Minnesota’s Housing Market
Since the housing bubble burst in 2007, we have finally started to see the housing market in Minnesota show continued signs of recovery. Closed sales are up, home prices are starting to increase again and REALTORS® are starting to see multiple offers come back for listings! But – there is still a long way to go before we could see another housing boom and we could even see a slowdown this fall in Minnesota’s housing market.
Economic Challenges = Housing Problems = REALTOR® Troubles
Minnesota Association of REALTORS® CEO Chris Galler recently offered this perspective on the current market and the challenges facing REALTORS® in Minnesota.
Although transactions have improved and gains are in the double digits, REALTOR® Associations and REALTOR® members need to anticipate how this fall’s selling may roll out. Some get upset when we print an article or talk about things that are not bright and rosy. We know the world is filled with “negative messaging” and that sales is a career where the lows are low and a word of encouragement can go a long way to lifting your spirits. We’re not trying to bring you down, but instead trying to increase your consideration of what the future may bear.
I often liken a career in real estate to that of a career in farming, especially dairy. Both are 24/7 careers/lifestyles. Both careers are dependent on numerous things out of their control. Farmers have weather, crop/animal prices, loan costs, machinery, etc. REALTORS® have concerns about interest rates, appraisals, inventory, inspections, etc. REALTORS® are also both dependent on a strong economy, solid job base and consumer confidence.
So where is this all going? I think we should all anticipate a slowdown this fall. Please read that carefully — slowdown — not decline, not bubble burst, not huge fall, but a slowdown. We’ve been running double digit transaction increases through the spring with multiple offers on well priced, well-maintained properties. Housing consumer confidence has been trending positively for the last 8 months. As an industry, we need to be careful not to oversell the improvements of the past few months.
Minnesota Median Prices Are Higher
• Median prices are higher, which will motivate some homeowners who have been waiting to sell to begin to enter the market.
• Some of the median price increases are attributable to lower inventory levels. More properties will be listed as sellers try to cash in while rates are low and move-up homes plentiful — this will take 2-3 months. That means by July, inventory levels will be increasing which will moderate price increases.
An Election Year and the Global Outlook
• Negative election year campaigns will cause many to freeze — especially businesses as they try to figure out what the regulatory and tax situation will be for the next 4 years.
• European currency problems have not been resolved and the government spending habits in many European countries is causing public strife. Europe is America’s largest trading partner, so an illness in that market will have impacts on U.S. businesses and their employment needs.
• A number of Middle Eastern countries have very unstable governments or have elected groups opposed to America. Instability in the middle east is never good for economic growth — except military spending. Uneasiness about the future is not a positive economic sign and a military intervention would cause further consumer constriction.
• We’re talking about the expiration of the Bush Tax Cuts and the Obama FICA cuts. Withholding tax cuts, mixed with significant planned spending reductions, will likely slow economic growth and could potentially turn it negative in early 2013. Consumers will begin understanding the potential impacts by late summer as political ads and media reports start to sink in. Please understand, although the media has painted these as “tax breaks for the rich,” when they expire it will result in a significant tax increase for the middle class ($50,000-$75,000).
These items will likely have a slowing impact on the economy, jobs and home sales. The overall cloud from these concerns will reduce consumer confidence and slow some housing demand this fall. That does not mean home sales are falling off a cliff — it just means we should plan for small increases, slow and steady progress as the housing market rebuilds after the destruction of the last 5 years.
REALTORS® are in a unique position of being able to temper the enthusiasm and discuss the positive signs for those interested in investing today. After all, interest rates are low, home prices very affordable and rents are increasing — which means the consumer is buying a home for someone else. The fundamentals of homeownership are firmly rooted in the American psyche. People still view homeownership as a positive financial investment and good for family and community stability. We’re in a unique position of being able to help people achieve their piece of the American Pie. Just be careful not to oversell it — your credibility and that of the industry is dependent upon pointing out the true nature of this long overdue housing recovery.
The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 19,000 members who are active in all aspects of the real estate industry in Minnesota.