Metro home sales continue their decline

Despite near-record-low mortgage rates, home sales in the Twin Cities metro area so far this year have been among the slowest in more than a decade, according to data from the St. Paul Area Association of Realtors.

September's 3,116 closed sales were down 23 percent from the same period last year, while sales from January through September in the 13-county metro area dropped 15.8 percent, the association said in its monthly report.

There is a silver lining: Protracted market times and bargain-hunting buyers are causing prospective sellers to pause. During September, the number of new listings was down nearly 10 percent compared with September 2006. That has some agents hoping that high inventory levels will finally retreat and that the market has hit bottom.

The situation is similar across the country, judging from another report released Wednesday.

The National Association of Realtors said U.S. home sales during 2007 are expected to be 10.8 percent lower than last year.

That was the eighth time the Realtors association revised its annual forecast downward this year. If the revision is accurate, home sales nationwide will be at the lowest level since 2002.

The association was more optimistic about prices. It said the median price this year would drop 1.3 percent compared with last year, a revision from an earlier forecast that the median would fall 1.7 percent.

In the Twin Cities, officials at both the Minneapolis Area Association of Realtors and the St. Paul association attributed the decline in sales to tighter lending guidelines and to sagging consumer confidence driven by negative news reports about the market.

"We see motivated buyers and sellers in our market," said Deb Greene, president of the Minneapolis association. "But at the same time, we're now experiencing a return to more traditional, stricter lending practices that were in effect before the boom."

Greene also blamed slower sales on greater scrutiny of appraisals, income and employment history.

A homeowner waits

Homeowner Holly Nelson, who has been trying to sell her house in Rogers since April, blames high gasoline prices for slow sales in her neighborhood, more than 30 miles from downtown Minneapolis.

She listed her three-bedroom house for $289,900 and has dropped the price $30,000. Since then, she's had only one serious prospect and that buyer chose a house in Maple Grove, which is closer to the Twin Cities. She said her situation isn't as urgent as it was for a neighbor, who sold for $299,900 after listing at $379,900.

"I don't know why the market is so slow," Nelson said. "Interest rates are still good and with prices so low, I think it would be a great time to buy."

The only consolation, she said, is that the house her family wants to buy is still on the market and is $50,000 cheaper than when they started shopping.

Indeed, the market fundamentals have been relatively strong. Job growth has been positive, sellers are eager and mortgage rates are still at near-historic lows, with the price of a 30-year fixed-rate mortgage in the 6.25 to 6.5 percent range.

After the doldrums set in more than a year ago, inventory levels rose at double-digit rates on a monthly basis. More recently, however, the number of new listings has slowed. During the first nine months of the year, the number of new listings entered into the Regional Multiple Listing Service was down nearly 4 percent compared with the same time last year.

Absorption hasn't been fast enough, however, to rescue prices, which have been stagnant or falling for more than a year. During September, the median sale price of single-family houses in the Twin Cities metro area fell to $227,175, a decline of 1.66 percent from September of last year.

Jay Demma, director of market research for Bonestroo in Roseville, said that once the inventory of unsold new and existing homes falls to where supply is in balance with demand, there will be upward pressure on prices.

"People will look at that and say that the market has returned," he said. "I think we're getting pretty close to the bottom."

Another clue, he said, is that the number of building permits issued in the Twin Cities has been among the lowest in decades -- a sign that builders might be getting close to working through their inventories of unsold homes.

The wild cards in the market are the subprime mortgage meltdown and the effects of adjustable-rate mortgages, many of which are expected to adjust upward in the coming months.

Jim Buchta • 612-673-7376

Jim Buchta • jbuchta@startribune.com