Metro area home prices tick up but real estate woes likely to continue

The Twin Cities Metro area showed a year-over-year increase in median home prices, according to figures released by the  Minneapolis Area Association of Realtors (MAAR). Following a slight uptick in January, this is the first consecutive monthly back-to-back increase since 2006 and breaks a long 41-month slide in year-over-year comparisons.

The February median sales price of $159,000 was a 6 percent increase from last February’s mark of $150,000. That’s the strongest year-over-year increase since 2005. Part of the reason for the stronger upward movement is that fewer foreclosure homes are selling now than did during last February, according to a press release from MAAR. January’s increase was 1.3 percent.  In addition, the first-time home buyer tax credit is due to expire at the end of April and is generating increased activity.

“The market share of traditional, non-foreclosure homes has really grown in the last year,” said Brad Fisher, president of association in a statement. “That’s tilting prices upward and stabilizing the market.”

Source: Minneapolis Area Association of Realtors

Other data released by MAAR showed:

  • The median sales price of traditional homes (excluding foreclosures and short sales) in February was $204,900, down only $100 from last February’s mark of $205,000.
  • The median sales price of foreclosures posted a 0.8 percent increase to $120,000, while short sale properties posted a 6.7 percent decline to $145,000.
  • There were 3,527 signed purchase agreements in February, an increase of 6.4 percent from a year ago. As spring springs and we encroach upon the April 30 deadline for the federal home buyer tax credit, expect home sales to tick up as buyers move to take advantage of the incentive.
  • The March Supply-Demand Ratio of 5.39 means that there are 5.39 homes available per buyer in the month. In March 2008 the mark was 8.16.

Longer term, both commercial and residential real estate woes will continue to plague the economy in multiple ways, according to a panel of finance and real estate professors from the University of St. Thomas who held a media briefing.

The first-time home buyer tax credit has created “an imbalance in supply and demand” for lower priced properties, according to Tom Hamilton, professor of commercial real estate. As younger buyers come into the market with less wealth and income, he sees a temporary increase in the number of transactions and downward pressure on the median selling price nationwide.

As the tax incentive goes away this spring, Hamilton predicts that median prices will begin to rise and volume decrease over the next few years.

Hamilton said that it will take five years for home prices to get back to historic norms of 2 to 3 percent annual price appreciation.

In what he described as a “brutal” market, Hamilton said that commercial real estate prices are predicted to slide 40 to 45 percent from the peak.

Citing the recent liquidations of Circuit City and Linens ‘N Things as examples, he pointed to a significant overhang of  empty retail space across the country depressing the market. High unemployment has put pressure on office commercial properties as well, with tenants needing less space, creating further downward pressure on rents.

That pressure will lead to a “tsunami” of property tax appeals, predicted Herb Tousley, director of the Shenehon Center for Real Estate at St. Thomas.  Property tax assessors “are between a rock and a hard place” as the state Legislature looks to local taxing authorities to make up state budget shortfalls, and property owners see declining property values and will increasingly demand adjustments to their assessments.

Comments (3)

  1. Submitted by Ross Williams on 03/11/2010 - 10:00 am.

    “Property tax assessors “are between a rock and a hard place” as the state Legislature looks to local taxing authorities to make up state budget shortfalls, and property owners see declining property values and will increasingly demand adjustments to their assessments.”

    This puzzles me. I thought tax levies were set and then properties were taxed proportionately based on the assessed values. So assessed values have no impact on the total revenue, just the proportion a particular property owner pays.

    Is the quote above just ill-informed speculation or am I missing something about how property taxes work?

  2. Submitted by Brad Allen on 03/11/2010 - 11:04 am.

    The comment reflects an anticipated “tsunami” of appeals on both valuation and taxes — particularly commercial properties. If the rental income on commercial real estate shrinks because of vacancies, then the argument is that the value of the property has declined.

    It left out a description of the political pressure that is currently front and center in the gubernatorial race about rising protery taxes.

  3. Submitted by Reggie McGurt on 03/11/2010 - 02:47 pm.

    Ross, you’re right that is how property taxes work… in Minnesota. In most states property tax collections rise and fall with a house’s market value – similar to income tax collections tracking with overall income. And just like with income taxes, politicians can step in and adjust the rate to offset falling revenues brought about by an economic downturn.

    Nonetheless, the main point of the quote is correct: there has been a big increase in property valuation appeals as property owners try to decrease their tax burden. The typical result of an appeal in this market is a downward “correction” in the property value.

Leave a Reply