The Twin Cities housing market is showing no signs of rebound two months after home-buyer tax credits dried up, and it's likely to be several months before the market shakes off what some call a tax credit hangover.
Pending home sales in the Twin Cities metro area fell 40 percent in June, according to a monthly report released Monday by several Twin Cities area Realtors' associations. That decline follows a similar drop in pending sales during May, a sign that while the federal tax credit of up to $8,000 that expired in April boosted the housing market earlier this year, it did so by borrowing from future demand, especially among first-timers.
And that makes it more difficult to predict a recovery. "We don't have a model or a way to forecast this," said Brad Fisher, president of the Minneapolis Area Association of Realtors.
Despite the decline in sales activity, the median sale price of homes sold during June rose 4.6 percent, pushing the median price of foreclosures to $125,000, and the median price of traditional homes to $217,000.
Those increases happened in large part because of an increase in buyers ready to move-up -- officially homes in the $250,000-plus category -- who took advantage of low mortgage rates and plenty of choices.
At Edina Realty, for example, in April move-up buyers represented 23 percent of pending home sales. By May, after the expiration of the credit, those move-up buyers represented 30 percent of all pending sales at the company.
Now, halfway through the year, the June report provides a snapshot of 2010 market conditions. With help from the tax credit, the housing market so far this year is on pace to best last year's market -- closed sales are up more than 6 percent for the first half of the year.
Over the past decade, the number of closed sales for the first half of the year has dipped below 20,000 only twice: In 2008 they fell to 17,486, then rose slightly with the help of the tax credit last year to 19,317. For the first six months of this year, 20,561 homes have been sold.
Dismal sales during May and June, however, suggest that a return to a more normal market is still far away as prospective buyers find themselves feeling cautious about the housing market and facing little pressure to buy. Mortgage interest rates remain near 50-year lows, the unemployment rate is still relatively high and getting a mortgage can be challenging as lenders try to protect themselves against further losses by tightening their underwriting guidelines.
Mark Vitner, managing director and senior economist for Wells Fargo Securities, said he doesn't expect to see signs of a turnaround until at least the fall, in large part because of fundamental problems that can't easily be fixed.
Vitner said employment is one of the most critical factors, and with the local unemployment rate slightly lower than in most cities across the country, he expects the market here to improve somewhat faster.
The other critical factor is inventory, and in the Twin Cities metro area new listings last month rose only 2.1 percent, pushing the overall inventory of homes for sale just 1.8 percent higher than June 2009. That leaves a roughly seven-month supply of houses on the market, slightly higher than the five- to six-month supply that is considered balanced.
"The first-time buyer credit really didn't do anything to address the structural problems in the market," Vitner said. "It pulled demand forward and further drained the market of willing and able buyers. ... The recovery in the housing market has some formidable headwinds that will be with us at least through 2011."
Still, at least some buyers were cheering the quieter market. Joel Halverson and Cyndi Mansfield, for example, said they missed the tax credit, but benefitted by being able to shop without competition for their first house.
Shopping in the $200,000 to $240,000 range, they found more options than they needed and no worries about having to outbid another buyer. In two weekends they looked at a dozen houses before signing a purchase agreement to buy a three-bedroom house in New Hope.
Jim Buchta • 612-673-7376