Market Awash in Homes for Sale
Increase in Listings and drop in sales result in a record number of homes on the market in May. Buyers may be waiting to see if prices get even better.
By Susan E. Peterson, Minneapolis StarTribune staff writer
Minneapolis - Sellers continued to swamp the Twin Cities area housing market in May, leaving a huge pool of inventory for increasingly choosy homebuyers.
New listings of 11,419 homes in the 13 county metro area were record highs for the tenth consecutive month. Closed sales fell to 5039, more than 9% below the 5553 sales in May, 2005. Pending sales – deals not yet closed – were down 14.5% to 5749.
At month’s end, 30179 homes were for sale in the 13 county metro area – up 43% from a 2005, according to statistics from the Regional Multiple Listing Service of Minnesota, Inc. That amounted to 5.4 homes on the market for every expected sale in June, compared with 3.14 homes per expected sale a year earlier.
The median sale price in May was $230,000, up 1.1% from a 2005. Last year, the median sale price – the point where half are more half are less – rose 7.7 percent.
For all of 2006, appreciation is expected to be about 4% said Todd Shipman, President of the Minneapolis Area Association of Realtors.
While the market conditions are tough on sellers, buyers are in the driver’s seat, and they’re taking their sweet time about jumping into deals.
“There’s a combination of factors going on – rising mortgage rates, especially for adjustable rate mortgages… and the level of home prices in so high that it is starting to affect affordability “said Scott Andersen, a senior economist for Wells Fargo and Co. “There’s also a sense that buyers are holding off, waiting to see if the bottom forms, or if there is continued weakness in the market.”
Shipman said: “rates are reasonably low, there’s a big selection and some motivated sellers. But buyers are aren’t pulling the trigger.”
One reason for the slower sales may be overly optimistic sellers, observers said.
“Sellers are having a hard time” adjusting to lower appreciation rates, said June Weiner, President of the Saint Paul Area Association of Realtors. “They’re perhaps not being realistic about prices. We’ve seen so many years of high appreciation that this is kind of a sudden change.”
The return of contingencies also is contributing to the buyer – seller in balance said Shipman, a real state agent with [a local real estate] company. The hot market of past years meant that few buyers made a purchase contingent on selling their own home for fear of losing out to a non contingent buyer. But that’s changed.
“It’s the chicken and egg,” he said. “If the buyers’ house hasn’t sold, they’re reluctant to buy because of the uncertain market.” In addition, he said, “investors have pulled out of the market” because the slowing home appreciation rate means they can’t earn a big enough returned to make a real estate investment worth their while.
Economist Anderson said there’s a psychological factor at work too. “When you start to see prices decline, they become reinforcing,” he said. “Buyers hold off, expecting cheaper prices in the future. It’s almost the opposite of rising prices,” when people rush to buy because they think they’ll have to pay even more if they wait.
“I think the real question is, will the market bottom out, or is this the beginning of a downtrend that could be more severe?” he said. The answer, Anderson said, will depend largely on baby boomers, who are approaching retirement:
-Will they panic and all put their houses on the market at once, hoping to lock in the hefty appreciation gains many have been counting on to help finance a comfortable retirement?
-Or will they hold back, as sellers traditionally do when the market weekens, hoping that prices eventually will improve?
“We’re in uncharted territory because of the baby boomers and the run-up in housing prices over the past five years,” Anderson said.
“We’re not 100% sure how home sellers are going to react.”
The real estate market has turned, as any market will do, especially when it has rapid price movement. Everything tends to balance. What will also need to happen is an adjustment in expectations by buyers and seller AND agents. The days of dialing in the annual 14% increase is over, for now, and the large influx in homes on the market will mean the cut-throat agents will be even more so. The selling public will feel an even greater pinch in their net proceeds at closing, which means agents will be asking for ever-decreasing commissions, no matter how many years in the business or how elaborate their marketing programs are.
The Sign and The Internet
The main tools to get a home sold are:
That big sign in the yard that says "FOR SALE"
The home information available to buyers on the Internet.
The rest (curb-side house info broadcast systems, flyers, postcards sent to the neighbors, ad nauseum) are small contributors at best. When more than 97% of sale activity comes from a combination of a yard sign and an internet listing, this can only signal the beginning of the end for full commissions.
If sellers can get the same level of service and pay less for it, why wouldn't they opt for using a service that can provide the proper forms, high-visibility yard signage, and the ability to list the property online?