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Buying a home? Good luck with that

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Homebuyers Edmund and Brandi Negron walk through a house with their family.
"Not interested," first-time homebuyer Edmund Negron said within the first few minutes of entering the small duplex with his wife Brandi and their kids.
Tom Baker for MPR News

Edmund Negron, his wife and four daughters started hunting for a house about a year ago. He's seen nearly 50 properties in his search for a home that'll cost $150,000 or less. 

Last week, Negron visited three houses on St. Paul's East Side. None of their online listings included interior photos. 

For good reason, it turned out.

The houses were riddled with problems — punched-out walls, cracked bath tiles, trash-strewn sloping floors, filthy appliances, peeling lead paint and more.

"You don't want to get involved with a property like that," Negron said.

At least he got a look at the places. In many cases, homes are gone before he can get to them. 

"We're setting up appointments, and as soon as we set it up they're saying, 'Oh unfortunately, that's sold. Oh, that's pending,'" he said. "Houses are going really fast. So, we want to find that right one before somebody else does."

Negron is trying to battle some of the worst economics for homebuyers in a long time, and there's no sign the difficulty will ease. The Minneapolis Area Association of Realtors reports that the number of homes for sale remains at historic lows. Last month's $250,000 median sales price set a record. 

A house for sale in St. Paul.
With a limited supply of homes and buyer demand on the rise, home prices are increasing for first-time buyers.
Tom Baker for MPR News

Negron's realtor, Nene Matey-Keke of St. Louis Park, said it's tough to find a decent starter home for less than $200,000. That pretty much limits you to certain lower- and moderate-income neighborhoods where prices are rising.     "Affordable neighborhoods? Well, East Side of St. Paul, Frogtown, north Minneapolis, Phillips neighborhood on the south side of Minneapolis," said Matey-Keke. "But the prices are starting to exceed what people can truly afford."

What's behind the short supply of homes and rising prices?

On the demand side, more of Minnesota's 1.4 million millennials are starting to buy homes, but not at the rate their parents did. Their finances are improving in many cases. They're getting married, having kids. Meanwhile, interest rates are headed up, adding to the motivation to buy and lock today's favorable rates. 

But the short supply of homes is arguably a bigger factor than rising demand. Supply has fallen by two thirds over a decade. Emily Green, a past president for the Minneapolis Area Association of Realtors, said retirement-age boomers aren't downsizing as expected.

"They're staying put," she said. "They're not moving on."

In addition, Green said younger homeowners don't see properties they'd want to move to, so they're not selling either. 

Realtor Nene Matey-Keke of RNR Realty stands outside of a home in St. Paul.
Realtor Nene Matey-Keke of RNR Realty stands outside of a home in St. Paul last week.
Tom Baker for MPR News

"So, we have a lot of people who are are stalled because there isn't something to buy on the other end," she said.

New homes aren't coming close to filling the supply gap. Construction is low and prices are high. 

"Today, 70 percent of the product we build is over $300,000," said David Siegel, executive director of the Builders Association of the Twin Cities. "In order to get into the $200s, you're going to have to go pretty far out."

To the fringes of the 11-county metro area, or beyond.

Single-family housing starts are starting to tick up. But Siegel said more homes could be built and for lower prices if more dense development were allowed, zoning codes and other regulations were more flexible and municipal fees more reasonable.

"That could reduce the price of a house by 10, 15 or 20 thousand dollars," he said.

Realtor Nene Matey-Keke of RNR Realty looks over documents.
Realtor Nene Matey-Keke of RNR Realty looks over documents at the home of first-time homebuyers Stuart Wainstock, left, and his wife Crystal Rose-Wainstock.
Tom Baker for MPR News

Siegel says condos, duplexes and townhomes once accounted for about half of new home construction but their construction has been greatly slowed by builders' fears of lawsuits. State law has given homeowner associations up to a decade to sue builders over alleged major structural defects, he said, without broad input from association members. 

Builders feel that spurred frivolous and unjustified lawsuits by associations that didn't properly maintain common spaces. 

"There's almost no for-sale condominium development in downtown Minneapolis." he said. "That's because of those liability issues and those challenges the developers face."

Siegel said builders hope a recent change in state law will reduce what they see as unjustified claims and resolve more disputes through mediation. 

Experts say the pricing trends do not signal another housing bubble.

Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas, said people aren't making irrationally high bids for homes they can't afford — there's just a historic shortage of homes for sale. 

"I think as we get into the spring and summer of 2018, we'll see the situation start to slowly correct itself," he said. "But I think it's going to be with us for a while."

David Arbit, director of research and economics for the Minneapolis Association of Realtors, also said we're not in a housing bubble.

Stuart Wainstock and Crystal Rose-Wainstock are first-time homebuyers.
Stuart Wainstock, left, and his wife Crystal Rose-Wainstock, took a class and did a lot of research on purchasing a home because they didn't have many people they could ask advice from since neither of their parents bought a home.
Tom Baker for MPR News

Consumers are choosing to buy well within their means, Arbit said. In addition, lenders are making sure borrowers don't over-reach.

"Typically in bubbles, you have easy money, where if basically if you fog a mirror, you can get a mortgage," Arbit said. "And we don't really have that anymore. We don't see the NINJA loans, which is no income, no jobs, no assets."

Still, some people are able to find and buy a house they like. 

Two of Matey-Keke's other clients, Stuart and Crystal Wainstock, recently found a starter home here not far from Como Park. It's a three-bedroom, 1,500-square-foot cape with an updated kitchen and hardwood floors.

Stuart said they'd been looking in northeast and south Minneapolis for nearly a year but found houses were too pricey.

"We were walking into something and hoping to find it for about $200,000 and were having to put an offer of $225,000 just to be competitive," he said. "We were almost immediately getting a counter-offer saying that they had three or four other offers that were above and beyond what we were comfortable with."

Their winning bid for the St. Paul house was $10,000 over the asking price.

"It has lots of space to grow into for a young couple," Stuart said. "It felt like this was a good spot to set down roots."

The couple moved in this past weekend. Crystal reports they've bought a ladder and some gutter guards already.