Market shift: What is the culprit?

Jeff Allen is one of the great staff members we have at the Minneapolis Area Association of Realtors.  He’s very articulate and has a great ability to analyze dynamics in our market.  He recently wrote another great article to local Realtors and I thought it would be a good read for all of you too.

Market shift: What is the culprit?
by Jeff Allen, MAAR staff

As the Twin Cities residential real estate market enters the busy spring season, it’s becoming apparent that buyer activity will not rebound from its post-boom recess as quickly as many of us had projected and nearly everyone had hoped.

No one should assume that a return to boom-level activity will be quick and easy. After all, we’re fresh on the heels of several consecutive years of unmitigated market expansion. But indicators of buyer demand have begun to noticeably decline again after a brief relative uptick this past winter, with newly signed purchase agreements (pending sales) in March 2007 falling 18.9 percent behind March of last year, and weekly April sales figures reflecting the same decline.

What is the culprit for this sluggish buyer showing? Let’s start by defining what the culprit is not.

Not affordability. After reaching a decades-low point in the middle of 2006, the affordability of our region’s homes has made dramatic improvements due to stubbornly low interest rates and slight declines in home prices. Our market, like the rest of the country, does face some remaining price-to-income disparity issues and will into the foreseeable future. But the simple truth is that homes in the Twin Cities have not been this affordable in two years.

Not interest rates. The popular media has been quick to highlight increases in interest rates, but they are slower on the draw when rates are on the decline. The cost of borrowing money to buy a home remains low—holding steady at 6.1 percent in April.

Not a lack of choice. At the end of March, there were 19,776 single-family detached homes, 5,703 townhouses, 3,281 condos and 540 twin homes on the market for buyers to choose from. While the growth of inventory appears to be slowing as builders and consumers adapt to a changed demand landscape, it’s still setting monthly records.

Those looking for a simple answer to the question of why buyers remain on the sidelines despite an environment that sits so firmly in their favor should look elsewhere. There is no silver bullet, no single or definitive cause. There are many interdependent factors at work. But two such factors are having the largest effects upon our discernibly muted spring home sales season, and likely will into at least the summer.

Consumer confidence. The public’s perception of the housing market is anything but certain right now. Housing is on the tip of everyone’s tongues, but the conversations aren’t usually positive. With overwrought analysis in the popular media, it’s hard to blame them. While affordability is improving and choice is excellent, housing market psychology is immersed in a contrary perspective for now due to a barrage of stories on bursting bubbles, foreclosures, mortgage fraud and subprime lending.

A return to tighter lending standards. New uncertainties in the lending industry brought upon by excessive exuberance in the subprime mortgage market have created a renewed sense of caution to the mortgage community and a new round of hyperactive government legislation. “Riskier” loan applicants are facing a tougher road to financing their home purchases. The net results are a decline in qualified buyers and undue caution from those who are qualified.

It is important to keep perspective and recognize the diamond in the rough. Much like declining home prices leading to improved affordability, a market-wide recalibration period will cause some uncomfortable months ahead but will ultimately benefit our market in the future as consumers, lenders and REALTORS® have their expectations realigned.

Time will tell how prolonged the correctional pause will be, but regardless, be assured that it will not be as severe as market declines seen in decades past that were fueled by recession. The long-term health of the Twin Cities housing market is being strengthened as we speak by the current market experience that some find disconcerting.

Posted by Aaron Dickinson - Edina Realty on 05-29-2007 at 04:05 am
Posted in General, Info for Buyers, Info for Sellers with 4 Comments

This is as Good as it Gets

If you’re a seller or planning to be a seller yet this year, this is the best this market is going to get so you better get going!  Here’s a summary of things to keep in mind.

• You have to be the best price and best condition.
• Talk to your agent.  If you’ve got questions or concerns, ask them!
• If you’re not getting any showings, check your marketing, check your competition, check your photos, then drop your price.
• Agents can’t make your home sell if you’re overpriced… price is still the #1 determination on saleability.
• Market times are averaging 80-90 days right now… if you’re at that you need to sit down and go over things like you did before you listed.
• If you want to talk to other Realtors that’s fine, but you cannot sign a new listing agreement until your current one is cancelled or expired.  Post-dating the contract doesn’t make a difference… it cannot be signed at all until you are clear of your current contract.  This is a state rule.
• Agents cannot openly solicit you for a listing if you are currently under contract, but can respond to any inquiries you make.

Posted by Aaron Dickinson - Edina Realty on 05-28-2007 at 08:05 pm
Posted in General, Info for Buyers, Info for Sellers with 11 Comments

Bad Ideas in High-End Homes

I’ve recently been working with a couple buyers in the $1M-$1.5M range and we went out this week to look at a few homes in Eden Prairie.  While they all were very nice and had some great finishes, they also had some bad features too.

#1 - Combination lock boxes.  Agents are securing a home with a $30 manual lockbox that can be opened by anybody with the code and leaves no trace of accesses?  Some of the homes we saw were very nicely furnished… I’d hate to hear that a home was burgularized and then be a suspect simply because at some point I had shown the home.

#2 - Master bathtubs that face the front of the house.  Honestly - there was a house that had a 1/2 acre back yard looking out onto open fields and they put the master bath in the front of the house looking over the rest of the neighborhood and the street.  That’s just a bad decision.

#3 - Skimping on kitchen storage.  Few of these homes have dedicated pantry space, which seems odd given that these kitchen often have $50k+ into them.  What good is it all without enough storage?

#4 - A picture window in the main floor bath overlooking the front entry.  This is true as well - a full-size window, right next to the toilet, which overlooks the front entry to the home.  Don’t know about you but I don’t think that rooms should be designed with windows that always need to have their blinds down!

#5 - Small master bedrooms.  One of the houses we saw had a master bedroom space that couldn’t have been more than about 13′ x 12′, while the bath and closet were at least that size.  Today’s bedroom furniture is typically oversized and consequently the room should be sized appropriately.

Posted by Aaron Dickinson - Edina Realty on 05-03-2007 at 09:05 pm
Posted in General with 1 Comment