The University of St. Thomas Real Estate Program recently published its year-end analysis of the Twin Cities’ housing market, within days of the publication of an article about the Detroit housing market. Yin, meet yang.
The median sale prices in the Twin Cities metro rose 10.4 percent from January 2015 to January 2016, according to the university’s Minneapolis St. Paul Residential Real Estate Index. There was also an 18.3 percent jump in the number of homes sold January-over-January, and the number of foreclosures and short sales remains low. It all should add up to a pretty good market right now.
The problem is that inventory is very low, even during the slow winter months: UST reported that the number of homes available for sale in January was more than 20 percent lower year-over-year. It’s a classic supply and demand issue: When inventory is low, home prices increase.
But when home prices increase, fewer people can afford to buy. Compounding the affordability issue problem is the comparatively slow rate of increase in median household incomes. Homeownership will be even further out of reach for more families than it would be in a typical seller’s market.
The UST report offers no recommendations for ways to balance the market, but the message is clear: The current trend could spell affordability problems for a traditionally solid market.
Meanwhile, Detroit is dealing with significantly different housing market issues. The city has the highest vacancy rate in the country — 93,000 homes, 12 percent of the city’s inventory, was sitting vacant in August 2015. Anyone who watches “Rehab Addict” on HGTV and the DIY network, has an idea of just what kind of shape the available housing stock could be in.
“Rehab Addict” has the right idea, though: Buy a home for a rock bottom price and renovate. Renovation will increase the property value, which will increase the city’s revenue, and a renovated home will attract other buyers to the neighborhood (in theory). One catch.
The Census Bureau reports that Detroit’s median home price was about $45,000 in 2014 — a bargain, unless you live in a city with an unemployment rate of 10.2 percent and a poverty rate that’s close to 40 percent. And, of course, the homebuyer may need to put another $45,000 into rehabilitating the house just to make it habitable.
One think tank points out another hitch with Detroit’s housing market: Home prices are not always based on comparable properties. Why? All too often there are no recent sales to base the comparison on.
Sources:
KARE 11, “Twin Cities housing availability hits 10-year low,” Dylan Wohlenhaus, Feb. 23, 2016
Marketwatch.com, “In Detroit, people are urged to get a second mortgage just to buy a home,” Daniel Goldstein March 1, 2016