‘We Have An Oversupply Of Homes’ In The Twin Cities
The Pioneer Press has this update on the Twin Cities. “With ‘For sale’ signs crowding the landscape, area home builders continue to tap the brakes on new construction. Permits for residential construction in the Twin Cities dropped a hefty 15 percent through the first six months of the year compared with the same period in 2005. The number of permits issued last month dipped to 763, down 31 percent from June 2005.”
“The downshift was expected and may continue. ‘There are still people in the marketplace but not what we’d seen in the last few years,’ said Curt Swanson, president of the Builders Association of the Twin Cities.”
“‘People are more conservative,’ said Barry White, a VP for McDonald Construction. Customers used to take out home equity loans to begin building their new home before they’d put their current home on the market. Now White estimates that one in four customers has a contingency that building won’t start until they have buyers for their existing home.”
“‘We have an oversupply of land and lots and an oversupply of homes both new and existing and something’s got to give,’ said John Lockner, a Realtor in Woodbury.”
“While permits are down, the number of planned units is off even more sharply. Fewer multifamily units, such as condos and town homes, account for the change.”
“Pulte Homes has shifted its focus to single family homes, said Mike DeVoe, a vice president. ‘We’d rather sell a $500,000 single family home than have to sell three or four town homes to achieve the same revenue objective,’ he said.”
“Buyers of these homes have the edge when negotiating for price cuts and amenities. ‘Now is the time the buyer should be out in the marketplace because they’re in the driver’s seat and they can take advantage of the incentives,’ Lockner said.”
‘We’d rather sell a $500,000 single family home than have to sell three or four town homes to achieve the same revenue objective’
Notice no mention of ‘urban living’ demographic shifts, or people not wanting to mow lawns.
And GM would rather make gas guzzling tanks to acheive the same revenue as three or four ordinary cars. What’s wrong with this picture? Producers don’t get to tell the market what to do. Arrogance.
“Pulte Homes has shifted its focus to single family homes, said Mike DeVoe, a vice president. ‘We’d rather sell a $500,000 single family home than have to sell three or four town homes to achieve the same revenue objective,’ he said.”
Single family homes buyers have a faster turnover. (double entendre)
Made me think of how I can park 2 cars in the front driveway in my mature North OC neighborhood. We look at properties closer to the coast. Often, they are zero lot line. Park in your garage or up against it, being careful to not block the sidewalk. We actually have lawns in front, in back, and much of the 125 ft. driveway. What is the average “footprint” for new construction? No yards could be an 80% or greater footprint? Condos have to be 90% or greater.
Ha! Buyers are a long way from having “the edge”. When prices drop down to 2000 or 2001 prices, buyers will have an “edge.” Until then, sellers are still hogs feeding at the trough.
greenlander,
In theory I will agree but I think in so many cases these people wound up being greater fools themselves. As is usual w/RE the money is in the NEXT deal! Housing Inspector Clouseau did a great job exposing this. What we’re perhaps thinking is arrogance probably feels more like anger and nervousness to the seller. IMO.
Having followed this blog a couple weeks now, I think the old saying should be ammended to:
“Death, taxes, and Realtors saying NOW is the time to buy.”
didn’t someone just say Minneapolis wasn’t a bubble? I think that was Heebner. oh well.
I live in the Twin Cities. I bought my home in 1996. It nearly tripled in over the past ten years. I’d call that a bubble.
Hell, I was calling a bubble here when prices started to rocket upwards in 1998-99. I was recalling the 80s-early 90s bubble, and when prices starting moving upwards so fast and furious, I knew we were in for it again. But it has indeed lasted longer and climbed higher than most of us ever imagined.
Makes one wonder if Heebner is actually paying attention.
should switch to the stacble trailer thingy in ahsville-wow ,is that the future or what !
Lord, such a limited vocabulary. But, for a Realtor, when is it not ‘the best time to buy’? Sales mean commissions, and whether it’s done w/ high price/low sales or low price/high sales… Their worst fears are the stand-off: buyers refuse the prices, and sellers refuse to bargain. And that just may be the new world of realtors for many years.
I live in Minneapolis and can add our experiences this year. Inventory, especially condos, has been through the roof as more and more large developments have been finished or gone into presale. MLS doesn’t show many of the available developments. Many existing buildings that have been finished in the last year or two still have 10-20% of their units for sale. Prices haven’t increased as much as many markets, but most sellers are expecting 25-30% profits on properties they have held for 2 years or less. We aren’t seeing much of anything actually sell though, the same properties have been listed all summer as more are added each week. Waiting to see more price decreases as summer ends.
“Many existing buildings that have been finished in the last year or two still have 10-20% of their units for sale. Prices haven’t increased as much as many markets, but most sellers are expecting 25-30% profits on properties they have held for 2 years or less. We aren’t seeing much of anything actually sell though, the same properties have been listed all summer as more are added each week. ”
I am not surprised, but won’t those sellers be when they see the new developments asking for less than they are trying to sell for. The phrase “I’ve fallen and I can’t get up” will have a whole new meaning for them.
BayQT~
‘We’d rather sell a $500,000 single family home than have to sell three or four town homes to achieve the same revenue objective’
Yes, and I’d rather buy a $220,000 single family home than have to live in a townhome. When you can make that manageable give me a call.
Minneapolis a bubble city. In my neighborhood (Seward) houses have doubled or more in price since 2000. We bought one of the last houses to sell for under 100k in spring 2000. I thought prices were a bit high back then. Until prices drop enough to fall in line with rents (a minimum of 25-30% drop) I will consider it a bubble market. There is finally one house for sale in 55406 zip code for under 100k. It’s on MLS and it looks like it is owned by a realtor who is selling “as is”. No doubt it must have such major problems that he was unable to fix and flip it.
Downtown and North East are filled with condo development/conversions. It’s going to be a spectacular mess.
I don’t venture out to the surburbs much but see a lot of for sale signs everywhere. A couple weeks ago, we were on Hwy 12 probably 50 miles west of Minneapolis where we saw what must have been 20 for sale signs on the corner. Someone is building condos in the middle of nowhere!
Still, last week, one of my wife’s friends told her “It’s a buyer’s market, a great time to buy”
“I love the sexy slither, of a lady Realtor.”, said Barry White, a VP for McDonald Construction.
‘We have an oversupply of land and lots and an oversupply of homes both new and existing and something’s got to give,’ said John Lockner, a Realtor in Woodbury.”
I thought we were running out of land!!
We only run out of land when interest rates are low. When interest rates go back up, the amount of land available does as well.
Go figure.
“We only run out of land when interest rates are low. When interest rates go back up, the amount of land available does as well.”
Same with gasoline prices/supply. Free markets are amazing.
xynamax,
Much has been said and written about “the bubble” but that really says a lot! I tend to harp on the tax side of things but you know if we had 10% + you’re right, there would be plenty of land! Well said my friend.
It almost looks like we have nationwide oversupply in housing, surpassing previous record highs in western metro areas. How bad can it get? With home sales already frontloaded, it looks like builders will set prices for resale homes to follow. I don’t know what this means exactly for already dense metro areas that have less builder involvement. People are already stretched thin to live in places like SF, so resetting mortgages (and panicking “investors”) may provide additional inventory glut.
Not that I’m hoping for anyone’s financial demise (ok, maybe those smug “investors”) I’m hoping for saner times, but I suspect there’s a quite a bit of economic pain before we get there.
We bought an older townhome in West St. Paul at the end of last year, and I felt like the market was already starting to correct. We bought the place for basically the same price as the seller paid for it in 2003. He’d originally tried to sell it for $40k more than he ended up getting. The townhouse right next door sold last month for about the same price as ours.
Two of the places we looked at last winter are still for sale, and there are four townhouses around the corner all for sale (and IMHO overpriced at nearly $200k).
If I’d heard as much then as I have the past few months reading these blogs, we may not have been in a huge hurry to buy. Thankfully we can easily afford our place, we love it, and are planning to stay for quite a bit. And the 30-year fixed helps me sleep at night (though our agent was really pushing us to get an ARM). I don’t know about other markets, but as a young twenty-something in the Twin Cities, I felt a ton of pressure to buy a house as soon as I got married. Not because real estate is a “good investment” that “always appreciates” but because that’s just what nice folks in Minnesota do. You get married, you buy a house. When we lived in an apartment for two years after our wedding to pay off our credit card debt and get into a better place financially, you’d think we’d grown two heads or something.
A quick update:
As I’ve said a few times, properties in my neighborhood are selling like crazy.
I finally had a chance to talk this over in detail with my realtor friend.
He owns a RE agency that concentrates around the Lake Calhoun/Harriet/Isles neighborhood (my neighborhood)
What he said is this: (it is exactly as I’ve been seeing)
The zip codes 55409, 55410, and 55416 in Minneapolis (the “Southwest” neigbhorhoods, also called the “Calhoun/Isles” neighborhood) are selling very briskly, but a few caveats:
1) his agency is doing SUPER well. They are going to hire more RE agents to fill the demand. My friend has closed on over $7 million in properties this month (him alone, not his firm, although 6 of that was from just 3 houses)
2) most other RE agencies are doing really poorly. He says his is doing so well because ONLY the southwest part of Mpls is doing so well, and he focuses only that area. the other parts of Mpls (South, North, Northeast, Downtown) are NOT doing as well. He said he wasn’t sure about St. Paul, but that it’s market was “erratic” right now. The suburbs are “dead” per him, and he said “the worst are the previous big winners, the far out places, the 3rd tier suburbs”‘
Houses are selling like crazy in the above-mentioned areas, BUT only if priced right, which is about 5% LOWER than last year. He says this is his other reason for doing so well, because he tells his sellers right away what they need to price at to move the property, and they’re doing it. He won’t take any listing that’s priced “bad”. The other RE agencies aren’t doing that. Yet.
Thus, overall to sum he said:
1) only the “lakes” area of Mpls is hopping (which is what I’ve seen, and where I live which is why I’ve been so freaked out before)
2) nonetheless, prices are dropping (he estimates 5-7% since last year.)
3) the other parts of Mpls proper are sortof sitting, but the suburbs are dying with too much coming on line and nobody to buy way out there
4) he also said that SFHs are holding steady, but condos are doing poorly (we have a MAJOR condo bubble, I’ve spoken of this before) especially as more and more highrise condos come on line. He thinks condos are down over 10% from last year’s peak.
Clouseau
I grew up in Minneapolis/Edina area. Grew up off Blake Road below Interlachan Club. Then lived on James Ave So. just off Mt Curve. It’s a beautiful beautiful area to live in. If there’s any area relatively immune from a real estate drop it would be that neighborhood. My brother lives on the water on Wayzata Bay just south of Gray’s Bay Bridge, I suspect that’ll OK, too.
> It’s a beautiful beautiful area to live in. If there’s any area relatively immune from a real estate drop it would be that neighborhood.
I like that area, too. I think future price development would depend on how much their prices have increased in the last five, crazy years. If the houses were neglected, because they were older and relatively smaller, compared to the new outer suburbs, then they might keep their current values, at least nominally. If the houses, however, were objects of speculation with a large expected appreciation, then they will fall, regardless of the beauty of the area.
I think you’re probably right. The concept behind this blog is that the easy credit bubble created the real estate bubble. And Minneapolis’ beautiful neighborhoods are no more immune the bubble’s burst as interest rates continue their rise than San Diego beach communities or my beloved Upper Upper West Side of Manhattan.
I agree.
noobody is immune. I personally think that it’s more of a timing issue. The super “desirable” areas will fall last, but fall nonetheless. (at least in “bubble areas”, of which Mpls unfortunately also belongs)
it is interesting to watch things unfold, eerily close to the predictions made here (on the various iterations of ben’s blog) over the last year +.
clouseau
I grew up on Knox Ave S near Lake Harriet…my folks still own their home there. Homes on the block were built in the 40s, hardwood trim, beautiful plaster, wood flooring, etc. Even though the neighborhood is highly desirable, I still believe their house is at least 25% over valued.
I think what people are missing with the Twin Cities vs. Vegas/Diego/Florida/OC is that the Twin Cities has a) employment, b) “reasonable” buyers (for the most part), c) only mild speculation — loft areas, condos in certain suburbs and d) low LAND prices as a % of the home price. Break down a 3,000 sq ft house on a 15,000 sq ft lot and you’ll see that the “land” is not nearly the cost of that same piece of land in say, Vegas, Diego etc. The rebuild cost of the house in the Twin Cities is still somewhat in line, whereas, in the OC, a 6,000 sq ft lot with a 3,000 sq foot home would be near $1.0mm and would only cost about $400K to actually build —- giving $600K of value to the land. The twin cities, not quite that bad.
So, while I fully agree that the costs are a bit frothy in the Twin Cities, they by no means would drop the 20-30% that our WSJ friend cautioned about for other frothy markets.
For those who have followed this board, you’ll know that I moved from the OC 1 1/2 ago to the Twin Cities and I’m rather in touch with both markets….I’m also a CPA so I fully get the scary loan situation and future defaults….which, by the way, are not nearly as prevelant in the twin cities. I lived through the OC real estate problem from 1990 through 1996 and all that fun…
The study by First American Real Estate Solutions identified Minnesota as one of the top 5 States to be hardest hit by “mortgage payment reset”:
http://www.firstamres.com/pressrelease?page=detail&id=77
“The states with the highest percentage of risky properties, where fewer borrowers have significant equity and face greater likelihood of experiencing reset sensitivity include Tennessee, Colorado, Minnesota, Alabama and Arkansas.”
It seems Minnesotans have used plenty of Interest-Only and Negative-Amortization loans….
My only comment to this survey is that the “equity” that the Floridians and Californian’s have is “funny money”….that $700K home will soon be worth $500K.
In the “at risk states” I’d wager pretty heavily that, other than the loft type purchases, these buyers have the necessary income to support most increases. Do the math, a 2% increase on a $200K home is $4000/year — a 2% on a $600K home is $12K. Quite a difference and the latter example would certainly be the tipping point for many.