In the first six months of this year, sales of existing homes, including condominiums and town homes, dropped by about 16 percent from the same period last year, when there were about 23,800 home sales. And the median price of homes has declined about two percent from $230,000 to $225,000 over that same period. It's not what realtors or home sellers like to hear, but some are taking it in stride.
"Yes, it's flat, yes, it's different from the extraordinary historic 6- or 8-year run we had previously, but it certainly is a long way from grave,"says Steve Hyland, president of the St. Paul Area Association of Realtors.
Yes, it's different from the extraordinary historic 6- or 8-year run we had previously, but it certainly is a long way from graveSteve Hyland, president of the St. Paul Area Association of Realtors
Hyland says the situation is due in part to problems in the sub-prime lending market, which is leading to greater scrutiny of mortgage products. But Hyland says the current flatness also derives from the over-exuberance of the market a few years ago.
"There was an awful lot of activity, and an awful lot of homes that came on the market, and a lot of condominium projects that were built and developed, and there was such a quick turn and people were doing so well with pretty nice appreciation rates. And people thought 'Gosh, this is the way it's always going to be,'" he says. "And I think now there's fairly significant disproportion of inventory because people are pulling back and pausing and saying, 'Okay I'm just going to wait a while.'"
Hyland says a few years ago, it was common for a house to sell after two to three weeks on the market, and now it's taking more like three months. That's not exactly bad, Hyland says; it's just a change.
Real estate professor Tom Hamilton shares that view. He says overall, the Twin Cities metro market is stabilizing. Hamilton says where other parts of the country are continuing to see a dramatic reduction in housing prices, metro home prices have decreased by about two percent, without dropping yet lower.
"Year over year, over three straight quarters, we've seen kind of a flattening, a bottoming, in the prices," he says. "So if we look at the first quarter of this year versus the second quarter of this year, we've kind of flattened out."
So, how does this all affect the average person who isn't buying or selling a house? Regional economist Toby Madden of the Federal Reserve Bank of Minneapolis says there's definitely collateral damage from the housing market's sluggishness. He points to workers like carpenters, who may lack work because housing construction's down. Madden says that triggers other effects.
"State government finances might be hurt a little bit because the people that were paying income taxes when they building houses, they're not building houses anymore, they're not paying income taxes, and they might be collecting unemployment insurance," he says.
But Madden says the good news is the rest of the economy continues to grow, and quality workers are in high demand in other industries.
In addition, Madden says the weak demand for housing in the current market can mean people are spending their money in other places, which can also help the economy.
"If they're not demanding houses, they're probably looking at something else. Maybe they're looking at travel or purchasing other goods or services," Madden offers.
Real estate experts agree that as the housing supply dwindles, demand will catch up, and the overall situation will rectify itself. The National Association of Realtors forecasts that home sales will hit a 5-year low this year, but then will strengthen in 2008, along with home values.
In the meantime, real estate experts say the current situation will improve if more sellers think realistically about how to price their homes so they won't languish on the market. Twin Cities resident Al Heebsh recently learned that lesson. His family recently put their north Minneapolis home on the market. After a month of no showings, they lowered the home's price by $10,000.
"That was what it took," he says. "We got showings, a couple right away, and then a showing a day. We eventually sold it for $10,000 less than what we originally put it at, which was $5,000-$10,000 less than what we could've expected to get it for last year.
Though Heebsh says he wasn't happy to slash his home's price so dramatically, he was able to get a good deal on the new home his family purchased in New Brighton. So he says, in the end, it all pretty much balanced out.