Goodbye to the real estate boomby Mark Zdechlik, Minnesota Public Radio
Newly released statistics show that June was another slow month for the Twin Cities housing market. Both new and existing homes, which not long ago would have been the subject of bidding wars between anxious buyers, are now sitting idle in a market increasingly flooded with sellers.
St. Paul, Minn. — Just take a look out the window as you're driving around the Twin Cities and you will likely see an abundance of "for sale" signs, just like the one that stands in front of John Burke and Heid Erdrich's St. Paul house.
"Of course I'm terrified, because a year ago houses like this sold fast, very fast, and it was competitive," says Erdrich.
Two or three years ago, she says, all the houses on their block that went on the market sold even before the "for sale" signs went up.
Heid Erdrich and her family find themselves on both sides of the real estate slowdown. The surplus of properties and decreasing prices gave them a newfound opportunity to move to an area they may otherwise not have been able to afford.
But those same market conditions will likely make selling their old house more difficult than it would have been last summer, or summers going back several years.
Their home has been on the market for only a couple of weeks. In hopes it will sell quickly, Erdrich says she and her husband have painted, washed windows, and done many other things to make their old house look new.
She says a considerable amount of that effort and expense would not have been necessary, had the real estate market not softened.
"We did do a lot of detail work that I don't think we would have done," Erdrich says. "We put in lots of new little fixtures, put in new ceiling fans, put in a new ceiling that we lived with for a long time. But it was something that -- the reality suggests that right away the new buyers would want to see everything looking spanking new."
Minnesota's metro area real estate scene has decidedly shifted from a seller's to a buyer's market.
New "Multiple Listing Service" numbers compiled by the North Metro Realtors Association show a nearly 17 percent drop in home sales in June of this year compared to June of 2005. The numbers also show, for the year running, sales are down nearly 10 percent over last year.
Christopher Galler, senior vice president of the Minnesota Association of Realtors, says people shopping for homes are finding 30 to 40 percent more properties for sale in 2006 than 2005.
"We're just in a cycle. For the last five years we've been running properties basically on sale, meaning that the interest was lower than most people had seen in most of their lifetimes," says Galler. "So what it does is allow people to purchase more property than they may have naturally purchased before."
With higher interest rates, consumers' buying power has decreased. But home sellers are quick to point out that, while trending upward, interest rates remain historically low.
They're trying to bring people back into house-shopping mode, saying now's a great time to buy because they are so many choices.
Some home sellers are going to extraordinary lengths in hopes of connecting with buyers -- even giving away cars.
Annisa Jones, the marketing manager for Centex Homes, Minnesota's largest home builder, says while her company is not giving away cars, it has several promotions aimed at luring business.
There's a drawing for $50,000 in down-payment money and "instant-win" gas cards. And there are drawings for the chance to throw out the first pitch at a Minnesota Twins game.
Centex has also recently began offering a "down payment assistance" program, in which the builder pays a nonprofit organization to "gift" down payment cash to certain Centex buyers.
Sitting in the pristine kitchen of a Centex model town home in Woodbury, Jones -- like many of her real estate industry counterparts -- prefers to call the slowdown a "normalization of the real estate market.
"We're not worried about it," says Jones. "We see this as a great opportunity. It's a great time to actually invest in a home, because you do have choice."
A basic 30-year fixed rate mortgage is running between 6.5 percent and 7 percent right now. The Minnesota Realtors Association says rates could go as high as 8 percent this fall, if high energy prices spur inflation.
That's possible, but other economic observers who are not focused on selling real estate, think such a dramatic increase is unlikely in the short term.
The Wall Street Journal's latest survey of more than 50 economic forecasters has a majority predicting interest rates may tick up slightly by the end of the year, but will basically remain where they are now.
- All Things Considered, 07/12/2006, 5:19 p.m.