September home sales fell in the Twin Cities metro area

By Jim Buchta jim.buchta@startribune.com

Higher house prices beckoned sellers to list their homes in the Twin Cities area last month. Buyers weren't as plentiful.

During September there was a 7 percent jump in number of properties listed for sale, but a 7 percent decline in home sales compared with last year.

It's a condition that should have produced lower prices. Instead, the median price of home sales rose 5 percent to $205,000 in September, the 31st consecutive month of higher year-over-year prices.

The disparity between falling sales and rising prices is a reflection of a recent shift in the market: With foreclosure rates nearing pre-crisis levels, the investors who once dominated the market are quickly fleeing.

While the decline in sales is frustrating to many would-be sellers, this change in fundamentals is being viewed as a positive sign.

"This is a healthy trend for the market," said Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas' Opus College of Business. "And I expect this trend to continue into the first half of next year."

Across the nation, foreclosure rates have been on the decline, especially in markets where the economy is improving. That's been particularly true in the Twin Cities metro, where the unemployment rate is lower than the national average and the economy has improved more swiftly.

During the 12-month period ending in August, there were 5,407 completed foreclosures in the Twin Cities metro, about half as many as during the previous 12-month period, according to a report released last week by CoreLogic, which tracks the U.S. house market.

With fewer deeply discounted foreclosures in the market, bargain hunters armed with cash have virtually disappeared, dramatically reducing the number of shoppers.

Last month, for example, foreclosures and short sales represented only 12 percent of all sales in the Twin Cities compared with 22 percent last year at this time and 35 percent in 2012. As a result, there was a 4 percent increase in the number traditional sales, but a 45 percent decline in distressed sales compared with last year.

The shift is taking some of the steam out of the recovery, but the sales are strong by historical standards. The total number of homes sold in the U.S. during August was only slightly below the 10-year average, according to the National Association of Realtors. In the Midwest and South regions, sales actually exceeded the 10-year average.

More competition

Houses in the Twin Cities metro are still selling at a much faster pace than normal, and the supply of properties on the market remains slightly below what's considered necessary for a balanced market.

Still, many sellers are left wondering why buyers aren't competing for houses.

"Our expectations were to see a sold sign on our home within three months of listing," said Jen Mohs. She and her husband, Don, put their house in Chaska on the market in mid-August.

The couple listed the house, a spotless five-bedroom, four-bathroom split-level with a screened porch overlooking the back yard, for $339,900 so they can build a one-level rambler on a lake. After more than 40 days on the market, they've had plenty of showings, but still no offers.

"We sense a lack of urgency from potential buyers, due to a greater number of houses on the market this season to choose from," Jen Mohs said.

With the selection of houses rising about the same pace that prices are rising, a simple axiom rule the market: "It's always a price war and beauty contest," said Greg Anderson, the RE/MAX Advisors West agent who listed their house. He said that with less competition, the houses in the best condition are selling fastest and for the most money.

"Buyers are more discerning," he said. "People really want that turnkey home."

Across the metro, the least expensive houses are still selling the fastest, and more expensive houses are taking slightly longer. That's because as prices rise, many move-up buyers are finding that the cost of an existing house is comparable to a brand new one. And in suburbs where there's been a lot of new construction, buyers have more options than they've had in years. Anderson said there are five houses that are direct competitors to his Chaska listing, so he's considering a slight price reduction to help attract some attention.

Entry-level houses still hot

"There's a glut of those move-up houses in the mid- to upper- move-up price range," he said. "But if the entry-level stuff is priced well, it still sells like popcorn."

With fewer closings and more listings, buyers aren't feeling the same sense of urgency they felt earlier this year.

"The increase in the number of homes for sale will result in a better balance between buyers and sellers," Tousley said. "Buyers will have more choices as the market moves from a seller's market to a normal equilibrium."

At the same time, rising prices drew more sellers in the market, including those who once owned more than their house was worth and those who have been waiting for higher prices to justify their next move.

Tami Klenzman, a sales agent with Keller Williams Classic Realty NW in Maple Grove, has been frustrated by the lack of interest in a 1960 rambler she's trying to sell in Golden Valley. The $249,900 house on Orkla Drive has an open floor plan and an updated kitchen but has been a tough sell because it has a single-car garage.

"Inventory is up … so there are other options with a two-car garage," she said. "It's a great house in a really nice neighborhood with a large, beautiful yard."

So in an effort to attract as many buyers to the area as possible in hopes that one might notice her listing and have a love-at-first-sight moment, Klenzman recently sent a note to agents with listings in the area inviting them to host a citywide open house at the same time. Nearly 50 agents responded to the invitation, and dozens of prospective buyers turned out. Most turned out just to be lookers.

"I'm not sure what's going on in buyers' minds right now," she said. "With buyers getting ready for winter and school starting, there are just so many factors that can affect the market."

Jim Buchta • 612-673-7376