Rochester MN Real Estate Market Blog

The stock of homes for sale in Rochester, Minnesota continued to drop last week.  There are currently 905 residential properties actively for sale in Rochester, with an average list price of $227,140 (median $176,500) and an average of 164 days on the market.  Last week there were 42 new listings (avg. list price $198,066, median $159,900) and 16 that came back on the market (avg. list price $197,593, median $155,900).

Thirty-one residential properties went to pending (under contract) last week.  Average asking price for these properties was $191,293, with a median asking price of $174,900.  It took an average of 110 days on the market for these homes to go under contract.

Last week 16 residential listings cancelled, 10 expired, and 13 were extended.

The 17 homes that sold (closed) last week had an average sold price of $205,500 (median $182,900), an average of 97.76% of the asking price and 93.26% of the original list price.  This close margin of sold price to list price at time of sale illustrates the extreme importance of accurate pricing.

The federal government recently passed a provision for first time home buyers who qualify, obtain an up to $7,500 tax credit against their federal income taxes.  Eligible buyers must be first time home buyers and the credit qualifies for both preowned and new construction homes. This is a tax credit which directly reduces the home buyers federal tax bill dollar-for-dollar however any savings incurred must be repaid at a rate of $500 per year starting two years after closing at zero interest.  The tax credit provision is designed as a stimulus measure to incentivize first time buyers giving them a substantial tax savings their first year of ownership. There is an income cap of $95,000 for individual tax payers and $170,000 for married tax payers and the tax credit goes down as income goes up. To review the all the terms of the provision see: http://www.federalhousingtaxcredit.com/index.html

There are currently 935 homes for sale in Rochester, Minnesota.  The average list price for these properties is $227,359 (median $177,777).  These properties have an average of 161 days on the market.

There were 986 homes for sale last week (October 27 to November 2, 2008) with an average list price of $229,579 (median $174,900) and average of 169 days on the market.

Last week, 28 homes sold (went under contract to pending) with an average asking price of $172,807 (median $148,000) and an average market time of 158 days.  There were 30 homes that closed last week.  The average sold price of $186,086 (median $157,000) was 96.98% of the list price, 93.02% of the original asking price.  These properties had an average of 139 days on the market.

There were 35 new listings last week (average list price $188,094, median $153,500) and14 back on the market (average list price $307,235, median $269,900).  Two listings were withdrawn, 17 canceled, 45 expired and 13 were extended.

From a national standpoint we are starting to see inventory levels stabilize and in some parts of the country actually go down in other parts.  In the meantime existing homes sales nationally rose 1.4% in September and inventory fell by 1.6% during the same time. Here in Rochester, Minnesota the MLS has reported real estate sales down by 9.9 % in September from a year ago however new and back on market only rose by 1.9% for the same period.  In addition, the latest Standard & Poor’s Home Price Index may be hinting price declines are starting to moderate nationwide. Here in Southeast Minnesota we seem to typically trail the national averages but if these trends continue I look for a upturn in sales and a stablization on price declines by the end of this current quarter.  It will be interesting to see how the market responds after the elections are held. I beleive part of the markets problem is low consumer confidence which is apt to change once the nation knows there is a clear direction politically for the country.

You can see the latest Standard & Poor’s Home Price Index at www.shawnburyska.com/SPHomePriceIndex.pdf

Recently I’d been asked about whether home values would be re-assessed due to the falling housing market we’ve seen recently.  Bob Nowicki, 5th Ward City Councilman  was kind enough to do some research on this subject. 

He wrote: “This is certainly not my area of expertise and is one of the functions handled by Mark Krupski, Director of Olmsted County Property Records and Licensing so I asked him. Mark had just completed a report that he prepared for the County Commissioners so we’ve got info hot off the press.  It’s more complicated than I care to get into so if you have any questions you’d be best served by contacting Mark. 

What I did get from my conversation today with Mark, and the attached data, is that our residential home values are still in the acceptable median range of assessed value to market price so no change will be made.  Acceptable range is 90 to 105%.  Residential homes are  95.2%.”

You can veiw this report at http://www.shawnburyska.com/2009tax.pdf

Shawn Buryska has been appointed President-Elect to the MLS Board of Directors of the Southeast Minnesota Association of Realtors (SEMAR).  Shawn has had numerous terms on various committee’s and positions including past MLS chair, past Education chair and past President of he Southeast Minnesota Association of Realtors.  He states: ”I am looking forward to serving the association once again over the next two years as President-Elect and then President of the MLS Board of Directors.  It’s an exciting time with the association and the progress we are making on the statewide Common Data Utility (CDU).  The CDU is a statewide central data depository of MLS data for all participating associations to share. It will greatly help agents and consumers across the state in obtaining comprehensive and accurate MLS information and will eliminate the duplication of entry into multiple MLS’s.” This along with many other projects with the Multiple Listing Service will keep Shawn busy and in the loop for some time to come in regards to the Multiple Listing System.

There are currently 980 residential properties for sale in Rochester, Minnesota with an average list price of $238,424 (median $179,900) and an average of 163 days on the market.

Last week (September 29 to October 5, 2008) there were 29 homes sold (closed) with an average market time of 78 days.  The average sold price of $144,201 (median $127,000) was 97% of the list price, 93% of the original asking price.

There were 27 residential properties that went to pending with an average of 108 days on the market, average list price of $158,422 (median $129,900), outpaced by 27 new listings and 14 back on the market listings.  Average list price for the new listings was $213,129 (median $169,900); average for the back on the market listings was $241,807 (median $209,900) and an average of 154 days on the market.  Fifteen listings canceled, 44 listings expired, 26 were extended.

Most of the consumers you talk with will not have a good handle - I am not sure anyone does yet - of the nature of the credit problem. In this short article, I hope to give you at least some quick, understandable talking points when discussing the issue. It is not 100% complete but should give most members an understandable overview of the issue. There is plenty written about the subject if people are interested in more detail.

• The vast majority of people are not in trouble. About 3% of total households are behind on mortgage payments (33% of households have no mortgage) and about 1% eventually go through foreclosure.
• Most homes are not mortgaged over their true value. The national number is that home owners have a 71% LTV mortgage on the property (2006).
• The foreclosure level of today is very similar to the foreclosure level in 1986 from a national perspective. MN did better that time around.
• A major difference today is about how financial firms packaged and sold mortgage securities to investors - often leveraging the value many times. (see more below)
• No mortgage insurance as consumers opted for loans that avoided PMI, thus increasing the lender’s exposure.
• Government asset reporting, as a result of Enron, requires a true reflection of the asset value on balance sheets. This means that the 65% LTV mortgage that a financial institution or Fannie/Freddie issued and now holds in their portfolio is reported as a bad investment because the value of the asset has dropped. As an example, Chris takes out a mortgage with 5% down and is issued a 95% LTV mortgage on a $200,000 home. This means the mortgage is $190,000, but it is protected by an asset valued at $200,000. Chris makes all of his payments on time for 3 years. However, in the last 3-years the home’s value has dropped by 10% to $180,000. The bank/financial institution/Fannie/Freddie now must report the lower asset value on their books - which means they do not have enough asset value in the home to cover their loan.
• Remember the leverage issue. The financial institution now must report and the investors will see that the assets protecting their securities are not sufficient protection to cover their investment. Keep in mid, Chris is paying his mortgage on time - as are the vast majority of people with a mortgage. Yet, if the LTV is upside down because the asset value dropped, the lender is in trouble and in need of funds to shore-up his balance sheet for the investors who purchased the securities backed by mortgages.
• Mortgage insurance was part of the protection against falling asset values in the past. Because so many newer loans were issued without PMI, the lender exposure is much greater this time around.
• Liar loans and other poor lending practices are a piece of the problem and demonstrate clearly how greed (at all levels - consumer, lender and advisors) overwhelmed reasonableness. This also happened in the mid-1980’s with FHA/VA “fog a mirror” assumable mortgages. Credit tightening and consumer “skin-in-the-game” will help eliminate this in the future.
• Problem loans in the next 2-years will be a result of 2nd/3rd mortgages which are tied to the LIBOR index. Some are subprime, many are Alt-A and prime.
• The LIBOR went up 50% last week and it is the index used to determine the ARM interest rate. Many of these are held by middle-class folks who spent their home equity taking out 2nd & 3rd mortgages. The problem they face is LTV when they go to refinance out of the bad ARM product. Example: Chris has an 80% 1st mortgage and a 20% 2nd mortgage he took out in 2005 to buy a boat and pay off credit cards. The total of the 2 loans is $200,000 on January 1, 2005. He makes all of his payments on time. In October, his 2nd mortgage - which is an ARM - has a payment increase of 25% because of the LIBOR index. He cannot afford the additional payment because of job situation, health insurance, etc. so he goes to the bank to refinance. Because the value of his property has fallen since he took out the mortgages, he can no longer borrow an amount equal to the 1st and 2nd mortgage he has on the house. You can see the hole that Chris has dug for himself - whether he used a subprime or “liar-loan” - as the asset value drops his options are significantly reduced and now must make some very difficult choices.

It is important to remember that for many years homes were considered a hard un-liquid asset. People rarely borrowed against their home, except for repairs or emergencies, and the equity growth made upward movement possible. Over time, financial geniuses invented tools and convinced people that homes should be a liquid asset that they individually leverage in order to increase their standard of living. That strategy worked for a while until people in mass began living beyond their means.

Often we find that the fundamental principals of the past are concrete solutions for the future.

Copyright: Minnesota Association of Realtors.

There are currently 1022 residential properties for sale in Rochester, Minnesota with an average list price of $240,816 (median $182,000) and an average of 164 days on the market.

Last week (September 15 to 22, 2008) there were 19 homes sold (closed) with an average market time of 183 days.  The average sold price of $178,935 (median $147,000) was 97% of the list price, 89% of the original asking price.

There were 32 residential properties that went to pending with an average of 103 days on the market, average list price of $236,138 (median $165,900), outpaced by 46 new listings and 17 back on the market listings.  Average list price for the new listings was $199,822 (median $159,900); average for the back on the market listings was $246,670 (median $172,500) and an average of 193 days on the market.  Fourteen listings canceled, 25 listings expired, 11 were extended.

There are currently 1024 residential properties for sale in Rochester, Minnesota with an average list price of $243,065 (median $184,900) and an average of 162 days on the market.

Last week (September 8 to 14, 2008) there were 29 homes sold (closed) with an average market time of 126 days.  The average sold price of $169,937 (median $154,900) was 97% of the list price, 92% of the original asking price.

There were 34 residential properties that went to pending with an average of 103 days on the market, average list price of $199,616 (median $149,900), outpaced by 49 new listings and 19 back on the market listings.  Average list price for the new listings was $187,268 (median $159,900); average for the back on the market listings was $276,373 (median $204,900) and an average of 205 days on the market.  Ten listings canceled, 16 listings expired, 13 were extended.