business

Even as Twin Cities home prices settle into the winter doldrums, down 10.1 percent in November from a year earlier, agents and economists say encouraging signs are appearing in the market.

The number of houses listed for sale in the metro area last month plunged 24 percent from a year earlier to 19,516, the lowest inventory level since the start of 2005, according to monthly numbers out Monday from the Minneapolis Area Association of Realtors (MAAR). At the current rate of sales, it would take 5.7 months to work through that inventory, better than the six months generally considered stable.

And while supply is down -- partly, to be sure, because potential sellers are pessimistic that houses will sell -- there are signs demand could be creeping up. There were 3,321 pending sales written up in November, up 30 percent from a year earlier.

"Something is occurring positively in Minneapolis, even though for homeowners, prices have yet to stabilize," said Lawrence Yun, chief economist of the National Association of Realtors. "Minneapolis is showing the lights twinkling."

The median sale price in November was $149,250, a drop of 10 percent from a year earlier and 37 percent from the 2006 market peak. In October, the median price was $154,500.

A big question has been how much the increase in pending sales merely reflects the fact that sales were particularly weak in the second half of 2010, after a home buyer tax credit expired in April.

Year-over-year growth in pending sales has been in the 30 to 40 percent range every month since June. Closed sales, too, have been strong and rose nearly 18 percent in November from a year ago.

Yun said he thinks the distortion in comparing year-over-year numbers is over and that the gains are a genuine reflection of buyers coming into the market, attracted by deeply discounted properties and ultra-low interest rates. The Twin Cities market is healing, he declared.

Brad Fisher, MAAR's president and a manager for Edina Realty in Plymouth, largely agreed. "I'm sensing that the consumer is being a little more vibrant and engaged," he said.

But not everyone is convinced. Thomas A. Lawler, an independent housing economist at Lawler Economic and Housing Consulting in Leesburg, Va., said the second half of 2010 was "off trend" and that coming off such lows is causing artificially large gains.

"Comparisons versus a year ago are still distorted," Lawler said.

Lawler said he's also cautious about reading too much into pending sales, because they don't necessarily lead to closings anymore. He said his study of the Washington-Baltimore market shows that an increasing share of pending sales have been contingent on something, such as an inspection or third-party approval.

"Closed sales have come in well south of what you would have expected," Lawler said. "Contract fallout has been increasing."

Lawler said he hadn't studied the Twin Cities market for that, but noted that the number of November closings -- up 18 percent -- were lower than what might be expected from the preceding month's pending sales, which were up 30 percent.

"I think there are glimmers of hope," he said. "But the distressed portion of both pending and closed sales [remains] disturbingly high."

It isn't clear what portion of buyers in the market are investors, as opposed to regular home buyers searching for a new nest. MAAR market analyst David Arbit said that nationally about 33 to 35 percent of all closed sales were paid for completely in cash -- a sign the buyer was an investor. Preliminary numbers for the Twin Cities suggests "we're a little bit lower," he said.

Other news in the November numbers was less encouraging.

Lender-mediated sales -- distressed sales of some sort, such as short sales and foreclosures -- made up 44 percent of all closed sales. That's an uptick from the summer, but the increase is largely a result of a slowdown in traditional sales and not a major surge in distressed sales, Arbit said.

The demand side of the equation hasn't changed enough to shore up sales prices. They continue to fall, to the distress of owners.

And low prices have buyers who are seeking rock-bottom foreclosure bargains facing multiple offers, said Fisher. They're sensing fewer options as the inventory shrinks.

"Who's to say what's coming down the road in terms of inventory?" Fisher said. "It's not accumulating, let's put it that way."

"The tell will be in the spring."

Jennifer Bjorhus • 612-673-4683