University of St. Thomas Minneapolis St. Paul Residential Real Estate Index September 2017
Welcome to the latest edition of the UST Minneapolis St. Paul Residential Real Estate Index. The University of St Thomas Residential Real Estate Index has been developed by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business to correct the overstatement of housing price decline reported by the S&P Case-Shiller Price Index for the Minneapolis St. Paul metropolitan area. Rather than a single index or price representative of all homes, the UST Residential Real Estate Index includes the price of homes in three sub-markets: traditional sales, short sales and foreclosure sales as well as a nine variable composite index for measuring market health for each category based on a three-month moving average September 2017 The Changing Complexion of Our Housing Market Say hello to generation Z, the next wave of homebuyers. Generation Z is defined as those who were born between 1995 and 2010, meaning that the oldest in the generation are now 22 years old. They are beginning to enter the housing market, first as renters. Much like their parents and older Millennial family members, they still seem to have a desire to eventually own a home. Up until now, the housing market has been focused on baby boomers and Millennials. Due to baby boomers getting older and retiring, Millennials have become the dominant force driving housing demand. So far this year, half of all buyers were under 36 years old. Over the last year, they [Millennials] have become the largest generation of home buyers. Generation Z like the Millennials before them have not given up the dream of becoming homeowners. Trends suggest, they are likely to delay buying a home due to high levels of student debt, difficulties accumulating a down payment and becoming more certain about their careers. As a result, the percentage of home owners will continue to remain below historical norms. Before the year 2000, the home ownership rate was, typically, in the low 70% range (see table below). Most recently, the rate has dropped to about 66% in 2017 and the expectation for the next five years as Generation Z enters the market is that it will remain at the same level, yet home ownership in the Twin Cities is expected to remain higher than much of the country. As of June 2017, the National rate of home ownership was 63.7%. In the Twin Cities, the expected high rate of home ownership will continue to put pressure on the supply of homes available for sale since housing demand will continue to outpace increases in new housing stock. Housing Unit Summary 2000 Housing Units 1,197,124 Owner Occupied Housing Units 70.4% Renter Occupied Housing Units 26.5% Vacant Housing Units 3.0% 2010 Housing Units 1,386,721 Owner Occupied Housing Units 67.1% Renter Occupied Housing Units 26.6% Vacant Housing Units 6.3% 2017 Housing Units 1,473,029 Owner Occupied Housing Units 66.1% Renter Occupied Housing Units 28.2% Vacant Housing Units 5.7% 2022 Housing Units 1,543,911 Owner Occupied Housing Units 66.1% Renter Occupied Housing Units 28.2% Vacant Housing Units 5.7%
*Source - U. S. Census Bureau, Census 2010 Summary File, Esri forecasts for 2017 and 2022 Twin Cities Housing Market Trends For The Third Quarter of 2017 Price Appreciation Continues To Outstrip Income Growth Median sale prices continue to increase at record rates. Between August and September, the median sale price decreased 2.4%. Despite that, in 2017, through September median sale prices have increased 10.36%. The year over year increase for homes sold between September 2016 and September 2017 was 8.1%. The increased rates homes sold far exceed wage and income growth for the same period, and indicate potential affordability issues for homebuyers if these trends continue. Market Still Lacks Adequate Inventory While the availability of homes for sale has improved slightly, the number of homes for sale has consistently been 15% to 20% less than a year ago and 20% to 25% less than 2 years ago. Even though new home construction has picked up notably this year, these projects are still not providing enough new homes to build our way out of the current short supply situation. It will take many more new listings to get the housing market more balanced in terms of supply and demand. Tight Inventory Also Impacting Rental Markets The lack of homes available to purchase is forcing potential home buyers to remain in rental housing for longer periods of time. Even though there were over 4,000 new apartment units delivered in 2016 and given that 2017 is expected to be another record year for new units delivered, the market is expected to absorb all of the new construction. Vacancy rates may increase slightly in the short run in some areas as new developments are finished, but overall occupancy will remain high through the end of this year. Minneapolis / St. Paul is one of the tightest rental markets in the country. Rent growth was 4.8% in 2016, and it is expected to maintain a similar level in 2017. This rent growth rate is higher than expected wage and income growth of 2% - 3%. Continuation of this trend over time will continue to create an affordability gap where renters will increasingly have to pay larger percentages of their income for housing. Market Summary The Twin Cities housing market continues to show strong year over year gains in September. A high median annual growth rate in median sale prices and historically low supply continue to dominate the market. The overall median sale price declined from $252,000 in August to $248,800 in September. The traditional, non-distressed median sale price was recorded at $249,400, a 6.1% increase compared to September 2016. On the supply side, in September, there were 12,571 homes available for sale, 16.3% less than the 15,017 homes that were available for sale in September 2016. As has been the case for the past 12 months, the shortage is most acute in low to moderately priced homes.
Traditional Home (non-distressed) - Median Sale $270,000 $250,000 $230,000 $210,000 $190,000 $170,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 2013 2014 2015 2016 2017 The number of homes sold in September was 5,342 compared to 6,585 in August and 5,727 in September 2016. Year over year that is a 6.7% decrease in the number of homes sold while the number of homes available for sale was 16.8% less than a year ago. We continue to have more buyers chasing a shrinking supply of available homes for sale. The number of new listings was 6,474, which is slightly less than the 6,826 recorded in September 2016. The changes observed in spring and early summer are beginning to indicate that the supply and demand sides of the housing market are becoming slightly less imbalanced. The growth rate of median sale prices should begin to moderate, though it is expected that the annual growth in median home sale prices for 2017 will be in the 5% to 6% range. The percentage of distressed sales in September was only 3.09%, which resembles percentages observed before the market crash in 2007.
September 2017 Market Data 1. Median Sale Price Sept 2016 Aug 2017 Sept 2017 Monthly % Change Annual % Change Traditional $235,000 $255,000 $249,400-2.20% 6.13% Short Sale $163,000 $147,000 $185,000 25.85% 13.50% Foreclosed $147,000 $170,000 $168,000-1.18% 14.29% 2. Closed Sales 5,727 6,585 5,342-18.88% -6.72% Traditional 5,397 6,397 5,171-19.17% -4.19% Short Sale 62 32 36 12.50% -41.94% Foreclosed 255 144 129-10.42% -49.41% 3. % Distressed Sales 5.54% 2.67% 3.09% 15.56% -44.20% 4. Days on Market 57 48 49 2.08% -14.04% 5. Month s Supply 3.0 2.6 2.5-3.85% -16.67% 6. New Listings 6,826 7,264 6,474-10.88% -5.16% 7. Pending Sales 4,833 5,237 4,778-8.76% -1.14% 8. Homes for Sale 15,017 12,943 12,571-2.87% -16.29% 9. % of Original Price 97.50% 98.50% 98.10% -0.41% 0.62% The UST Residential Real Estate Indices At a level of 1227, the September UST Residential Real Estate Traditional Sale Composite Index declined in this month, registering a 1.6% monthly decrease compared to 1247 which was recorded in August. Despite this month to month decrease, the September level (1227) has increased 6.2% since September 2016. Our index is based on a rolling 3 month average of the last three months and the September index is based on available data from July 2017 to September 2017. This is a reflection of the continuing trend of a shortage in the supply of homes for sale and a seasonal decrease in the number of homes sold. The UST Residential Real Estate Short Sale Composite Market Health Index was 1036 in September 2017, down 1.4% from 1051 previously recorded in August. The index has increased 2.5% compared to one year ago. There were only 36 short sales in September representing 0.7% of total metro-area sales. The UST Residential Real Estate Foreclosure Composite Index was down in September to 944 from 948 recorded in August. The foreclosure index has shown an increase of 10.5% since September 2016. Total foreclosures (129 recorded) represented 2.4% of the total sales recorded in September.
Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sept-16 Feb-17 July-17 1,300 Minneapolis / St. Paul Residential Housing Indices 1,200 1,100 1,000 900 800 700 600 500 UST Traditional Sales UST Short Sales UST Foreclosures S&P Case-Shiller About the Authors hwtousley1@stthomas.edu Herb is the director of the Real Estate Programs at the University of St. Thomas Opus College of Business. His research specialties include housing studies, affordable housing and commercial market analysis. Herb received a Bachelor of Science degree in business from Colorado State University and an M.B.A. from the University of St. Thomas. Stefan is pursuing an MBA at the University of St. Thomas, Opus College of Business. He holds a B.A. with a double major in Biology and Classics and a minor in Chemistry from Luther College in Decorah, Iowa. Stefan currently serves as the marketing intern for the University of St. Thomas Real Estate program. Real Estate at the Opus College of Business Shenehon Center for Real Estate www.stthomas.edu/shenehon The Shenehon Center for Real Estate serves as a resource to the commercial, industrial, residential and corporate segments of the real estate industry and the community to advance the public interest in real estate issues. For more than 15 years, the center has supported improvement in real estate leader- ship and management by creating and developing real estate leadership and management programs for undergraduate and graduate degree programs and professional development, providing a neutral forum to convene real estate professionals to share
best practices, supporting and working with local real estate industry organizations, conducting real estate research, and developing mechanisms to transfer leading edge business practices to the real estate industry. Graduate Certificate in Real Estate www.stthomas.edu/realestate The Graduate Certificate in Real Estates one of six graduate business degree programs offered through the Opus College of Business. Certificate students will gain fundamental skills in market analysis, valuation, investment property analysis, financial modeling and the development process. The program is designed for students who have earned a bachelor's degree and who wish to obtain a foundation for a career in real estate, as well as for those who hold a graduate degree but seek education in a new career area or specialization within the industry. The certificate program consists of six graduate-level courses (16.5 credit hours). Students take the same graduatelevel concentration courses as MBA or master s degree students. Real Estate MBA www.stthomas.edu/realestate The University of St. Thomas MBA in Real Estate is a course of study for students in the new UST Evening Flex MBA program who wish to earn a MBA with a real estate concentration. As a part of the new St. Thomas Evening Flex MBA program students would take the normal MBA required classes (22 1/2 credits) and take most of their electives (16 ½ or 18 credits) as real estate classes. The real estate classes are the same classes that are required for the Graduate Certificate in Real Estate. The only other difference is that students would take Real Estate Law as a substitute for Business Law. Upon graduation a student would receive a diploma that would be a Master of Business Administration from St. Thomas along with a Graduate Certificate in Real Estate. Bachelor of Science Degree in Real Estate www.stthomas.edu/business/bsrealestate The Bachelor of Science Degree in Real Estate is one of 13 undergraduate concentration areas in the Opus College of Business. This four-year degree pro- gram provides students with a background in general business and real estate theory and practice. Students study the many factors involved in property assessment and sales, how they change and how these changes affect real estate and individuals. Recent graduates hold positions in the government, nonprofit, construction and private business sectors.