Crumbling house market bedevils metropolitan area

For Twin Cities-area real estate agents, last month was the slowest January in more than a decade.

The number of closed home sales in the Twin Cities metropolitan area fell 21.3 percent compared with January 2007, and the median sale price fell 8.9 percent, according to data released Tuesday by Twin Cities-area Realtor associations.

There were 1,969 closed sales of single-family houses, condominiums and townhouses in January.

Buyers signed 2,562 purchase agreements last month, compared with 3,230 in January 2007 and 3,420 in January 2006, said the Minneapolis Area Association of Realtors.

Slack demand and an oversupply of unsold homes pushed the median sale price down to $205,000 -- a 10 percent decline, or $20,000 lower -- than in the same period two years ago.

"We're all paying the price for rapid growth," said Tom Musil, director of the master of science in real estate program at the University of St. Thomas. "People made a lot of money and realized a lot of gains, and now we're seeing an adjustment to those prices."

The decline in home sale prices has accelerated in recent months as sellers lowered their expectations and buyers became more aggressive. During January, home sellers received on average 90.9 percent of their original list price, down from 94.3 percent in January 2007.

At month's end, 28,166 homes were for sale, "10.02 homes for each buyer expected during the upcoming month," the Minneapolis association said.

There is some evidence, however, that the number of new listings that are hitting the market has begun to moderate. Last month, the number of new listings was down 6.8 percent compared with January 2007. That's in large part because some prospective sellers are waiting for a stronger market and because home builders have pulled back dramatically on new construction.

The number of unsold new homes at the end of 2007 was down 21 percent compared with the same period in 2006, according to a recent report from the Twin Cities office of Metrostudy, a national construction-tracking company. It's a sign that builders are pulling back on new starts and that buyers are taking advantage of the bargains. The result is a 4.6-month supply of finished, vacant new homes in the metro area. The market is considered at equilibrium when there's a two-month supply.

Home builders rely on move-up buyers to drive business, but many of those move-up buyers aren't buying because there aren't enough first-time buyers to absorb excess inventory.

That could change, though, as buyers take advantage of increasing housing affordability, which has been driven by a combination of falling prices and low mortgage interest rates. Last month, the affordability index rose to its highest level in four years, according to the report, which is based on data from the Regional Multiple Listing Service. A family with the median household income has 149 percent of the income to qualify for the median-priced home using a 20 percent down payment.