear the market assuming no new homes enter the marketplace.

Barring suddenly negative economic data, the Federal Reserve is poised to normalize rates by lifting the Federal Funds rate off of zero starting in September. Mortgage rates are still just below 4.0 percent, compared with a long-term average of over 7.0 percent. Nationally, the economy added 215,000 new private payrolls in July while the unemployment rate held steady at 5.3 percent. The most recent data from the Bureau of Labor Statistics shows the Minneapolis-St. Paul-Bloomington metropolitan area has the third lowest unemployment rate of any major metro.

“We have so many different things going for our region,” said Judy Shields, MAAR President-Elect. “Twin Citizens are smart, and they realize that when rents are high and rising, interest rates are under 4.0 percent and prices are still below their peak, it’s time to consider investing in the stability and predictability of homeownership—in most cases, it’s cheaper than renting.”

From The Skinny Blog.