Home sales finally show a positive sign

The number of buyers who signed home purchase agreements rose in July -- the first year-over-year monthly increase in pending sales in the metro area in 30 months.

Economists say that it's still too soon to call a housing market recovery. Part of July's increase came from sales of bank- or lender-owned homes, and the sharp increase in the number of such properties means median home sale prices continue to fall. Still, the data served as a rare bit of good news for the region's battered housing industry.

"A one-month upswing is good news, but we'll need to keep our eyes on this," said Kevin Knudsen, president of the Minneapolis Area Association of Realtors.

Pending home sales rose 6.2 percent in July compared with July 2007. For the first seven months, however, pending sales -- those for which purchase agreements have been signed -- are down 7.6 percent compared with the same period last year, according to a monthly report released Tuesday by metro-area Realtor associations.

Nearly a third of July's pending sales were for lender-mediated transactions, which include foreclosed homes and homes that lenders allowed to be sold for less than the mortgage amount, so-called short sales.

While those listings have been a bonus for cash-strapped buyers, they've been a serious drag on the median sale price of homes sold through the Regional Multiple Listing Service. Last month, the median sale price fell 10.7 percent, to $208,000.

Knudsen said that the market is getting a boost from many first-time and entry-level buyers who see opportunity in the growing number of lender-mediated houses on the market. Much of the decline in the median sale price was because of the lender-mediated transactions; the median price for those sales fell to $151,000, down 8.4 percent from July 2007. The median sale price of traditionally offered homes fell just 3.8 percent to $229,900. More than a quarter of all new listings last month were lender-mediated houses, according to the Minneapolis Area Association of Realtors.

Strong fundamentals

Market fundamentals in the Twin Cities metro area remain strong -- mortgage interest rates are still near generational lows and the local economy remains relatively healthy -- but the housing market still faces major challenges, including access to credit.

Michael Swanson, vice president and senior economist for Wells Fargo in Minneapolis, said that the direction of the market depends on several facto including construction activity, which goes hand-in-hand with sales of existing homes.

Construction activity nationwide is hitting the lowest points since the 1980s. That might be a signal that builders are close to exhausting their inventories of unsold homes, Swanson said.

"If we see the new housing market start to stabilize nationally, that's a good sign that the used-home market will stabilize as well," he said.

Nonetheless, he wants to see several consecutive months of increases in pending home sales before he's willing to say that the market has hit bottom -- a point that won't be obvious until it has passed.

"Three to four consecutive months [of pending sales increases] would really a signal a difference in the market," he said. "One month doesn't make a trend."

Access to credit is also critical, and many first-time buyers with less-than-perfect credit, for example, are finding it difficult to get financing and lenders are requiring larger down payments. Also, many move-up buyers are finding it difficult to sell their homes for what they think they're worth as they compete with a record number of low-priced bank-owned listings.

Keith Hembre, chief economist for FAF Advisors, the investment advisory arm of U.S. Bank in Minneapolis, said that what happened in July in the Twin Cities mirrors national trends, but he says that the shift in sales "is probably an upward move within a downward trend."

Lower prices are improving affordability, he said. But inventories of unsold homes need to come down considerably before the market can show appreciable signs of improvement. And before that happens, prices will likely come down, as well, he said.

Hembre figures about 1 million too many houses are on the market, and to bring the number of vacant houses back down to normal means that we'd have "to whack production to zero for a year."

In the Twin Cities, many potential sellers of existing homes seem to be waiting out the market. New listings in July were down 8.2 percent, causing the total number of listings on the market to fall 4.2 percent compared with last year.

Greg Bauman, president of the St. Paul Area Association of Realtors, said that the July increase in pending sales was something of a surprise, because it happened at a time of year when sales typically fall. He expects stronger sales to continue as recent efforts to jump-start the market take hold, including the housing-bill package that includes a $7,500 tax credit for qualified first-time home buyers, along with an increase in the lending limit for FHA mortgages, which is now at $365,000.

Jim Buchta • 612-673-7376