The Leadership Installation and Awards Celebration was held on Thursday, January 24 at the Minnesota History Center in St. Paul. We’d like to thank the members who attended to help us welcome our 2019 Board of Directors, Executive Committee members, and 2019 President Todd Urbanski. Award recipients were also recognized by Immediate Past-President Kath Hammerseng.
Beauty is in the eye of the beholder. Sometimes, so are market statistics. For sellers, the big stories of 2018 were three records: prices, market times and percent of list price received at sale. For buyers, the major themes were increased new listings toward year-end, an annual inventory increase, changing interest rates and affordability pressure. Driven by sizable gains in new listings later in 2018 combined with moderating sales, for-sale housing supply finally bounced off its 15-year low. The ongoing housing shortage has created a competitive environment where multiple offers have become common. Thus, sellers are receiving strong offers in record time, but this fast-paced market can frustrate some consumers. Market times continued to shrink while absorption rates remained tight but showed signs of easing. Mortgage rates on a 30-year fixed loan started the year around 4.0 percent but touched 5.0 percent before settling on 4.5 percent. Foreclosure activity fell for a seventh straight year and is back around 2005 levels. Although single-family homes made up about 74.0 percent of all sales, both townhomes and condos had better sales performances. Similarly, previously-owned homes made up about 91.0 percent of sales but new construction showed a much stronger gain.
2018 by the Numbers
– Sellers listed 75,969 properties on the market, a 0.3 percent decrease from 2017
– Buyers closed on 59,189 homes, a 3.4 percent decrease from 2017 yet the 4th highest figure since 2003
– Inventory levels for December rose 4.5 percent compared to 2017 to 8,128 units, reversing 3 years of declines
–Months Supply of Inventory was up 8.5 percent to 1.7 months, also the first increase since 2014
-The Median Sales Price rose 7.7 percent to $265,000, an all-time record high
-Cumulative Days on Market declined 14.3 percent to 48 days, on average (median of 22)—a 12-year record low
–Changes in sales activity varied by market segment
– Single-family sales decreased 4.2 percent; condo sales rose 5.4 percent; townhome sales fell 3.3 percent -Traditional sales declined 2.0 percent; foreclosure sales fell 38.0 percent; short sales were down 36.2 percent -Previously-owned sales decreased 4.7 percent; new construction sales rose 12.7 percent
“The year definitely had some ups and downs. Beyond record prices and lower-but-still-strong sales, inventory finally turned around while some affordability concerns persisted. Our region is extremely high-performing when it comes to homeownership, employment, income, education, civic engagement and quality of life. Despite some manageable headwinds, homeownership and real estate is still a compelling investment for Minnesota,” said Todd Urbanski, President of the Minneapolis Area REALTORS®.
“Last year homebuyers became more selective even as market times shrank. Working with a REALTOR® was key as inventory was often limited,” said Patti Jo Fitzpatrick, President of the Saint Paul Area Association of REALTORS®. “We still saw some challenges around inventory and downsizing. We anticipate more balance this year as inventory eases. It’ll be interesting to see how things play out.”
Charting the Market
Sellers posted a third consecutive decrease in activity but showed signs of turnaround, particularly in the second half of 2018. New listings were down just 0.3% compared to 2017. Many sellers are enjoying rising prices and quick market times but are waiting for more inventory choices before listing. Listings tend to stand out more in a tight inventory market versus one with growing supply.
Buyers were active in 2018, though 3.4% less so than in 2017. Closed sales remain strong. 2018 saw the 4th highest unit sales since 2003. Buyers were encouraged by low interest rates while some were spooked by rate hikes. Rising rents, a solid economy, upper bracket activity, as well as condos and new construction helped to finish off the year strong, despite a modest decrease.
With low-but-rising supply combined with high-but-moderating sales, it’s no surprise the median sales price rose 7.7% to $265,000. This marks a record high. Home prices have risen 76.7% from their low point in 2011 and 15.2% from their prior 2006 peak. Rising prices boost equity, motivate reluctant sellers and replenish local tax base, but can also cause affordability challenges.
Inventory levels finally rose 4.5% after reaching a 15-year low in 2017. Buyers had 8,128 options in December but over 13,000 in September. When combined with strong demand, this supply-side constraint has resulted in competitive bidding and rising prices. The shortage has frustrated some buyers—particularly at the entry-level price points. More supply is vital to ongoing market health and to increase housing opportunities.
Mostly due to fundamentals but also better pricing decisions, sellers yielded a higher share of their asking price. The median percent of original list price received reached a record high of 100.0 percent. Sellers had a 50/50 chance of receiving more than their original list price. The climate for sellers has improved immensely but that could be changing. Sellers are seeing good offers in record time, for now.
Homes are selling at a 12-year record pace. Listings spent a median of 22 days on market, 18.5 percent fewer than 2017 (avg. of 48). That is nearly half the market time of 2015 and under a quarter of the market time from 2011. Among other trends, relatively strong sales of homes selling in record time and at record prices has motivated some sellers. But these market dynamics won’t last forever.
All Minneapolis Area REALTORS® members should be advised of the following proposal:
The Minneapolis City Council has directed city staff to craft an ordinance that would add Residential Energy Scoring Disclosure requirements to the Truth-In-Sale of Housing. We anticipate that draft language will surface at the Public Health, Environment, Civil Rights and Engagement Committee on January 7, 2019 meeting and may be up for a public hearing from that same committee at its January 28, 2019 meeting. The proposal’s chief authors are Jeremey Schroeder, Ward 11 and Cam Gordon, Ward 2, who is also Chair of Housing Policy and Development Committee. The ordinance is also supported by Center for Energy and Environment, a Minneapolis based non-profit that operates research, programs, and policy work in the clean energy sector. Authors state the purpose of the ordinance is to “address two ongoing and worsening crises: a local housing affordability crisis and global climate crisis”.
So, what would the additional inspection items look at? While the ordinance has not been developed yet and details remain unclear. We understand that the likely additional inspections items would include attic insulation, heating system age and venting type, window types, wall insulation inspections with a 2” inspection drill hole, and a blower door test. After inspecting these items, a home would be given an asset rating on a 100-point scale. This information would be required to be present just like the current TISH, there would be no required repairs. The cost of the TISH, now $275 would also likely increase by as much as $200 or more.
Minneapolis AREA REALTORS® has been engaged on this issue from the beginning. Attending and hosting early stakeholder meetings. MAR submitted formal comments to all members of the Minneapolis City Council, Mayor’s Office, and staff on the issue on November 27, 2018 and listed six concerns and six alternatives to consider (see attached letter).
Presents Barriers to Homeownership—Especially First Time Buyers
Increases Housing Costs
Lengthens Inspection Times
Offers Minimal Range of Effectiveness by focusing on only ‘For Sale’ Homes
Creates Competitive Disadvantage for Minneapolis Homes
Expands Original Scope of TISH beyond Health & Safety
MAR’s Recommended Alternatives:
Increased Ease of Utility Bill Disclosure
Voluntary Home Energy Audit Programs (i.e. Home Energy Squad)
Low Interest Fix-Up Fund Programs with Interest Rate Reductions for Efficiency
Leveraging Multiple Listing Service Data (i.e. Adding New Fields)
Better Representation of Existing Energy Efficiency Systems in Competitive Market Analysis “CMAs”
Strengthened Appraisal Valuations where Energy Efficiency exists
What action has taken place?
Minneapolis Area REALTORS® received a response letter signed by Council members Schroeder and Gordon on December 4. The letter defended the need to enact proposed ordinance citing affordable housing and climate change as crises. Supporting arguments on enacting Energy Scoring at TISH this list.
Energy Disclosure will Increase Housing Affordability
Faster progress on Reducing Carbon Emissions is needed
Consumer Protection and Long-Term Costs
Council members Schroeder and Gordon agreed on a number of our assertions but view them differently. For example, they agree that only a limited number of homes are for sale in a given year but then respond that only 850-900 Home Energy Squad visits are occurring now. So, when they see 4,000 homes sold per year that four times as many possible inspections. They also agree the proposed ordinance increases transaction costs, but they also believe the long-term benefits out weight the one-time cost, paid by the seller.
Council members Schroeder and Gordon fundamentally disagree with the point about putting Minneapolis Homes at a Competitive Disadvantage. “We disagree that this level of consumer protection will create a competitive disadvantage for Minneapolis homes. In fact, we believe that over time, homebuyers will be drawn to Minneapolis homes specifically because of this level of transparency,” said Schroeder and Gordon.
Council members Schroeder and Gordon did share areas where they identified that our interest align: “We will continue to advocate for improving the TISH inspection process and making it more relevant by adding the proposed energy report, as one of many strategies to reduce carbon emissions across all building types and industries. We look forward to working with you on issues where our interests align, such as improving Realtor and appraiser education about energy efficiency, incorporating energy information in the MLS, and more.”
“It’s encouraging that Council members Schroeder and Gordon are engaging with REALTORS® on this issue. Especially with regard to the issues where we do align,” said Eric Myers, Government Affairs Director, Minneapolis Area REALTORS®. “Overall, we do agree with the premise that homes should be more energy efficient we just do not believe it will be effective to focus on only ‘for sale properties’ since less than 4% of homes are for sale in any given year,” said Myers.
Minneapolis AREA REALTORS® plans to be continually engaged on this issue. Stay tuned for more details as the draft ordinance language emerges.