This market update was put on the back-burner on getting posted because the Quarterly Case Shiller Index came out this morning. This one should not be overlooked, because this is actually a leading indicator to the Case Shiller Index for our area.
Minneapolis Area Association of Realtor released their Market Update. We are experiencing positive signs in the market, we have inventory shrinking and pending sales picking up. Ultimately these 2 factors will converge into stabilizing then increasing prices. (simple supply and demand) Pending Sales were up 53.3%, that is outstanding! Inventory shrunk by 20%, another astonishing figure. Now we have a trend going, the average of the last 3 months have been a 15% decrease in inventory and 44.2% increase in pending sales. We are now down to 2005/2006 inventory levels! Prices should begin stabilizing at this inventory level and sales activity, assuming these levels continue.
- Week Ending 8/20/2011 Inventory of Homes (Twin Cities)
Now the really cool thing is that the Affordability Index is really high. The Median household income is 234% of what is required to qualify for the median-priced home under current interest rates. Right now it is cheaper to own a home than it is to rent. This should attract more buyers back into the home market, fueling added demand – stabilizing prices. (* my traditional disclaimer, assuming we add employment to the region…)
This is a great visualization from calculatedrisk blog. The commercial real estate market is tracking about 18 months behind residential. Commercial Property Price Index vs. Case Shiller. So what my question is: In order for the Residential Market to recover, we need jobs. The primary purpose of Commercial property is commerce aka Jobs. So which market will recover first? Residential or Commercial?? Thoughts?
Also another question comes to mind – had we not interfered with the residential market (government intervention) would the Case Shiller index bottomed out like the CPPI? Was it really worth it?
CPPI vs. Case Shiller (calculatedrisk blog)
I was reading John Murphy’s report on the Case Shiller home price index in some areas is back to 1997 pricing. That post got me curious on how we compare. I am more of a visual learner, so I was able to create this map using the St Louis Federal Reserve Banks database to show the declines.
Keep in mind, January 2000 = 100 on this index. so the higher the number the less of a price decline. Minneapolis St Paul is ranked fairly hard hit on price declines along with Chicago, Atlanta, and appears to Charlotte NC. We are doing better than Detroit and a couple Metro areas like Las Vegas, and parts of Arizona and Ohio.
This burst my dream world fantasy that being in Minnesota makes us immune from the national trends. Looks to me like we clobbered on this one…
Case Shiller Home Index Map