The recovery of the Twin Cities housing market has reached a moment that appears to defy the basic principles of supply and demand.
Sellers well outpaced buyers, suggesting prices should fall. Instead, prices are inching their way up to prerecession levels.
Brokers and analysts see the arrival of more sellers as a sign of new health in the slow crawl back from the 2008 collapse.
“People have heard the stories about home prices going up, so more of them are finally getting their homes ready to sell,” said Derek Jopp of Edina Realty. “And fewer people are underwater, so even if they’re not making money, at least they can come to closing with less cash out of pocket.”
Last month there were 8,015 new listings, but only 5,198 home sales, according to data released Tuesday by the Minneapolis Area Association of Realtors. That was a 10 percent decline in sales, and 10 percent increase in listings. Prices increased 3.4 percent to $215,000.
Meanwhile, a change on the demand side is another sign of stability returning to the market: Traditional buyers are replacing those bargain-hunting investors who drove the early stages of the recovery.
With mortgage delinquencies nearing historic averages, steals and deals are harder to find. Lender-owned properties accounted for less than 10 percent of all sales last month, a 37 percent decline from last year and the lowest level since May 2007.
That shift means fewer but more expensive sales, especially to move-up buyers like Linda and Nate Rose, who’ve been shopping for a replacement for the starter home they bought five years ago.
“We were in the ‘Love It or List It’ situation,” said Linda Rose, referring to a cable-TV real estate reality show. “So we were contemplating remodeling our current home or looking for a new house.”
In the end, remodeling wasn’t going to offer a reasonable return on their investment, so they went on the hunt for houses with at least three bedrooms on the same level, including a master suite, and an updated kitchen and baths.
“We felt if we got all these features, we could stay in the house for a very long time,” she said.
Houses in their price range sold quickly or were overpriced. “It seemed as soon as we would find something that we thought would be a perfect fit for us, there was already an offer accepted and we had to move on,” she said.
In search of more options, they expanded their search radius but ultimately decided to buy new. The couple fell in love with a lot in Shakopee and are putting a deal together a deal with the builder.
“We did the starter home and put a lot of work into it and we are just not looking to do that again,” Rose said. “We want a home that is pretty much move-in ready or requires minimal work.”
Despite recent increases in listings, such tales of frustration aren’t unusual. At the current sales pace, there are enough houses on the market to last just 4.4 months, a slight increase from the previous month, but still not a healthy balance between buyers and sellers. The market is at equilibrium when there’s a five- to six-month supply of houses for sale.
Still, buyers are actually in a better position than they’ve been in several years. Inventory is at its highest level since June 2012 and mortgage interest rates are near historic lows, with the 30-year fixed rate at 4.2 percent this week.
The Twin Cities isn’t the only metro area experiencing a stilted recovery. The latest National Association of Home Builders (NAHB)/First American Leading Markets Index (LMI) shows that only 56 of the nearly 350 metro markets surveyed by the group have returned to or exceeded their previous normal levels of economic and housing activity based on housing permits, home prices and employment. Still, nearly 80 percent of those markets reported an improvement over the last year.
“Things are gradually improving,” said Kevin Kelly, NAHB’s chairman. “As the job market grows, we expect to see a steady release of pent-up demand of home buyers.”
Tina Angell, branch vice president for the Coldwell Banker Burnet office in St. Paul’s Highland Park neighborhood, said that she’s been encouraging agents in her office to try to tap into that pent-up demand by convincing would-be sellers to put their houses on the market.
Agents have been on a listing blitz, going door to door, sending out direct-mail appeals and calling past clients. “We’re letting them know that now is a great time to sell,” she said. “Rates are low and a lot of buyers are looking.”
The strategy appears to be working. Listings in her office up are up nearly 20 percent compared with last year.
“People feel like the market is moving in the right direction,” Angell said. “And it’s a healthy, steady incline.”