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The housing market's downward spiral appears to be over, as a spate of midyear data shows that by most measures the sector has finally turned a corner.
During the first six months of 2012, home sales in the Twin Cities area rose by 17.4 percent over the same period last year and climbed 13.8 percent in June, according to figures released Thursday by the Minneapolis Area Association of Realtors (MAAR).
The lift in housing in Minnesota and nationwide is being sustained by historically low mortgage rates, falling inventory and declines in foreclosure sales, industry observers say. Those factors helped elevate not only local sales, but prices. The median sale price for Twin Cities homes rose 10.7 percent last month, reaching $179,500.
"It's difficult to find a negative trend in the local housing market right now," said Cari Linn, MAAR's president and a sales agent with Coldwell Banker Burnet.
When factoring in fewer discounted distressed sales and other issues that can have a statistical effect on the data, the median sales price during June rose only 5.1 percent, according to a new price index from MAAR. Nonetheless, it was the third consecutive month of rising prices, another signal that the market is strengthening, analysts say.
"The positive price changes are real," said Jonathan Smoke, research director for Hanley Wood Market Intelligence, a national housing research firm. "Minneapolis-St. Paul, like several markets in the country, are showing that we are into the first stages of recovery."
Not felt equally
While new numbers offer clear evidence that certain fundamentals have improved dramatically, it's not playing out evenly in all markets. In particular, many exurban communities are still sifting through deep inventories of unsold homes.
"I have a bigger inventory of listings this year than last with sellers still wanting an offer," said Steve Westmark, head of the Westmark Team at Counselor Realty. Even though multiple offers are coming in on some properties, they don't always yield satisfying prices for sellers, he said.
"The market is certainly stronger," Westmark said, "but it takes a little time to turn the Titanic around."
Throughout the metro area, inventory levels continue to shrink as willing sellers withhold putting their homes on the market. Inventory was down 31 percent during June.
While good news for sellers who are getting multiple offers on their properties, those inventory declines are suppressing the recovery because so many would-be buyers can't find what they want and are thus unable to take advantage of record-low mortgage rates.
Meanwhile, many communities are beset by high foreclosure levels. So far this year, more than 14,000 properties in Minnesota had received foreclosure filings, whether a warning of default or notice of foreclosure sale, according to RealtyTrac. That was a nearly 10 percent rise from the previous six-month period, but a 4 percent decline from the first six months of last year.
Because of those declines, the number of foreclosure sales in recent months has fallen significantly. During June, distressed sales represented only 34.6 percent of all sales, the lowest level since the autumn of 2008.
Reducing the number of foreclosure sales is a critical step toward recovery. In fact, with fewer foreclosures and more-stable home prices, the number of homeowners who owe more than their house is worth has begun to recede slightly. CoreLogic reported that 19.2 percent, or 97,681, of all residential properties with a mortgage in the Twin Cities were in negative equity territory during the first quarter of the year, a slight decline from 21.7 percent during the previous quarter.
"Reducing the number of underwater households is an important step toward reducing future mortgage default risk," said Mark Fleming, CoreLogic's chief economist.
What else is needed
Most real estate agents say that a sustained recovery will be largely dependent on the job market, which hasn't had much positive momentum. Mortgage interest rates have played a positive role, too. On Thursday, Freddie Mac said that the average 30-year fixed-rate mortgage fell to 3.56 percent -- another record low.
While it's difficult to measure the impact that low rates have had on the market, a growing number of "willing sellers" are waiting for higher prices, said Alex Stenback, a mortgage banker and blogger with Alerus Mortgage in Minnetonka.
"This has restricted inventory in a big way, which is putting upward pressure on prices and pushing many into new construction," Stenback said.
That's why home builders are busier than they have been in at least five years. The Twin Cities office of Metrostudy said the first half of this year has been the strongest since 2007 with almost 2,000 new home starts. That's 45 percent higher than the first six months of last year.
Arlo Dissette, a sales agent with Roger Fazendin Realtors in Wayzata, said he has seen a distinct change in recent months, noting that many listings sell before his clients have a chance to tour them. If a house is in move-in condition, reasonably priced and in a good neighborhood, it's unlikely to be on the market more than a week, he said.
"It seems like in the last 60 to 90 days, things have caught on fire."
Jim Buchta • 612-673-7376