UST Real Estate Analysis Reveals Story Behind Improving Market Numbers

Prices and sales volume continue to increase while the number of homes for sale is at a historically low level; these are signs that the market is taking steps in the right direction, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county Twin Cities area prepared by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business.

According to Herb Tousley, director of real estate programs at St. Thomas, today’s inventory levels are the lowest recorded for the month of May in the last seven years and about half of the housing supply that was available in May 2007 and May 2008.

In most years, traditional property new listings typically increase in the spring, so why is this not happening now? Tousley notes several reasons, “People can’t sell because they owe more than their home is worth, while others don’t want to sell into a market where prices are so low.”

Tousley also notes that due to more conservative mortgage qualifying guidelines, people who would like to buy a home are not qualifying for loans. There are also concerns about the economy and individuals’ employment situations.

At the same time, relative demand for housing is increasing with fewer properties on the market. Compared to May 2011, the supply of housing, as measured by months’ supply, is down 45 percent and pending sales are up 26 percent. According to Tousley, this is due to several factors:

  • Historically low interest rates and low home prices are creating demand.
  • People are starting to believe that home prices have bottomed out and they don’t want to miss an opportunity to take advantage of the low prices.
  • Many people are purchasing less expensive homes as investment properties that they plan to rent.
  • Sellers are becoming more realistic about what their homes are really worth in today’s market and they are pricing them closer to what buyers are willing to pay. As a result, the percent of original asking price made another big move upward in May and is now at 94.6 percent compared to 90.6 percent in February 2012 and 91.1 percent in May 2011.
  • To many people the economy is looking better. The Thomson Reuters/University of Michigan index of consumer sentiment in May was the highest recorded in more than four years, the unemployment rate in Minnesota is well below the national average, inflation appears to be under control and many businesses seem to be doing better.

As a result of the increased demand and lower inventory, the momentum of the market appears to be changing. “Six months ago it was still definitely a buyer’s market. There were far fewer buyers than there were homes for sale. Over the past four to five months the momentum of the housing market has started to change,” Tousley said.

In May, there was a 3.1-month supply of traditional, nondistressed homes available priced under $140,000, contrasted with an 8.6-month supply in May 2011. According to Tousley, “Homes on the market that are priced right are selling much faster.”

More details can be found on the Shenehon Center’s website.

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