Minnesota’s housing market has struggled mightily over the last few years as financing excesses ballooned values and encouraged consumer overspending in many
areas of their private lives. However, what goes up must come down. As oil prices reached record levels, household budgets became stressed and a number of risky loans tipped major banks and the economy into a significant recession.
Although some areas are still experiencing declines, most of the Minnesota housing market has regained its footing and is looking at a strong, slow and sustainable recovery. Values in most areas have found bottom with median home prices statewide ($150,000) the same as they were at year end 2009. This mid-point price (as many homes sold above as below the median) reflects the broadest indicator of the direction home prices are taking. The year-end average sales price is up 8.1% over year-end 2009. Home price stabilization is critical to the housing recovery and indicators look very positive that the worst is behind us.
A home available for purchase is another key indicator of the housing markets condition. The inventory of homes for sale was down 12% at the end of 2010. Fewer properties available will help restore the balance of home buyers to home sellers. When there are too many home sellers, prices fall. Similarly, when home buyers out number home sellers, home prices increase. This was very apparent during the housing bubble when home buyers rushed to buy and then more recently as home sellers facing difficult financial situations tried to sell. Many Minnesota markets have more home sellers than home buyers, however the number is moving in the right direction.
Both pending and closed transactions moved in a positive direction as we closed out 2010. December 2010 closed transactions increased when compared with the same months in 2009 (+12%) and 2008 (+24.9%). This two-year swing in consumer confidence is another sign that Minnesota has turned the corner and is moving forward. Pending transactions, homes in which contracts were drafted but close in the future, were up +19.8% and +34.6% over December transactions in 2009 and 2008 respectively.
In the coming months transaction figures will fluctuate lower because of last year’s federal home buyer credit program. Artificial incentives increase consumer activity over the short-term and must be kept in perspective when they are removed at a future point.
Real estate is and always has been a solid long term investment. When reviewing statistics it is important to consider the long term trend lines. Economic conditions, interest rates and jobs are critical components that have a significant impact on the housing market. As we begin 2011 the key indicators are pointing toward a steady recovery.
Read the December Statewide Housing Report at www.mnrealtor.com/HousingReport/Dec.
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