With new listings down 17 percent in past year, it's not a buyer's market in Twin Cities.
Jessica Harrison thought she knew what to expect when she decided to look for a house: a buyer's market.
And why not? Prices are down sharply since 2009. And with so many foreclosed properties for sale, Harrison was certain she would find a good deal fast.
Instead, the Minneapolis teacher waded through countless homes during what became a two-year search. Most needed too much work. When she found a move-in ready house, she lost out to bids she couldn't match. Harrison tried to buy a home through a short sale, too, but the deal fell through after six months.
She finally reached a deal on a tidy house in south Minneapolis and expects to close at the end of this month. "There were multiple properties available, but I wanted to get a house that I could move into," Harrison said. "A lot of the houses needed a lot of work, and I didn't have the money or resources to do that."
Home buyers can no longer assume that it's easy to buy a cheap house in a good location. New local listings are down 17 percent in the Twin Cities over the past year, as would-be sellers are holding on to their homes until the market improves. "[Buyers] have to be patient until the right home comes along," said Ryan Haagenson, a sales agent with Re/Max Results in Minneapolis. "And ready to pull the trigger when it does."
Make no mistake: There are still more sellers than buyers. But the decline in listings and the quality of the options are slowing the search for those on the hunt. U.S. home listings in September fell to a four-year low, according to Realtor.com,
In the Twin Cities, inventory levels are down almost 40 percent since 2007, punctuated by bigger declines in certain price ranges, according to the Minneapolis Association of Realtors. For example, there are now 61 percent fewer houses priced from $190,000 to $250,000 than in 2007.
In all price ranges, there is enough inventory to last about seven months at the current sales pace, down from almost nine months last year. Agents consider the market to be in balance when there is a 5.5-month supply.
Home buyers can run into complications during their search in other ways. Often, they may come across houses that appear to be available but already have an offer. When an offer is made on a house that is foreclosed or going through a short sale, a third-party approval is required, usually a bank. In those cases, the agent isn't required to change the status of the listing from active to pending.
And a third of all local new listings last month were short sales and foreclosures, many of them in need of significant repair because they have been vacant for a year or more. Currently, nearly 2,000 listings that are considered active already have an offer and are contingent upon third-party approval.
During a recent house hunt for a client, Sarah Fischer Johnson, a sales agent with Edina Realty, found 28 three-bedroom townhouses in Shakopee. They were priced from $250,000 to $350,000, but nine of them already had offers awaiting lender approval.
"The data would lead any buyer to believe that it's a buyer's market," she said. "No, and that's the sad part."
She recently had clients who were relocating from Pennsylvania, but couldn't find a house that met their needs, so they're now living in a corporate rental while they shop. Even Fischer Johnson and her husband have been stymied in their own search for a house. They have been shopping for an updated rambler in Minnetonka priced from $650,000 to $850,000 to no avail.
Barb Duthler, a sales agent with Re/Max Results in Minneapolis, said the primary problem in the market is that prospective sellers aren't listing because they owe more than the house is worth. This points to deeper trouble in the market, said Jeanne Boeh, an economics professor at Augsburg College.
"The average person who doesn't have to sell is looking at it this way: 'If I don't have to sell why would I?'"
That means there could be a significant backlog of inventory that will hit the market once prices rise. But that won't happen until demand exceeds supply, an important first step toward price recovery.
Wayne Hartmann and his wife never thought they'd have trouble finding a decent house in the western suburbs for $500,000, but about a quarter of all the houses they saw were foreclosures or short sales in terrible condition. They eventually made an offer on a short sale in December. The homeowner agreed to the deal, but it fell apart after never getting a response from the lender.
Not wanting to risk losing out on record low mortgage rates, they ended up spending about $200,000 more than they planned to get the house they wanted.
The good news: Hartmann got the lowest rate he's ever had.
"I almost can't believe it," said Hartmann. "But it is a frustrating market from a buyer's perspective to wade through all of the turmoil that's out there."
Jim Buchta • 612-673-7376
• New listings are down 17 percent.
• Many short sales and foreclosures that appear to be available really aren't.
• Many homeowners aren't listing their house for sale because they owe more than it's worth.
• Investor demand is at historic highs.