Twin Cities home prices reached an all-time high last month, precisely a decade after they last peaked.
The median price of all closings was $242,000 in June, the Minneapolis Area Association of Realtors said Tuesday. That’s 5.3 percent higher than last June and nearly 2 percent more than the previous all-time high of $238,000 in June 2006.
“We’re back to where we were, or probably better,” said Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas. He added, “I think this thing has a little bit more gas in it.”
While the latest peak is a milestone, it’s a déjà vu moment for those who watched their home equity evaporate when prices plummeted in 2008 and 2009.
No such drop is on the horizon today. For one thing, the association’s data isn’t adjusted for inflation. A $238,000 house 10 years ago would be worth about $285,000 in today’s dollars. Based on the current rate of increase, it would take about three years for Twin Cities home values to hit that inflation-adjusted peak.
As well, market fundamentals are radically different from a decade ago, when predatory lending, lax underwriting standards and rampant speculation fueled sales and appreciation. Homebuilders were also flooding the market with new houses, causing inventory to increase at about the same pace as prices.
“We’ve had good household formation and good job creation,” Tousley said. “I don’t see anything that’s going to slow it down.”
During June there was a 0.5 percent increase in new listings, and closings were on par with last year, rising 0.2 percent — the most since June 2004 and a 12-year high.
Though the number of new listings has been on the rise, demand has outpaced supply, and homebuilders still aren’t producing at a sufficient pace to meet the needs of buyers.
By one estimate, housing construction is happening at about half the pace of household formation. At the current sales pace, there are enough houses on the market to last 2.9 months. That’s 24 percent lower than last year and the lowest June figure since the beginning of 2003. And houses are selling in just 55 days on average, the quickest in nearly a decade.
Much of this demand is being fueled by a strengthening economy, deepening consumer confidence and mortgage interest rates that are near all-time lows.
Last Tuesday, a weekly survey by HSH.com showed that national mortgage rates slipped slightly to within a half percentage point of all-time lows.
Agents say that many buyers today are renters who hadn’t planned to buy but decided to take advantage of low rates. And that’s why demand is outstripping supply in many parts of Minneapolis and the inner-ring suburbs.
“I’ve watched the market fanatically for the last couple of years and I felt I was well-versed on what it was going to take,” said Justin Dering, a financial planner who just bought a house in Minneapolis. “It was still a stressful, intense experience.”
Dering and his wife, Maggie, were among several bidders for a 2,515 square-foot stucco bungalow built in 1925 near the popular 50th and France shopping area on the border of Minneapolis and Edina, one of the most affluent parts of the metro area. Knowing there was lots of competition, they paid $25,000 more than asking price.
Dering said his family made it a ritual to go and see open houses on the weekend and regularly drive through the neighborhoods where they had an interest. They saw close to 50 houses before seeing the one they bid on during a pre-list showing.
“It wasn’t perfect, but the perfect home in Linden Hills doesn’t exist in our price range. We were particularly excited about this home because it had so many of the features we were looking for,” he said. “We were encouraged by the fact that we were going to be the first to bid on the home — we felt we could get out in front of the anticipated flood of other offers that were sure to come.”
Despite reaching the new peak, the Twin Cities housing market still has some challenges. The imbalance between buyers and sellers is putting constraints on sales, and rising prices are putting the squeeze on entry-level buyers at a time when rents are also on the rise.
Sale price data from the Realtors’ association is based on the median of all closings during the month — where half the homes sold lower and half sold higher, but by other price methodologies the housing market in the Twin Cities has yet to peak. For instance, the latest S&P/Case-Shiller Home Price Index, which compares repeat sales of the same house, for the Twin Cities was 149.49. That figure, from April, was still 12 percent below a high of 171.12 set in September 2006.
David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said that when it comes to most accurately tracking home values, he favors the repeat-sale approach because it eliminates the statistical variations that can happen when there have been an unusual number of sales at opposite ends of the price spectrum.
According to his index, which does not include new construction, there are a few metro areas that have reached new highs, including Dallas, Denver and Portland. The national index, which is a composite of 20 major metro areas, is still about 5 percent below peak. At the current rate of appreciation, he said, he expects the national index to break that record in about a year.