A tale of two housing markets

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February 1, 2010
By: Gregory J. Scott
Gregory J. Scott
// What do the 2009 numbers mean for Downtown? //

The number of sales swelled, but median prices plummeted. Affordability reached a record high, but so did foreclosures and short sales. Realtors feel a twinge of optimism, but economists keep a nervous vigil.

Since its release two weeks ago, a year-end report on the 2009 Twin Cities housing market has generated mixed emotions and mixed data, matching nearly every encouraging sign of a turn-around with a reason to keep hopes in check.

And while real estate watchers metro-wide have chimed in with outlooks for the Twin Cities as a whole, getting an isolated assessment for Downtown has proven more difficult.

“We stray from offering specific, neighborhood-level commentary,” said Jeff Allen, director of research at the Minneapolis Area Association of Realtors, one of the groups responsible for the report. “We prefer to let the numbers speak for themselves.”

And what do the numbers say for Downtown?

Despite a considerable jump in sales metro-wide, the number of closed sales Downtown was down, dropping 7 percent from 2008 to 2009. The median sales price fell to $246,000, down 11 percent from the previous year. And units that did sell fetched only 93.8 percent of the original asking price — down from 95.8 in 2008 — after sitting on the market for an average of 123 days.

Since the metro-wide report’s encouraging sales numbers were mostly concentrated in the low end of the market — homes under $150,000, many of them foreclosed properties purchased by first time home buyers with the aid of an $8,000 tax credit — the heavy sales action appeared not to apply to Downtown, where values remained higher and the percentage of distressed properties was the second lowest in the metro area.

But these stats may not tell the whole story.

“To get a true picture of the Downtown market, we need to dig a little deeper,” said Matt Loskota, sales manager of Edina Realty’s Downtown office. He sees the Realtors’ report as trying to speak for “a bifurcated market,” mixing data from both resales and new construction. And since the bulk of Downtown residential properties are recently constructed condos — as opposed to a majority of single-family detached housing in other neighborhoods — it’s important to separate the two.

“By the way,” Loskota added, “it’s not a terrible market for sellers.”

One certainty he sees in 2010 is that new construction inventory will continue to decline. “And so resales will have to increase.” He expects prices to remain flat in 2010, with the average hovering around $250,000. And with less new building units available to tempt buyers, the lower price might make already-lived-in condos a more attractive buy. If sellers remain reasonable with their asking prices, Loskota predicts, they will have success.

“The under $300,000 range is holding its own,” agreed Fritz Kroll, one of Loskota’s colleagues at Edina Realty’s Downtown office.

But what if the current sellers paid way more than $250,000 for their units during the boom?

“There are a lot of short sales,” admits Joe Grunnet, a Realtor with the Downtown Resource Group. “When people rode that real estate wave, they paid too much. The bottom line is that, in some cases, their home isn’t worth what they paid for.”

Still, Grunnet agrees with Loskota about an increase in resales.

“2010 — and the next few years, too — will be the year of the resale. If you have a condo and you’ve owned it for four to seven years, the next 12 months will be your etime to shine. You won’t make a million dollars. But if you want to upgrade or move on, you don’t have that black thought of ‘Oh, I have to compete with new construction.’”

“For sellers, there have been better markets,” concedes Loskota, “but it’s a phenomenal time for buyers.”

“People will be kicking themselves that they didn’t buy now or within the next 12 months,” said Grunnet.

Interest rates are favorable, prices are low and the first-time homebuyers credit has been extended through April. The credit also now includes a $6,500 “move-up” incentive that non-first-time buyers can use to purchase properties up to $800,000. Both render Downtown more affordable than ever. But both also expire at the end of April.

What happens then remains a major question.

“It’s definitely something for sellers to be aware of,” said Kroll. “What we really need is for businesses to start hiring.” Kroll estimates that a significant percentage of those seeking to buy Downtown are people who have just moved to Minneapolis for a job.

“There may be a lull after April,” said Loskota. “But May and June are historically strong months for sales.”

There’s a also a new government initiative, Home Affordable Foreclosure Alternatives, due to go into effect on April 5, which promises to simplify and streamline the process of purchasing a short sale.

The other big question for Downtown is the effect the new Twins stadium will have on sales. To both Grunnet and Loskota, though, Target Field is a bit of a red herring.

“Developers try to play up the Twins stadium, like that’s going to overnight make home values go up,” said Grunnet. “ But just because you put a stadium in a neighborhood doesn’t make that neighborhood great. Look at the Metrodome.”

“A lot of investors bought because of it,” said Loskota. “But on a scale of importance from one to 10, it’s a three or a four.”

The more important factor, according to both Loskota and Grunnet, is the transportation hub that comes with the stadium. And even more important than that are the shops and restaurants that might follow.

“Any city that has solid transit in a neighborhood, that neighborhood has seen great growth over time,” said Grunnet.

The North Loop, both predict, will do well in 2010.

Whatever happens in the market, though, Loskota isn’t stressed. “Buying a home still is — and no one should tell you it isn’t — a pretty good long-term investment.”

And besides, he added, “people still need roofs over their heads.”

Reach Gregory J. Scott at gscott@mnpubs.com.