Twin Cities metro area experiencing largest home sales slump in nation

The Twin Cities’ 40.7 percent drop in existing home sales for October gives it the unwelcome distinction of posting the largest year-over-year volume drop among major metropolitan areas, according to the National Association of Realtors.

The Minneapolis Area Association of Realtors had issued the 13-county metro area report two weeks ago, but the national association just released the nationwide tallies.

Good news in the Twin Cities numbers come in the form of a modest 0.6 percent increase in the median sales price to $170,000, compared with last year. It’s the eighth month of price gains this year.

Nationwide, existing-home sales retreated in October after two strong monthly gains, the Realtors reported. Year to date, there were 4.149 million sales of existing homes, down 2.9 percent from 4.272 million at this time in 2009.

Source: National Association of Realtors

The Realtors are cautious in their assessment of how soon the market would pick up.

Lawrence Yun, NAR chief economist, says: “The housing market is experiencing an uneven recovery, and a temporary foreclosure stoppage in some states is likely to have held back a number of completed sales. Still, sales activity is clearly off the bottom and is attempting to settle into normal sustainable levels. Based on current and improving job market conditions, and from attractive affordability conditions, sales should steadily improve to healthier levels of above 5 million by spring of next year.”

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., says that “there remains an elevated level of appraisals that fail to provide accurate valuation, which is causing a steady level of sales to be canceled or postponed.”

 “We’ll likely see some impact from the foreclosure moratorium in the months ahead, but overly tight credit is making it difficult for some creditworthy borrowers to qualify for a mortgage, and we are continuing to deal with a notable share of appraisals coming in below a price negotiated between a buyer and seller.” he said.

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Comments (10)

  1. Submitted by Richard Schulze on 11/24/2010 - 09:25 pm.

    I find it refreshing that nobody used the word “unexpectedly”

    I will say that around here the new home market is closing up shop for the winter. I know winter happens every year… but it seems that in recent years the behavior of new home sellers has changed. In the past, they made nominal efforts to unload housing in the winter months. now they don’t even bother. They shut up shop and then reopen in a flurry around Superbowl time.

  2. Submitted by Paul Udstrand on 11/26/2010 - 10:05 am.

    I remember a story maybe a year ago here in Minnpost that encouraged people to buy houses because the slump was over, sales were going to recover, and prices would soon be rising. The source of this prediction? The association of realtors who have been “expecting” recovery ever year since 2007. The ill conceived attempt to re-inflate the real estate bubble has flopped. Have we learned our lesson regarding the predictive powers of realtors?

  3. Anonymous Submitted by Anonymous on 11/26/2010 - 11:20 am.

    Forty percent drop in sales, .6 percent gain in prices. Does anyone else see a connection in these two figures?

  4. Submitted by Richard Schulze on 11/26/2010 - 06:35 pm.

    The key numbers to follow for the housing market are 1) existing home inventory, 2) number of delinquent loans, and 3) the excess vacant inventory.

  5. Submitted by craig furguson on 11/27/2010 - 07:17 pm.

    Correllation does not equal causation, but I’ll take a stab at it. Are sellers underwater and pricing their homes to high, so they are not selling?
    “Forty percent drop in sales, .6 percent gain in prices. Does anyone else see a connection in these two figures?”

  6. Submitted by Richard Schulze on 11/28/2010 - 09:04 am.

    The numbers are confusing. The National numbers: 3.86 million existing homes for sale, 10.5 month-of-supply, 2.1 million “pending sales”, 7 million mortgages delinquent.

    Inventory increases in the spring, and usually peaks during the summer months, and then falls off sharply in December as homeowners take their homes off the market for the holidays.

    A couple more points:
    • Historically year end inventory is around 3% to 3.5% of the total number of owner occupied units. Currently there are about 75 million owner occupied units, so a normal level of year end inventory would be around 2.3 to 2.6 million units. So the visible inventory at around 3.5 million would be significantly above the normal level.
    • It is the visible inventory that impacts prices. Also important is the level of distressed sales (short sales and foreclosures).

    So both the level of visible inventory and the percentage of distressed sales is elevated – and that puts downward pressure on house prices.

    And that brings us to the 7 million delinquent loans. There are two sources for the number of delinquent loans: the Mortgage Bankers Association (MBA) quarterly National Delinquency Survey, and a monthly report from Lender Processing Services (LPS).

    According to LPS, 9.29 percent of mortgages are delinquent, and another 3.92 are in the foreclosure process for a total of 13.20 percent. It breaks down as:

    • 2.72 million loans less than 90 days delinquent.
    • 2.24 million loans 90+ days delinquent.
    • 2.09 million loans in foreclosure process.
    For a total of 7.04 million loans delinquent or in foreclosure.

    It is important to remember that the number of transactions is very low and there are a large percentage of distressed sales.

    So to Craig I would say: Yes, the homes are over priced. Based on ‘visible’ inventory and more importantly the shadow inventory. Which includes loans 90+ days delinquent and loans in foreclosure. Homes that most of which will be acquiring a lawn-sign that will read FOR SALE.

  7. Anonymous Submitted by Anonymous on 11/28/2010 - 10:47 am.

    Craig: Exactly. The numbers seem to show we haven’t seen the bottom of the housing market.

  8. Submitted by Paul Udstrand on 11/29/2010 - 09:38 am.

    Houses are still overpriced, but that’s not just a function of vacancies and inventory. Job and salaries also play a role in buyers willingness to take on big debts. Salaries and buying power for the majority of Americans have been decreasing for three years, and they were flat for twenty years before that. Housing has become a place you live in now rather than an investment. Part of the allure of the housing market during the bubble was it was seen in one way or another of supplementing low wages and mitigating decreased income and buying power. Real estate was sold as way of “building” wealth without actually having to make more money.

    Those days are gone. There’s absolutely no reason believe that the downward spiral of wages and buying power will reverse itself any time soon. Capital is still full tilt in the process of “disciplining” labor. Once people start looking at housing a place to live it completely changes the equation. Low interest rates in irrelevant compared to location and transportation, amenities, schools, etc. People who aren’t losing their homes will only move if it actually lowers their expenses. People aren’t interested in taking on higher payments and tying themselves to a property. This is why the attempts to re-inflate the housing bubble have failed.

  9. Submitted by Richard Schulze on 11/29/2010 - 06:54 pm.

    America got into this mess because it has a system of taxation that structurally favors borrowing and debt over savings. People who scrimp and save subsidize those who are financially reckless – the worst culprit in that regard being mortgage interest tax deductibility up to $1m. It favors cheap and easy consumer credit to people who are poor credit risks. It fuels an unsustainable trade deficit. This has been great for the profits of lending institutions, but really bad for America.

    The bursting of the housing bubble has been very strongly deflationary. When interest rates are, effectively, zero, the economy should be tearing along. But when interest rates are zero and unemployment is 10% it means that people’s expectations are so deflationary that they want to hold onto their cash for an even rainier day.

  10. Submitted by Ray -Edina on 12/13/2010 - 07:02 am.

    Some was commenting on how could there be a 40% drop in sales and increase in pricing. Median pricing by month is simply what sold that month. If some more expensive home happened to sell than the previous comparative month, even with less sale in the current month, you would statistically have an increase in median pricing. The upper bracket homes have not been selling in recent years, however, there has been an up tick in sales as of late in that category and probably affected the monthly median price.

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