Home buyers continue to be out in force, even as their options dwindle.
Sales in August jumped 12.3 percent to 46,509 -- the 14th consecutive month of year-over-year gains -- while listings slid to the lowest level in nine years, according to a monthly sales report from Minneapolis Area Association of Realtors.
The report bolsters the notion that the housing market in the Twin Cities is on the mend, but is still far from normal. While sales and price increases are on the rise, a shortage of listings and high levels of distressed sales are stunting a more robust recovery.
"There's nothing typical in this market," said Steve Westmark, an agent for Counselor Realty in Wayzata.
Westmark and other agents say the recovery is going to be bumpy.
Home prices, for example, are up slightly in some markets, but because a third of all transactions last month were short sales or foreclosures, prices are still at pre-boom levels. The median price of all closings during the month was $179,000, up 15.5 percent. And when seasonal variations and changes in the mix of homes are factored in, the median price during the month was $170,656, up just 8.1 percent from last year.
Buyers are also struggling with a shortage of options. The number of new listings during the month was down 1.8 percent compared with last year, resulting in a 30.5 percent decline in overall inventory -- the lowest in nine years.
"Buyers are scrambling to find the perfect house," said Cari Linn, president of the Minneapolis Area Association of Realtors and a sales agent with Coldwell Banker Burnet. "The next step of recovery will be getting hesitant and distressed sellers back into the market."
Getting those homeowners to list hasn't been easy.
Many who would like to sell simply can't because they owe more than the house is worth. But new data suggest that higher home prices are helping reduce the number of these underwater borrowers.
Corelogic said Wednesday that in the Twin Cities metro area, 18.1 percent of all homeowners with a mortgage owed more than their house is worth in the second quarter. That's down slightly from 19.2 percent during the previous quarter.
Nationwide, more than one-fifth of all properties with a mortgage is upside down, though that's a slight decline.
The decrease in underwater mortgages is an important shift that will eventually result in more new listings.
Herb Tousley, chairman of the real estate program at the University of St. Thomas, said that more traditional listings will help bring higher prices and will support higher appraisals in the way of more solid comparable sales.
"The market needs more supply," he said. "People are looking at this and they're coming around to the fact that this recovery looks like it's for real," Tousley said.
Tousley isn't worried that more inventory will put a damper on prices; those listings are likely to hit the market in a trickle, not a deluge.
Already agents say that willing buyers are having trouble finding properties that are to their liking. That's particularly frustrating for those who hope to take advantage of record low mortgage rates, which remain below 4 percent for a 30-year fixed-rate mortgage.
Westmark said clients are routinely frustrated in their efforts to find the house of the dreams. One of his client, for example, has been shopping for several months for a condo in the western suburbs, but couldn't find one that fit the bill and had to move into a short-term rental. When a new listing came on the market Friday afternoon, she didn't waste any time and made a cash offer Saturday morning.
"If buyers are willing to cast a large net there are lots of good choices, though not as many as a year ago," he said, noting that the market is still flush with short sales and foreclosures.
In fact, while the number of foreclosures and short sales on the market has been dwindling, they still represented a third of all sales last month. The proliferation of short sales, in particular, remains a problem in the Twin Cities because they depress home prices. Jonathan Smoke, executive director research of Market Intelligence for Hanley Wood, a national group that uses public records to track sales and prices, said while prices were up last month, they were largely flat during the second quarter compared with last year.
And short sales are among the first to get snapped up in this market.
Chris Willette, a short sale expert for Edina Realty, said during the last two months he's received multiple offers on at least 70 percent of his listings; nine times of out 10 those bidding wars result in offers that are higher than list price.
"Rentals are in high demand and investors are aware of this that's why their jumping on these short sales and foreclosures," he said.
Jim Buchta • 612-673-7376