Get ready for the big chill. Home sales in the Twin Cities metro area are falling and the number of houses on the market -- many of them foreclosures -- continues to rise.
According to data released Wednesday by the Minneapolis Area Association of Realtors, home sales from September to October slipped almost 3 percent to 2,721, but were down 41 percent compared with last year at this time when federal tax credits were spurring the market. On an annualized basis, October had the fewest sales of any month since January 2009.
And with just two months left in the year, sales are on pace to set a new low in recent years. So far this year sales are down 15 percent from a year ago and are off 4 percent from 2008 when the market hit bottom during the recession.
Meanwhile a nationwide report released Wednesday suggests that the number of foreclosure filings, including default notices, auctions and bank repossessions, fell 4 percent from September, but remained about the same as October 2009, according to data compiled by RealtyTrac. In Minnesota such filings fell nearly 10 percent from September, but were 2.4 percent higher than last year at this time.
"It's a very strange time right now," said Grace Sharp, a sales agent with MarketLink Realty who specializes in foreclosures.
She said that all indications point to the foreclosure crisis getting a lot worse in 2011 as lenders speed up disposition of their foreclosure inventory. October's annual decline in foreclosures was due in large part to a moratorium on foreclosure activity that caused a brief lull in new listings. But with the moratorium lifted, agents expect an increase in the number of new foreclosure listings. For example, in its third quarter earnings report Fannie Mae signaled to investors that during the fourth quarter it intends to increase the number of listings in an effort to offload its inventory, and that "it will take a number of years before our [lender owned] inventory approaches pre-2008 levels."
Sharp lists houses for two dozen companies and during the past several months saw only modest listing activity, but last week she listed eight bank-owned houses in just one day. She also received a memo from J.P. Morgan Chase saying it expected to release about 165,000 properties in 2011.
"It's going to be ugly next year," she said.
That means more downward pressure on prices, particularly in neighborhoods where there's a heavy concentration of foreclosures, according to Kary Marpe, a sales agent with Edina Realty. He said that even though not all buyers will consider buying a fixer-upper, those homes do have an impact on the overall market.
Last month the median sale price of distressed properties fell, but sale prices on traditional listings rose 10.8 percent. In recent months there's been a modest increase in sales of upper-bracket houses. Because of a 2.5 percent decline in sale prices on foreclosures, the median sale price of all closed sales during October rose only slightly (0.6 percent) to $170,000 over last year and up more than 2 percent compared to September.
October figures look worse compared with a year ago because of the boost from the federal home buyer's tax credit, which was set to expire last November, but then was extended to April 2010.
With foreclosures still entering the market at near-record pace, inventory levels continue to rise. And even though the number of new listings slowed last month, total inventory is 10.6 percent higher than last year at this time. That, coupled with a decline in sales, has caused the supply of houses on the market to increase from 6.1 months in October 2009 to 8.2 months last month. That means that at the current sales pace and inventory levels, there are enough houses on the market to last 8.2 months if no new inventory were added.
Inventory levels are likely to continue rising because pending sales -- an indication of future activity -- have continued to fall. They were down 36 percent compared with last year, and are off 3 percent compared with September. Signed purchase agreements fell in all segments of the market, but buyers who steered clear of distressed sales were the most tentative. Pending sales of traditional listings were down almost 40 percent, while intended purchases of foreclosure listings fell only half as much.
In fact, in October the number of pending sales was the lowest on record for October at least since 2003.
Still, for buyers, the picking is good. There are many homes to choose from, and interest rates are the lowest they've been in a generation. But with lenders adopting strict underwriting standards aimed at preventing the kind of abusive lending that helped cause the housing crash, many potential buyers don't qualify.
And that's why some agents say there's plenty of pent-up demand among prospective buyers who are unwilling to make a move, especially if it's an elective move, for fear that they'll have to offer a steep discount to sell their house, or that they'll get an even better deal on the next house if they wait longer.
Ken Romeo couldn't wait to sell his Burnsville house. He wanted to take a job in Chicago, so he listed his house for sale earlier this summer. Last week he got an offer that's well below his asking price -- even after several price reductions -- and less than what he paid when he bought the home in 2002. But he accepted the offer because he knows that he's going to land a similar discount on the house he buys in Chicago.
"It's a little scary," he said. "In today's market you know it's going to take a while and you know you're not going to sell for what you should be able to."
Jim Buchta • 612-673-7376