Yesterday I was able to sit in on a real estate statistic class offered by the Minneapolis Area Association of Realtors. It was a very informative class, even though it was about numbers.

Later in the evening, I was cleaning out some articles I had saved from a few years ago and putting them in the recycle bin. One column that caught my eye was from late 2005 and it concerned whether or not the Twin Cities market was going to burst. Written by a regional director of a national franchise here in Minneapolis, the author states that the Twin Cities will not deflate like markets across the nation. In fact, he stated that 2006 would see an increase in the number of home sales and the dollar volume, as well as an appreciation rate of 4-6%.

Now fast forward to reality and yesterday’s class. A fantastic resource offered by our Realtor association is the years worth of data they possess on the real estate trends over the Metro area. They can show trends from years, to months, to weeks…and the data isn’t boring.

What actually happened in 2006 was that records were set for listing volume, but home sales and dollar volume declined to levels seen back in 1999. Home appreciation was dealt a blow as well. Instead of the 4-6% appreciation rate served up by the author of the article, actual home appreciation rates came in at a meager 0.6%. Yep, that’s right, less than 1%. Talk about missing the mark and ignoring the signs on the wall. After some discussion yesterday, the market is showing that 2007 might produce negative appreciation in the Twin Cities and 2008 could be a repeat of this year.

Now I am not trying to be all doom and gloom, because frankly, the doom is over. We just have to wait out a little more gloom. Some things that are changing and helping the area recover are:

  • Builders are pulling back on new developments with the number of building permits down 35% from 2006.
  • Sellers are getting the hint and pulling homes off the market, choosing to sit and wait the necessary time for the market to normalize. Super-saturation is disappearing and now the market is just “saturated” with listings.
  • Home prices are coming down to points where buyers can actually afford them. Housing affordability was nearly non-existent by early 2006. While home prices sky rocketed 2001-2006 by 151%, income did not keep pace and only increased by 51%.
  • Negotiating is back!

While this isn’t a detailed statistical analysis of the market, I hope it has shed a little light on what has happened to the Minneapolis market without boring you. In February of 2008, this years annual report will be coming out and it will be interesting to see mathematically what has happened. Stay tuned in a few months for my summary of the findings and feel free to send in any questions you have about data in any area of the Twin Cities Metro area and surrounding 13 counties.

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  1. Anonymous December 10, 2007 at 1:09 am - Reply

    With the continued credit crunch, it is probably not likely that 2008 will see a resurgence of house prices in 2008.

    It’s important to step back and realize that the easy credit of a couple years ago brought people into the market that would have otherwise bought in 2006, 2007, 2008.

    Essentially, it was monday, but we had eaten the food through wednesday by monday evening.

    Worse, many of these people will not be able to return to the market until their credit scores are cleaned up. Banks are getting pickier than ever in term of lending criteria.

    The very fact that the government is stepping in so soon with a bailout ought to tell us that this is a far bigger deal than we realize.

    We will need at least one more slow summer to finally beat it into the heads of sellers that they need to come off their 2005 pricing mentality.

    We are now where the bubble markets were a year ago. Some markets peak later than others. Even the immune-from-a-downturn Seattle finally peaked this fall.

  2. Jennifer Kirby December 10, 2007 at 10:41 pm - Reply

    I think 2008 will be similar to 2007 and it will be “slow”. Sellers DO need to throw everything they have seen the last few years out the window because the rules of pricing have changed. I have talked to a couple of sellers the last month and three out of four are unrealistic about what price they believe their home will sell for. The mentality is “my house is different so it will sell better than my neighbors”. This even after I show them the statistics and comparables.

    Minnesota peeked late. Florida peeked in early 2005 and Minnesota came in around the spring of 2006. But one thing I will say is that even though the market here has “crashed”, the Twin Cities in no way came close to crashing like other parts of the country. It will be interesting to see how 2008 goes and how 2009 comes in.

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