The Southwest Journal recently reported about rent increases in several Lyndale Neighborhood multi-family buildings. That strikes us as a good time to take the pulse of the owner-occupied or homeownership market.
Lyndale neighborhood prices have risen, as have those in Powderhorn and the entire city. Lyndale prices are hovering between the powderhorn community and the entirety of Minneapolis. At $217,450, prices are just under 10.0 percent higher than in the Powerderhorn Community but have risen about 28.0 percent from this time last year.
For those looking for condos, however, the landscape is significantly more affordable than when you include single-family homes in the mix. Lyndale condo prices are $127,500, the same as Powderhorn, significantly less than Minneapolis and have only risen a more modest 8.1 percent over the last year.
Locking the right condo into a purchase agreement can be challenging, however. Inventory levels are quite thin, which can pit serious buyers against one another and also suggests that sellers are likely to get (and accept) strong and competitive offers.
Both home prices and rents are rising across the board, though at differing rates depending on location, building and price point. There are still lots of asymmetries when it comes to supply and demand. The key to overcoming any affordability challenges will be maintaining our steady job and wage growth and ensuring home prices rise in line with incomes.
2016 MAAR Grant Recipient: Minnesota Adult and Teen Challenge
“I wouldn’t be sitting here right now if it weren’t for Teen Challenge,” says Christine, a graduate of the Minnesota Adult and Teen Challenge (MnTC) addiction recovery program. Now an employee of the organization, Christine reflects on her first days at MnTC, “By the time you come here, you’ve lost it all.”
Sadly, Christine’s losses due to addiction reflect the reality of many of her peers who are participating in or have graduated from MnTC. They have often lost their home, car, career, and even family to their addictions. The goal of MnTC’s thirteen month recovery program is to change that loss.
However, unlike many addiction recovery programs, MnTC does not want to send its graduates back into the world–at least not yet. “Some people aren’t ready to go back or don’t have a safe space to go back to, so we take care of them until they do,” explains Mary Kay Bensen, Foundation and Grants Manager. This is why MnTC created their Teen Challenge Leadership Institute (TCLI), a program designed to help its clients reach beyond short-term sobriety.
At the TCLI, clients benefit from transitional housing while they engage in employment counseling, and certification programs such as Professional Food Managers Certification, Boilers License Training, Floor Care Training, Customer Service Training, and Small Engine Repair. Each client also goes through a five week career transition workshop and comes out with a professional resume, interviewing experience, and a greater focus on their future plans.
Combined, TCLI’s transitional housing and additional services create an environment that prepares clients for a successful life after the program. Christine explains, “You’re learning to live day to day while making the correct choices. It’s also affordable to live here so it’s easier to find a job and get your finances in gear. Just learning to work sober is challenging, and they really help you.”
MnTC has several locations throughout Minnesota, including Duluth, Brainerd, Buffalo, Rochester, and a handful in Minneapolis. Their administrative offices are located in Hope Commons, a building that is also home to men’s and women’s transitional housing, a chapel, counseling services, and several classrooms.
Since 2007, over 700 men and women, (ages 17 and older) have used the Transitional Housing Program at Hope Commons; the average age being 35; 95% are below the median income level; 43% are parents. Clients come from all walks of life, oftentimes from once-successful careers or lifestyles; one of the current residents is a mother who entered the program after she was found high and living in the park just outside Hope Commons.
Clients who reside in transitional housing and are participating in the Teen Challenge Leadership Institute have access to resources that provide a holistic, long-term recovery. From job training courses to family counseling services, MnTC works to ensure every client has a chance at success.
Christine reflects on the effect of transitional housing on her recovery and continued sobriety, “[Transitional housing] has been really nice for me because I lived four hours north of here. Even though I had a good career [as a real estate agent] in the past, it’s so hard to go from a thirteen month program back into the world. It’s so nice here because you get eased back into the world; you start to pay rent, buy your own food again, and go back to work. It’s really the next step you need after going to a treatment facility. I don’t think I’d be sober if I didn’t live here.”
After graduating the program, Christine took a job with the Development Team at MnTC, where she hopes to work in the long term. Currently, Christine lives in MnTC’s transitional housing, which means she lives and works on two floors in the same building. The opportunity has been transformational for Christine. She says, “Where else can you work that you get to pray before a meeting, that your boss is a Christian and you know will treat you nicely, and your coworkers aren’t going out to happy hour?”
The Minneapolis Area Association of REALTORS® was honored to provide a grant to MnTC to support the great work they are doing in our community. Without their transitional housing and support services, many addicts would not have found–and stayed on–the road to recovery.
Pending home sales rose 1.6 percent compared to last year and reached their highest level for any October since 2004. Sellers listed 5,249 for-sale properties on the market, 9.5 percent fewer than last October. Closed sales increased 0.8 percent to 4,791. That closed sales figure is between 2004 and 2005 levels. Although home prices have reached their seasonal peak for 2016, the median sales price increased 6.5 percent from last year to $230,000. Buyers are still frustrated by a lack of options. Inventory levels fell 19.0 percent to 12,625 active properties. Additional listings are needed to ease the current supply shortage—especially at the entry-level and first-time buyer price points.
Multiple bids on attractive listings are common in low inventory environments, and homes tend to sell quickly. Days on market until sale fell 14.3 percent to 60 days. The average percent of original list price received at sale was 96.9 percent, 0.8 percent higher than last year. But the median percent of current list price received is 99.6 percent, the highest level since 2005. Months supply of inventory fell 24.2 percent to 2.5 months—the lowest October figure on record since the beginning of 2003. This indicator measures the balance between supply and demand in the marketplace. Generally, five to six months of supply is considered a balanced market. Less than that indicates a seller’s market.
“Demand is still soaring while listing activity has weakened,” said Judy Shields, Minneapolis Area Association of REALTORS® (MAAR) President. “Partly because of that, we expect prices to remain firm through the winter months barring any unforeseen events.”
The strongest sales activity over the last 12 months is in the $190,000 to $250,000 range, followed by the $250,000 to $350,000 range. Although single family sales dominate the Twin Cities market by number, condo and townhome sales witnessed the largest year-over-year sales increase. Similarly, while previously-owned properties make up the largest share of sales, newly constructed properties had a stronger year-over-year gain.
A healthy Twin Cities labor market has been conducive to housing recovery. The most recent national unemployment rate is 4.9 percent, though it’s a healthier 3.3 percent locally. The Minneapolis-St. Paul-Bloomington metropolitan area has the fourth lowest unemployment rate of any major metro area.
Locally, the 30-year fixed mortgage rate stands at 3.55 percent compared to a long-term average of about 8.0 percent. Rates are still near their lowest levels in three years. Marginally higher rates were widely expected in 2016, but the Federal Reserve hasn’t moved rates since last December. Even though the Fed was widely expected to raise rates this December, market volatility could change that.
“Buyers are still very much motivated by the current environment, it’s weak seller activity that is holding this market back,” said Cotty Lowry, MAAR President-Elect. “As this recovery moves into its sixth year, it’s critical to remember that markets and economies are never ‘due’ for a decline the way the Cubs were ‘due’ for a World Series win. There is usually a reason.”
For quite some time, NAR’s reports have shown that homeowners tend to stay in their homes for 5-7 years. Based on the data from NAR’s most recent Profile of Home Buyers and Sellers report, that was true up until 2008. By 2011–just after the seismic shifts that rocked the market–owner tenure rose to 9 years and has been range-bound between 8-10 years since 2010. The current 2016 median tenure stands at 10 years. In summary, owning a home used to be a 5-7 year proposition, but owners now tend to be staying in their homes between 8-10 years.
The fact that sellers are staying in their homes longer since the downturn is partly responsible for our low inventory levels. That said, this is still a median, meaning that half of homeowners spend less than 10 years in their home. At first, a relatively large share of homeowners were underwater and thus couldn’t sell (not the case anymore). But then rising prices, historically low rates and an improving economy caused buyer demand to surge far more quickly than listing activity. That has created a situation where sellers are confident about getting strong offers on their homes quickly, but they’re hesitant about being a buyer in this competitive and under-supplied marketplace. Many are making the decision to stay and possibly remodel their current space rather than competing and possibly making full price offers or better on the most desirable homes.
Don’t expect quick resolution on the inventory shortage. New construction activity isn’t helping to alleviate the shortage because it’s not profitable to build at the entry-level or first-time buyer price point. We’re optimistic about things loosening up a tad come Spring 2017, but it will take time for the market to rebalance and regain its footing.
Although this recovery has sent sales and prices more or less back to peak levels, the hunt for equilibrium continues.