Did I Say Recovery?

So the Twin Cities real estate market has finally posted a year over year price increase for the first time in 41 months this January. Certainly good news but let’s not break out the champagne yet. The recovery/rebound…whatever you want to call it, is a long process and this is just another sign that we are going in the right direction as opposed to a destination we’ve been seeking.

The price increase means that the median price of this January’s sales was higher than last January. Key point: this year’s sales are different houses than last year’s sales. 2009 started with a huge number of lender owned, foreclosed properties on the market. At bargain basement prices, they sold in huge numbers, reducing the inventory by 62% in one year. With all the demand for and sales of lender owned properties, 2009 was a year with a large increase in sales and a large decrease in median or average price. Median and average prices are not entirely an indicator of changes in value, but also indicative of what is selling.

January 2010 included a large increase in sales of (higher priced) traditional homes and short sales, and a huge decrease in sales of (lower priced) lender owned properties. So while much attention is given to our price increase, it really has more to do with what is selling rather than an actual increase in value.

That said, I find other data in the January numbers to be more revealing of where we are in the process. The large increase in traditional pending sales (28%), and pending short sales (115%), is a very positive sign that buyers are moving into those markets. This is a much needed step in the right direction. But with the median price of traditional sales down 8% from last year, it is clear that we have a ways to go.

A surprise to me as I have taken a larger leadership role in our local Realtor association is that I can get a message out without saying anything. The following quote was written for me: “A lot of progress has been made in the last year,” said MAAR President-Elect, Pat Paulson. “But the recovery

process still isn’t over. There are going to be some more bumps in the road.”

I approved the quote because I agreed with it and it sounded like something I would say. We have a fantastic staff at MAAR, with great skill at not only presenting the data in a meaningful and pleasing way, but they can actually intuit the way that I would describe it. I am impressed.

But if I were to use one word to describe the market in 2010, it would not be recovering, or rebounding. Those words imply that we are recovering something lost, or rebounding back to a place, perhaps the price peak of the last cycle – in 2005 or 2006. We are not heading to a market like that in 2010, or anytime soon. My word for 2010 is stabilizing. Markets always tend towards balance, and ours has been out of balance, swinging back and forth for some time. Some of the 2009 trends will carry over, like low supply and high demand in the lower price ranges. But the January data and other trends indicate to me that the market is stabilizing. There will be more bumps in the road, but we are moving along in the right direction.