Twin Cities Real Estate - The New Waiting Game

Inventory is up. Houses are on the market longer. Buyers are getting extras. So, it's a buyer's market, right? Not exactly.

Jim Buchta, Staff Writer

Published October 16, 2004 in the Star Tribune

Jerry Baird has been trying to sell his house and 5-acre spread in Denmark Township in southern Washington County since April. He has cut the price twice, to $408,500, installed new carpeting and painted several rooms. He also plans to install a new septic system. Still no offers. ``I was OK with it for a while, but it's just getting tiring,'' Baird said. ``It's starting to wear on me.''

Jackie Baxter has never seen a real estate market like this Jackie Baxter has never seen a real estate market like this one. Houses are taking months to sell and sometimes getting tow-ball offers. And sellers are even starting to offer concessions -from paying for closing costs, to carpet allowances and even furniture -to nab a deal.

"People are very confused as to why stuff is sitting there," said Baxter, an agent with Ref Max Results who has been in the business for eight years. "It's actually kind of fun working with a buyer now because you go in and they really get what they want."
Has the Twin Cities home market, which for at least six years has been a steady supplier
of quick sales and strong appreciation, turned a corner?

A growing number of frustrated sellers think so, and there is some evidence to back them up ~ a record number of listings have hit the market this year, and it's taking longer for properties to sell.

"Home sales have definitely slowed," said Mark Allen, chief executive of the Minneapolis Area Association of Realtors. "But
I'd call it a balanced market"

The rear-view numbers remain strong. So far this year, the number of closed sales in the 13-countymetro area is al- most 3 percent higher than it was last year, and total dollar volume of those closed sales is more than 10 percent higher than in 2003.

But the surge in inventory is making the days of multiple offers and soaring appreciation rates fade rapidly.

A record 31 percent more houses were on the mar- buyers a kept at the end of
September than in September 2003, according to the Minneapolis Area seat, pal Association of Realtors and the Regional Multiple Listing Service. In addition, from January through September the number of new listings was anywhere from 11 to 25 percent higher than the previous year, and the number of listings on the market at the end of September was nearly 40 percent above the five-year average. Allen said, however, that those numbers are somewhat skewed by changes made a few years ago in the way the organization tracks the data, which now include more listings from outside the metro area.

Regardless, there's no denying that the number of houses competing for buyers is up.
Inventory usually rises be- cause home sales slow, but sales weren't slow this year until September, when sales dipped 11 percent. Even so, the number of pending sales -an indicator of the number of closed sales in coming months -increased 7 percent last month.

Surge in building

So where is the surge in listings coming from? Some of it is due to home builders, who have put up a record number of new houses over the past couple years. Every month builders pull permits for 900 to nearly 2,000 housing units. In September, for example, builders planned to build more than 1,500 units, while a little more than 9,000 new listings were processed through the Regional Multiple Listing Service.

In Woodbury, for example, a new-construction hot spot for the past several years, four of the 11 homes priced between $400,000 and $600,000 that have sold since August were new construction.

"When people move up in price range, they would just rather build,” said Baxter, the ReMax Results agent.

In addition "many people are downsizing or are scared about their job or scared about getting laid off or scared about the economy" and want a smaller mortgage, she said. "Two years ago you didn't hear that at all.”

George Karvel, real estate professor at the University of St. Thomas, said the shifting of a market away from extreme exuberance to normality can be painful. So far the pain is mostly psychological, in Karvel's View.

"Is it more of a buyer's market than it has been over the last two to three years? The answer to that question would be 'yes,'" he said. "But is it a buyer's market in the sense that a buyer can go out and find a bargain? Or does it mean that sellers are desperate to
sell? The answer to that question is, 'no.'

"The higher inventory is a reflection of slightly longer marketing times and a less frenetic level of activity of buying homes," he added. "But I don't think the higher level of inventory is out of line nor at this point presages a collapse in the housing markets or even the creation of a meaningful buyer's market."

Jerry Baird isn't so sure. Baird is another part of the explanation for the surge in listings. He's one of the legions of baby boomers who've decided to swap their single-family homes for a townhouse or condo. In Baird's case, it's the 2,100- square- foot home where he and his wife raised their family. In April they bought an almost new twin home in Woodbury and put their house in Denmark Town- ship on the market.

Baird thought it would take 90 days to sell the house, but he didn't get a single offer on the five-acre spread, so he and his wife hired Baxter. After two price reductions, fresh carpeting and paint in several rooms and plans to install a new septic system, still no offers.

"I Was OK with it for a while, but it's just getting tiring," Baird said. "It's starting to wear on me." The market is considered balanced when there's a five- month supply of houses at the current sales pace. In early October the overall absorption rate was 4.6 months. Upper-bracket houses are among the slowest to sell right now and in markets like downtown Minneapolis, where the average sale price so far this year was some $335,245, the average market time has increased from 54 to 73 days; Such statistics can be deceiving though, because they don't include expired or cancelled listings of home despite the mixed messages that the market is sending to buyers and sellers, Allen expects the market to remain healthy.

During the fourth quarter, typically a slow time of year, he expects the increases in inventory to slow a bit. Nonetheless, agents say that, particularly in the upper bracket, some buyers are finding themselves in the driver's seat. For example, when Anatoly Mylnikov moved this fall from Miami to the Twin Cities, he was shocked by the high prices but pleased with the number of houses he had to choose from. He looked at 18 houses in Maple Grove, Plymouth and Woodbury before finding one in Maple Grove that was suitable, though $75,000 more than he had initially planned to spend;

Even that price was lower than the sellers had first asked, so Mylnikov knew they were getting restless. He offered them several thousand below the price and asked them to throw in a new stainless steel refrigerator, pool table and bar stools that he had admired during the showing..

"We asked for those things and they said," Mylnikov said. "I knew that it was more of a buyer's market than a seller's market, so it was not totally unexpected."

If the number of listings continues to rise, Mylnikov's experience could become more common, said Larry Eberhard of Keller Williams Realty. He thinks sellers must adjust and be less aggressive about pricing their homes.

"I don't think the market is that forgiving," he said. "Buyers have more time to spend looking at different properties, they don't feel pressure that they need to make a decision the first time they see a property. The market knows that the times when you need to make a decision within 24 to 72 hours have passed."

Jim Buchta is at jbuchta@startribune.com.



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