Area home sales fall to lowest since '94

The bottom continues to fall out of the real estate market as area home sales posted their worst monthly showing in August in more than a decade, and the downturn is likely to continue.

The number of homes sold fell 17.8 percent compared with a year ago while pending sales dropped 18.1 percent, according to data released Wednesday by the Minneapolis Area Association of Realtors.

The showing locally mirrors the outlook nationally. Earlier this week the National Association of Realtors lowered its home sales forecast for the ninth time this year and said the housing slump won't hit bottom until early 2008.

Deb Greene, president of the Minneapolis Realtor group, said locally the worst is still not over.

"We still view that we're in a decline, that we have not hit rock bottom yet," Greene said. "But the signs are that the slide is slowing, so we have some hope for the future for a gradual return."

Buyers locally and nationally appear concerned about the same issues: a tightening loan market that will make borrowing more expensive, for those who still can.

Buyers are "still trying to absorb all the lending news," Greene said.

Also, the Federal Reserve on Tuesday is widely expected to cut the federal funds rate for the first time in more than four years, and some buyers may anticipate lower mortgage interest rates to follow.

More than 100 mortgage companies have folded across the country and lenders big and small are reining in their standards of who's eligible for a loan.

Locally, mortgage struggles are showing up in the lowest-priced homes -- inventory in the under-$120,000 range is up more than 82 percent from a year ago -- and in the highest, with inventory of $1 million-plus homes up by nearly 20 percent.

All the big numbers in the monthly report were negative, with new construction and particularly new condominiums the hardest-hit. Buyers signed fewer purchase agreements last month than in any August since 1994, according to Greene.

Meanwhile, on an annualized basis, which is used to give more meaningful results that take out the seasonal nature of home sales, August was the worst month for both pending sales and sales closed going back to March 1997.

The lack of sales has pushed up inventory figures to record highs. There are 10.39 homes on the market for each active buyer -- also a record high, according to the Realtors group. That's up from 8.32 a year ago and 4.67 in September 2005.

The difference is also putting pressure on prices, with the August median sales price at $230,000, down 2.1 percent from a year ago.

Wednesday's monthly report for the 13-county metro area reflects sales through the Regional Multiple Listing Service, which may not include some developers' projects or properties in foreclosure.

In a separate, new report, the association took a more detailed look at how different types of homes are holding up. Overall, condominiums are faring the worst. New condominium sales are down 37.4 percent.

Single-family homes held their value best, with the average sales price down 0.7 percent to $302,552 over the year. The comparable figure for condominiums is $195,548, down 8.7 percent.

Residential builders have responded by cutting back on construction, shrinking inventory by about 15 percent, and increasing sales incentives.

Greene said she knows of one offering $10,000 toward closing costs, for example.

All of this is good news for buyers, especially first-time buyers with no home to sell, Greene said.

Steve Hyland, a 33-year Realtor and president of the St. Paul Area Association of Realtors, advised a long perspective. He noted interest rates are still relatively low and the state has a still-healthy second-home market.

"I've had the opportunity to view a lot of markets, some are a bit more painful and some are glorious," Hyland said. "August numbers are not great, but they're certainly not vitally bad."

Greene said sellers must understand what they're up against. "Homes must be priced aggressively and kept in excellent condition."

H.J. Cummins • 612-673-4671

H.J. Cummins • hcummins@startribune.com