HOusing bubble continues to grow here locally--
Metro home sales reach 5-year high
Neal Gendler
Star Tribune
08/13/2002
Despite national economic doldrums, more home sales closed in the Twin Cities area last month than in any month of the past five years, and the median price set a record for the fourth consecutive month: $190,000.
The closings and price reflect a strong spring market continuing into summer.
The median price -- the point with half selling for more, half for less -- is 8.63 percent ahead of $174,900 the previous July. Also, the value of July's sales were $1.30 billion, or 13.59 percent higher than a year ago, the Minneapolis Area Association of Realtors said Monday.
Continued strength is evident in 5,201 purchase agreements signed last month in the 13-county metropolitan area for single-family homes, townhouses, twin homes and condominiums. That's 134 more than in June, when wet weather dampened buyer enthusiasm. Typically, purchases close in 45 to 60 days, so closing numbers are likely to remain strong into fall.
"I think we're in the full summer swing of things -- at last," said Joanne Smaby, association president. Compared with the stock market, real estate has proven to be a good investment, one that not only has retained its value, but increased "sizably in the last four years," Smaby said.
At first glance, prices seem to defy economic principles, rising despite increased supply. July ended with 20,161 listings on the Regional Multiple Listing Service, a 13.14 percent increase from 17,820 in July 2001. While the 28,352 sales that closed in the first seven months were up 2.41 percent from a year earlier, the number of purchase agreements signed but not yet closed were off 2.98 percent.
Listings are "enormous compared with the last two years, but not compared with the five-year average," said association CEO Mark Allen.
The market typically becomes more balanced in summer, as more houses are put up for sale. That's good news for buyers, who have more choices and time to consider them than during the past two inventory-starved years.
Allen offered three reasons for price and supply rising together. One is "a reasonably strong job economy." Another is that in this area, "median household income still is more than what's necessary for the median-priced home." And "unique to our marketplace, houses have been appreciating at a rate near 10 percent for the past few years, which has taught buyers that they're not going to pay any less for a house by waiting."
Allen said that as long as median income exceeds what's needed to buy the median home, "that's going to keep upward pressure on home prices." He called that "a wonderful environment except for the pressure it puts on housing for those at lower income levels, such as teachers, police, nurses, firefighters and so on."
Median income in the Twin Cities area is $76,700, and a household with good credit spending 30 percent of its income on principal and interest should be able to buy a house for about $230,100.
Smaby said that interest rates, which remain below 7 percent, have helped keep many first-time buyers from being priced out of the market. Others have turned increasingly to attached home styles.
Rising prices show in the value of closed sales: $6.124 billion through July, up 11.77 percent from the 2001 months.
"It appears that we could have total sales near or even surpassing last year's record, which was 49,603 closed sales," Smaby said.
-- Neal Gendler is at ngendler@startribune.com.
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