With all the bad news coming in from Wall Street and repetitive dreary national news, it's been easy to miss the housing recovery in Minneapolis and Saint Paul. This is most accurately confirmed by looking at the topic simultaneously through the lens of both a Realtor, appraisal review/underwriter and a mortgage insurance underwriter. Two reports are most telling in these regards: the Weekly Market Activity Report (The Skinny) from the Minneapolis Area Association of Realtors or the Weekly Market Activity Report from the Saint Paul Area Association of Realtors and the Metropolitan Area Market Analysis (MAMA) from mortgage insurance provider, RMIC.
At first glance, the Weekly Market Activity Report may seem to be negative with pending sales dropping, the percent of original list price received at sale dropping and the months supply of inventory increasing BUT there is a very important data set that means good things for the market going forward. For some weeks, the number of houses per buyer has been rising from less than 5 in March to almost 9 in September. This now stands at 7.96 and is trending downward. Should this continue, as it appears it may, fears of an oversupply of housing leading to declining markets would likely be abated.
This is important because, from an appraisal reviewer/underwriter's or mortgage insurance underwriter's standpoint, page one of that appraisal will outline the 1 Unit Housing Trends and whenever it states that there's a declining market or oversupply, it can mean bad things. These things might include a lot of appraisal conditions (i.e. additional comparable properties) or loan to value cuts.
The Metropolitan Area Market Analysis (MAMA) from mortgage insurance provider RMIC is a ray of sunshine for Minneapolis and Saint Paul. Here are a few data points from their report:
· Home prices continue to rise in Minneapolis, with 12-month growth of 3.1% and 3-month growth of 4.7% based on the CoreLogic Home Price Index.
· Employment has trended up in Minneapolis despite negative growth over the last 12 months. The number employed fell 1.1% over the last 12 months, but rose 2.5% over the last 3 months (annualized).
· Delinquency rates are Very High compared to historical norms for this area, with 3.8% of mortgages 60+ days past due. Minneapolis has the 290th highest 60+ delinquency rate and 206th highest foreclosure rate among all metro areas in the country. - this is actually good considering that puts us in the top 25 percent of large metro areas nationally
· The current homeowner vacancy rate in Minneapolis of 1.3% is Very Low compared to historical norms. The national homeowner vacancy rate is 2.5%. Shadow inventory is a potential problem here since delinquency rates are high relative to history in this area.
· Home prices are low relative to equivalent rents in Minneapolis. Currently, monthly mortgage payments (principal + interest) based on the average priced property are 24.5% less than comparable rents in this area. Historically, average monthly payments (principal + interest) are 0.5% more than comparable rents in Minneapolis.
When a mortgage insurance company sees these data points in their metropolitan risk assessment in this market, they will approach underwriting a file from that with a lower level of scrutiny than they would in statistically average metropolitan areas. In short, this means loans for borrowers in Minneapolis and Saint Paul will have an easier time of it in underwriting than most.
So let's read between the lines. There may be some negative indicators out there such as shadow inventory and an upcoming winter market but in the face of improved employment numbers, recovering home values, home ownership costs looking favorable against renting and underwriters looking more favorably at our market, it's likely that these negative indicators will be offset if not overrun by what is going well in the Minneapolis and Saint Paul real estate markets.
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