Minneapolis, Minn., has proven to be a hard market to predict.
During the heart of the Great Recession, the housing market there was hard-hit yet employment remained stable. Then when the housing market in other metros started to improve post-recession, Minneapolis home prices redeflated, and, as a result, the city lags the recovery starting to happen elsewhere.
Minneapolis is often perceived as a white-collar town, as five Fortune 500 corporations plus a host of medical device companies and healthcare firms maintain their headquarters there. United Healthcare, which is the largest healthcare insurance company in the U.S., is based in Minneapolis and it kept hiring and expanding throughout the recession, according to Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas.
"Our unemployment hangs 1.5 percent to 2 percent below the national average," Tousley said. "At the end of 2012 our unemployment was at 5.8 percent, and we are starting to see some good job creation numbers."
Considering the strong employment numbers, it was odd that one of the problems in the Minneapolis housing market was a large amount of foreclosures, which usually happens when people lose their jobs.
"When the bubble burst, we saw a lot of people get foreclosed," said Cari Linn, a broker with Coldwell Banker Burnet in Eden Prairie, Minn., and former president of the Minneapolis Area Association of Realtors (MAAR). "Our foreclosure market was high. We had always been a good market for lenders, but there were a lot of mortgages that were fraudulent."
Indeed, there were a number of months over the past couple of years when more than half of the homes sold in the Minneapolis metro had been foreclosed.
"In late 2010 and early 2011, about 60 percent of the homes in the market were foreclosed," Tousley said.
The Twin Cities had always been a stable market with small, annual increases in property values.
"We never saw the huge increases in home prices except in the 2005 to 2006 years," Linn said. "Still, when the bubble burst, we saw a lot of people get foreclosed and homes go to short sale. Foreclosures became a large part of our market."
The high foreclosure rate was one key reason that this normally stable housing market took a tumble.
As in most cities, first-time buyers owned a lot of the distressed properties in Minneapolis.
Traditionally, a local market depends on first-time-buyer households to improve financially and then move up to a better home. In Minneapolis, that economic progression stopped because of the foreclosure problems, which created a domino effect. If households don’t move up into the next bracket of homeownership, those in that next bracket don’t move up to the top tier, meaning there’s trouble from the bottom to the top of the food chain.
"We had so many distressed properties, we had no sellers to move forward to the next market," Linn said.
It looks like that period of difficult is finally coming to an end.
"We are seeing the foreclosure market decreasing. Foreclosure sales are down, as are new foreclosure listings," Linn said. "Traditional sales are increasing."
According to MAAR, the median sales price for area homes plummeted in 2008 and by the first half of 2009 had declined by more than 40 percent. Then one year later, the median sales price skyrocketed 30 percent, and it looked like the recession was short-lived in Minneapolis. That recovery was just a false promise as median prices slipped into another steady decline until the second half of 2011.
The other thing that tempered a quicker turnaround was the fact that Minneapolis, being a northerly city, has a very seasonal home market — the sale season is in the warmer months.
"If you look at November and December 2010 and then January and February 2011, those months were slower for us," Tousley said. "We started to see things turn around in the spring, from March 2011 to May 2011."
The recovery in Minneapolis has been a bit slow, but, as Tousley pointed out, it has been under way for about 18 months. From the second half of 2011 through the second half of 2012, home prices began climbing all over again.
As of November 2012, the median sales price for a Minneapolis home has increased 17.9 percent year to date from $140,000 to $165,000, and the average sales price jumped 14.8 percent from $185,533 to $213,077, according to MAAR data.
There was other good news in the latest MAAR report: Price per square foot on a year-over-year basis leapt 13.3 percent from $112 to $127 in 2012; and closed sales notched upward from 4,064 in 2011 to 4,862 in 2012.
The metro population for Minneapolis-St. Paul (the Twin Cities region) stands at 3.3 million. However, for the city of Minneapolis itself, the population peaked at 521,718 in 1950 before declining to 368,383 in 1990. Like Pittsburgh, another older, northern city, Minneapolis is experiencing a rebirth, and population has been on the rise for more than a decade.
"The population here has been growing," Tousley said. "Over the past 12 months, the population has grown about 3-4 percent. We are also seeing better employment numbers and job growth."
There are now signs the Minneapolis market is tightening up a bit. New listings in November 2012 dropped 5.1 percent to 6,746 as compared to the same time frame the year before, and "days on market" slipped to 111 from 142 in November 2011.
Our months supply of homes is now about two to four months, Linn said. "At the bottom of the market, we were up to six to eight months. We consider four months to be stable for us."
The local homebuilders seem to be taking heed and are now back to work.
"The number of homes for sale is really low — lower than it has been in the last 10 years, and that is providing opportunity for homebuilders," Tousley said. "Looking at permits being pulled, those numbers have been strong in 2012 and we expect them to stay that way in 2013."