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Seeking Stability

Real Estate Agent with Exit Realty Metro

Seeking Stability


The 2007 statistics for the Twin Cities real estate market were released at a press conference by the local real estate associations on January 16th, 2008.  The highlights were as follows:


Listings processed, 105,004, down 2.8%

Sales, 40,055, down 16.4%

Inventory of homes for sale at year end, 26,675, up 16.8%

Average sale price, $274,767, down 1.3%


For excellent, detailed reports on the market, go to the Minneapolis Association of Realtors website: http://www.mplsrealtor.com/Segments/Realtors/Research.htm


It was a disappointing year for many, but important for the long term health of the market.  No one likes to see prices drop, but after ten years of rapid appreciation we need to reestablish affordability.  In an ideal market, prices should rise at about the same pace as incomes, allowing for modest profits while maintaining consistent affordability.


In 2006, home prices stood at the highest level relative to incomes in modern history.  A correction of this imbalance was needed.  But drops in home values are unhealthy for homeowners and the economy.  The ideal situation would be for prices to sit still for a few years while incomes rise to a balanced level.  Assuming zero appreciation to be ideal for this time, a drop of 1.3% is not that bad, and helps us reach ideal affordability a little faster.


All real estate is local, however, and that's where things get complicated.  While 1.3% may be tolerable, a 5% drop can be very uncomfortable.  Many parts of the Twin Cities saw average price drops in the 3-5% range last year, and some much worse.  One area hit hard by foreclosures dropped over 30% in 2007.  Still, other areas saw price increases, as some Southwest suburbs rose by about 12%, leaving property even less affordable.


Like all markets, real estate goes in cycles.  What comes down must go up.  The question on everyone's mind is "where are we in the cycle"?  Are we still going down, have we hit bottom, or have we started going up?


The Twin Cities real estate market tends toward long cycles.  So although the market may start to rise, it will still be a "buyers market" for some time.  In addition, different submarkets will bottom out at different times, and will sit at the bottom for differing lengths.


What we are seeking is stability, signs that the market has stabilized and has stopped its decline.  And there are some positive signs:


New listings fell by 2.8% in 2007, the first drop since 1999, perhaps the start of a trend towards an inventory decline.


New construction inventory declined by 17.9% in 2007, as builders have reduced output in response to decreased demand.


Inventory in the $250,000+ price ranges remained virtually the same.


The area hit hardest by foreclosures and price declines, posted a large increase in sales, as investors decided it had hit bottom and now is the time to buy.



What to Look For


There will be no announcement that the market has hit bottom until after the fact. It may already be on the way up. The first sign will be a decline in new listings or improvements in the sales/listings and the supply/demand ratios.  We can then expect to see declines in market time and increases in sales price to list price ratios.  Following these indicators we will begin to see modest price increases.


The window of opportunity is wide open to buy a quality home at a good price. Quality properties are selling quickly, closing the window a little with each sale.  A few years from now a lot of people will be saying, "We should have bought back then".