A January slowdown in Twin Cities real estate activity was likely the result of bitter cold weather and does not indicate a long-term weakness in the market, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business.
Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).
“Sales volume, new listings, and pending sales were all victims of the polar vortex and the extremely cold weather as they recorded levels below what occurred in January 2013,” according to Herb Tousley, director of real estate programs at the university.
“The January data and the likelihood of subdued results in February should not be interpreted as an indicator of a long-term weakness in the Twin Cities housing market,” he added. “The underlying fundamentals of the local economy and the arrival of the spring and summer selling season will show the true long-term strength of the market.
He predicts that “2014 will be another year of solid gains for the Twin Cities market.”
While some aspects of the market suffered from the weather, the median sale price of all categories of homes (traditional, foreclosure and short sale) continues to remain above last year’s levels. The median sale price of a traditional home in the Twin Cities in January was $212,500, up from $199,900 a year ago.
The low inventory of homes 0n the market continues to be an issue. There were 11,843 homes for sale in January 2014 compared to 13,070 in January 2013.
A new look at the need for new-home construction
The number of building permits issued for single family homes in January indicates that new-home construction is off to a good start in 2014 after making solid gains in 2013.
“Despite the bad weather, the number of permits for new single-family homes issued in January was 15 percent ahead of the number recorded at the same time last year, and the dollar value was 22 percent higher than last year,” Tousley said. “Look for a flurry of housing starts as the weather improves and builders, whose production was delayed by snow and cold weather, scramble to build homes in time for the spring and summer selling season.”
There are short-term and long-term reasons to expect greater demand for new-home construction.
In the short-term, Tousley said, the housing industry “has some catching up to do” after years of low construction activity. A second reason has to do with employment.
“The key driver for new residential construction is household formation,” he said. “And household formation is largely driven by jobs.”
In 2013, the Twin Cities area added approximately 33,000 new jobs. Those new jobs, coupled with a chronic shortage of existing homes for sale, will continue to drive demand for new-home construction.
The St. Thomas real estate researchers have been looking at a third but long-term reason to be optimistic about the need for new housing: demographics.
In the decade from 1994 through 2003, the Bureau of Labor Statistics (BLS) reported the number of people "55 and over" and "not in the labor force" increased by 4.3 million. Between January 2004 and February 2013, however, the BLS reports the number of people over 55 and not in the labor force increased by 8.1 million. That means more older people are leaving the labor force.
According to the Census Bureau, older people tend to live in smaller households and this has pushed down the overall household size, even with some people doubling up. The overall mean household size in America is 2.55, but that falls to 2.29 for householders in the 55-to-59 age group, and 2.07 in the 60-to-64 age group, 1.91 in the 65-to-74 age group, and to 1.60 for those 75 and older.
“This increase in the number of retired Americans with smaller household sizes means the relationship between jobs and households has changed over time,” Tousley said. “Models of the relationship of number of households to jobs need to be modified to reflect the changing demographics. This is another reason why the United States, including Minnesota, will continue to need more housing.”
The St. Thomas Indexes
The St. Thomas Traditional Sale Composite Index, the one that tracks nine data elements, continued to decrease in January, moving from 1022 in December to 1006 in January. Despite the monthly decrease, the index remains 3.4 percent above the level recorded in the previous year.
The short sale index was 860 in January, down 23 points from the 883 recorded in December; however it was a 10 percent increase compared to one year ago.
The foreclosure index decreased in January, moving from 731 in December to 726 in January, a decrease of .7 percent. The index is up 4.6 percent compared to January 2013.
More information online
The Shenehon Center’s report for January includes charts showing the median sale price of homes and indexes for the traditional, foreclosure and short-sale markets.
Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at email@example.com.