2009 Twin Cities Real Estate Outlook

Having just returned from the 2009 Twin Cities Residential Real Estate Summit, we want to share our outlook for this year. Our information is based on insight from leadership at the Federal Reserve, National Association of Realtors, U.S. Department of Housing & Urban Development (HUD), U.S. Department of Veteran’s Affairs, the CEO of Homes Services of America, and some of the largest home builders in the Twin Cities and the nation.

SNAPSHOT
The Federal Reserve anticipates unemployment in Minnesota will remain well below the national rate, but will continue to creep upwards to around 7 percent by year's end. While that suggests difficult times are still ahead, there is general agreement (and we're feeling it, anecdotally) that the housing industry will be the first to recover. The big question: When? Ron Peltier, CEO of Homes Services of America (which owns Edina Realty), who was just at planning meeting with Bill Gates and Warren Buffet, predicts the housing market in the Twin Cities will turn around June of '09.

In 2008, the median sales price for Twin Cities home was $195,000 -- that's down 13.3%. More importantly, there was a huge spread between homes that were "traditional" sales and those in the "lender-mediated" market of short sales and foreclosures. The median sales price for traditional sales was $223,000 and $145,000 for lender-mediated. And a whopping 31.7 percent of the sales last year were short sales or foreclosures. That's an unprecedented percentage.

We think that we're finally touching the bottom in the foreclosure market, but the market must determine how the lower foreclosure prices will impact the price of "traditional" sales. We know that more foreclosures are coming but don't expect to see the "bubble" that had been predicted, at least in this market. Lower interest rates and loan mediation programs are helping. In fact, the 4th quarter of 2008 was the first in some time in which the number of new foreclosures coming onto the market had dropped.


FIRST-TIME HOME BUYERS
The outlook continues to be outstanding! With both prices and interest rates still at record lows, this is a fabulous time to buy. The current $7,500 tax break for 1st time buyers is still available, but only until June. FHA is lending and, in some cases, is willing to qualify buyers with only $100 down. Many of the foreclosures and HUD-owned properties are coming on the market in remarkably good condition. While the process is certainly not always predictable or smooth, the result can be a fantastic value.


TEACHERS, EMT’S, FIREFIGHTERS AND POLICE
The growing stock of HUD-owned properties can be purchased by "community" workers for about 50 percent of a sale price on the traditional HUD market, if the property is located in one of the 68 designated revitalization areas in Minnesota. And these areas are all over -- both inner-cities and suburbs. This program is really an opportunity to help rebuild neighborhoods and provide access to quality housing stock to people who want to live in the community in which they work. (We're gaining considerable experience with buying these homes, so please let any 1st time home buyer1 who is a teacher, EMT, firefighter, or law enforcement officer to call us.)


HOME SELLERS
Sellers who are planning to buy another property should not be overly concerned about values because what is "lost" on one transaction will be gained on the other. There is also less quality inventory on the market, with a 10% decline in listing inventory. So, well-maintained homes in good neighborhoods that are priced right will sell. They always have.

Sellers who own their homes outright have a special opportunity in this market. About one third of all Minnesotans own their own homes outright, with no mortgage. These folks can attract buyers if they are open to selling on a Contract for Deed (CD). You may remember these from the interest rate crazed era in the early 1980s. As lenders tighten credit, sellers can act as the banker and structure sales which offer greater flexibility, lower closing costs, attract a larger potential buyer pool, and generate a steady income stream. Let us know if you have questions about whether your home would be a candidate.


BUYING NEW CONSTRUCTION
Surprisingly, there has been some home building, which continued last year. In most cases, developers were sitting on land they had already purchased and could not sell at a profit. The only way they could make money was to build-out the homes and sell them, often below cost. The maniacal land-buying has stopped and there will likely not be much new home construction until the industry becomes much more stable. So, if you have your eye on a new home, remember that when they say only "X" number of homes remain - they really mean it. This is especially true in the first-ring suburbs.

OUTLOOK FOR INVESTORS
Simply put: "Buy now". In a few years, we will all look back on this time as perhaps the greatest buying opportunity in history.

SUMMARY
This time next week, we will have a new administration in the White House. How Americans react will be determining. We need to have confidence to get the housing market and our economy moving. We do not have a crystal ball but expect many initiatives in Washington and at the state level targeted to housing.

There are great opportunities in today’s real estate market. The number of homes being shown in January is up substantially, anecdotally, traffic at open houses is much stronger than we expect at this time of year (especially given current weather conditions), pended sales are up slightly. We won’t know when we hit the bottom until after we're already on the way back up. But all indicators suggest we are close.

We thank you for your business. Please call if we can help and do share this with your friends and families. We are optimistic about the housing market this year and hope we can share a part of 2009 with you!

Best,

L & M