Twin Cities-area home prices posted their largest monthly gain in more than a decade in July, up 4.6 percent from June, according to a closely watched gauge of the housing market. That's the largest month-to-month increase of the 20 metropolitan areas monitored by the Standard & Poor's/Case-Shiller national home price index.
Tuesday marked the third consecutive monthly gain in the index of Twin Cities-area home prices, and it follows a string of generally improving news about the state of the housing industry and the outlook for the economy. Consumer confidence is closely tied to home prices, and the steep plunge in home values has left homeowners reluctant to spend money at the shopping mall or downtown restaurants.
Of course, the good news is somewhat relative. Prices are still down significantly from a year ago, and home prices in the Twin Cities remain about 30 percent below their peak in September 2006, according to Case-Shiller data.
And real estate watchers say the big gain locally is likely the market self-correcting from big monthly drops earlier this year, when a large number of the homes sold were in various states of foreclosure. A big, looming question is how the market will fare when a tax credit for first-time home buyers expires at the end of November.
David Blitzer, chairman of the Index Committee at Standard & Poor's, said the Twin Cities area's comparatively large increase could be explained as "rebounding from a number that had been unusually soft." Local prices fell 6.1 percent in March, the largest monthly decline of any metro area since the benchmark started two decades ago. July prices are down 17.3 percent in the Minneapolis-St. Paul area compared with a year ago, while the 20-city average is down 13.3 percent.
Only prices in Sun Belt cities such as Las Vegas, Miami, Phoenix and Tampa as well as San Francisco and hard-hit Detroit saw declines steeper than in Minnesota over the past year.
But many economists are focusing more on the short term, looking at monthly gains. The 20-metro-area index rose 1.6 percent in July. Just two cities -- Las Vegas and Seattle -- posted declines in July, and 13 of the cities have posted three months of gains.
"The general trend is clearly positive, not just in Minneapolis, but in almost all the cities we look at," Blitzer said. He attributes this to "general improvement that we've seen in the economy and with it some improvement in the overall confidence and people's attitudes."
Mark Allen, chief executive officer of Minneapolis Area Association of Realtors, said his group is also seeing generally rising prices recently. In July, the median price in the 13-county metro area was $171,000. That was a slight drop from the median price of $173,500 in June, but August rose again to $175,000. He said September's prices will most likely be up.
"Our weekly numbers are coming in strong in terms of buyer activity and pending sales and that, over the long term, will put upward pressure in prices," Allen said. Demand is especially strong for homes in the lower price range, he said.
Byron Anfinson, a real estate agent with Coldwell Banker Burnet, said he's "definitely" seeing prices rise on the ground. He's been working with clients since the summer who were interested in buying a home for $140,000. "Now there's just like nothing in that price range for them." Last week, a smaller two bedroom was listed for $140,000 in the Nokomis neighborhood of Minneapolis. "It sold in multiple offers," Anfinson said.
Two months ago, "you would have gotten so much more for your money," he said.
Many agents believe the first-time home buyers credit is helping drive up prices. Claire Miller, an agent with Edina Realty, said houses priced under $250,000 sell quickly if they're in perfect condition and priced right. She recently listed a home for $199,900 in St. Paul's West 7th neighborhood, and it sold in 24 hours. She said that hadn't happened in "at least a year." Some agents have reported buyers losing homes in bidding wars as the $8,000 credit nears its Nov. 30 expiration date. Some economists and real estate groups are concerned that if the credit is not extended, housing prices will drop and the market will slow.
The reduction in the number of foreclosures on the market could also explain a rise in prices. Allen's group reports that in July there were almost 1,500 fewer lender-mediated homes for sale in the metro area than in July 2008.
Kara McGuire • 612-673-7293