As we know, the Supply Demand Ratio (SDR), is perhaps the most important leading indicator for predicting future price movement in real estate markets. Sometimes, significant other factors such as foreclosures moving through the market or lack of quality Jumbo financing, can overshadow or diminish the SDR effect, but that's another story for another day.

Unfortunately, there is no formula to determine the exact influence the SDR will have on prices. We know that if it's too low, prices will go up; too high, they will drop; and balanced, prices will be stable. Opinions vary, but most observers consider a range of 4 to 6 months of inventory to be a balanced SDR. We also know that what constitutes balance, or high or low, and how it can affect prices, can change depending on area, price range or time.

Our Twin Cities market can be divided into many submarkets that are vastly different. There are areas with high numbers of lender mediated (foreclosure and short sales) properties, such as Brooklyn Center, representing 67.9% of its inventory. Other areas have low levels, such as Edina, with 5.4%.*   

One recent trend has been the rapid change to a sellers market in the lower price ranges. An analysis of SDR's demonstrates this.

A selection of high foreclosure impacted areas, Brooklyn Center, Brooklyn Park, North Minneapolis, Powderhorn and Camden reveals the activity in the low price range market. The SDR in these areas for properties listed at $80,000 or below is an unusually low 1.35, based on Pendings and Solds with an off market date in the last month (March 28 - April 27, 2009). For properties in these areas with a list price above $150,000, the SDR is 5.81.

A selection of low foreclosure impacted areas, Edina, Eden Prairie, Minnetonka, and Plymouth, reveals similar differences based on price range. In these areas, the SDR for properties listed at $250,000 or below is just 2.55. For properties listed at $400,000 or higher the SDR sits at 9.95.

What this tells us beyond the fact that there are currently distinctly different markets is a matter of interpretation. It appears clear that the bottom of the market will be rising, but we are nowhere near any upward price pressure on the middle or upper price ranges. It also appears that the downward correction has overshot the target in the high impact areas and we'll likely see prices moving towards more balance relative to other markets in the future.

As always, money flows towards quality and value, and future movement in the markets will reflect this.

* Data from www.mplsrealtor.com, Lender Mediated Report, authored by Jeff Allen and Aaron Dickinson.