For the last several years, the local and regional housing markets have been flooded by an oversupply of available homes—many of which were foreclosures or short sales.
But that may soon change, according to industry experts, who say that inventory levels are finally starting to bottom out, thanks to stronger home sales in 2011.
In 2010, a total of 649 homes were sold in Eagan, according to the year-end Local Market Update report issued by the Minneapolis Area Association of Realtors. But last year, that number rose dramatically, eventually hitting a total of 796 closed sales.
As a result of the growth in closed sales, the inventory—or supply—of available homes in Eagan shrank by nearly 40 percent in 2011, according to the association's report. The number of new listings coming onto the market also shrank, dropping from 1,425 in 2010 to 1,230 in 2011.
Ordinarily, a big drop in inventory would lead almost immediately to rising home prices. But the region’s median price is still being held down by the flood of properties being sold through the foreclosure process or through short sales, said Richard Tucker, vice president of Coldwell Banker Burnet in Burnsville.
Overall, the Twin Cities real estate forecast is still chilly, but there are at least a few rays of sunshine poking through the clouds.
Exactly half of all closed sales in 2011 were either foreclosures or short sales, and such “distressed properties” typically go for about 60 cents on the dollar compared to traditional homes.
In 2011, the median sales price of homes in the 13-county Twin Cities region fell to $150,000, down 11.7 percent from the already depressed levels of 2010. (The area’s median sales price peaked at $230,000 in 2006. The situation was similar in Eagan, where the median sales price stood at $189,000 in 2010, but droped to $171,250 in 2011.
The real estate market has witnessed a unique situation in the “past four or five years,” Tucker said. At the beginning of the downturn, “we were at very high inventory levels. … the economic crisis forced all that to go down.
What happened in Eagan was also reflected across the Twin Cities region. Regionwide, inventory levels fell a dramatic 28.7 percent from 2010, and are now at the lowest level in eight years. The time it would take to sell off all active properties in the region—a standard measure of real estate inventory—has dropped 36.5 percent to 4.5 months.
“The last piece of (the) recovery will be (an improvement in the) average sales price,” triggered by a scarcity of supply, Tucker said. “That’s the direction we’re heading.”
Tucker noted that the National Association of Home Builders this month included the Twin Cities to its list of 76 “improving housing markets,” which measures housing permits, employment and housing prices for at least six months.
Among other “optimistic indicators” he cited: The region’s relatively low 5.4 percent unemployment rate, historically low interest rates and the fact that rental-vacancy rates in the region are at record lows.
To review the year-end real market report from the Minneapolis Area Association of Realtors, click on the PDF file attached to this article.