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FeedWhat's Your Home Worth Now?
The good, the bad, and the ugly in the Twin Cities home market
By Kara McGuire
Photo by Katherine Streeter
What does it mean for most Twin Cities homeowners? Has our wealth evaporated with the pop of the real estate bubble? Can we sell or are we stuck? The answers aren’t as simple as they might appear from the bleak headlines.
If you consider the experience of Faith and Jason Waters, for example, you’d think all this is much ado about not much. The couple had painstakingly improved their Shoreview house with handmade mission-style cabinets, new wood floors, and other touches, but they needed more space after adopting two boys. They sold the house in May 2007 for their asking price of $230,000—before they even listed it or finished remodeling the basement. “We were really surprised that this two-bedroom rambler in Shoreview would sell for that,” Faith says.
That’s hard for someone like Ryan Hopkins to believe. He lowered the price on his family’s Prior Lake home multiple times before finally selling it—even though it was one of the nicer offerings in the neighborhood, with all-new cabinets, counters, and shiny stainless steel appliances in the large kitchen, plus a new deck and a newly finished basement.
When Hopkins first thought about listing the home a year and a half ago, he figured the market couldn’t have slumped too far from the home’s 2005 appraisal price of $425,000 (which would have turned a pretty profit considering he bought it for $298,000 in 2001). So when the Hopkins family found a house they liked in August 2007, they bought it for roughly $450,000 and quickly moved.
The Hopkins’ agent, Mark Gores of Edina Realty, listed their old home at $389,000 in August, but it didn’t budge. Price reductions to $374,900 attracted a few showings, but no offers. Next, Gores rented furniture to stage the vacant property, then lowered the price once again to $359,900. “It was somewhat depressing,” Hopkins says. “It’s frustrating not to get what you think the home is worth.” After the house spent about three-and-a-half months on the market, he accepted an offer for $345,000, deciding it was safer to sell in case the market continued to decline. At the same time, he realized that the family’s new home was priced for current market conditions—so while the sale price of the old house was a disappointment, the price of the new one was a great deal.
No such luck for Sarah and Scott Henkemeyer, who took their stylish one-and-a-half story Minneapolis Tudor near Theodore Wirth Parkway off the market in mid-December after eight weeks with a slow trickle of showings. “Our Realtor was as much at a loss to explain the lack of interest as we were,” Sarah says, explaining that the home has a newly remodeled kitchen, and was marketed with professional photography. She figures the home’s proximity to “problem-addled North Minneapolis” was a big factor. “And we just weren’t willing to go below our $239,900 asking price,” she says.
Glass Half-Empty?
Despite the wide range of experiences, it’s a fact that median home prices are suffering. In November, the median sale price of a home in the Twin Cities metro area was $216,500, down 5 percent compared with the same period last year, according to the Minneapolis Area Association of Realtors. Closed and pending sales were also down double digits in November.Despite all the bad news, the current market has some positives. For one, most sellers are also buyers and they now have quite a selection to choose from. In December, more than 13 homes were on the market for every buyer. Much of what’s out there is priced to sell, and buyers still have the power to negotiate. Some sellers are even throwing in extra lures—flat screen TVs, home warranties, and offers to pay closing costs. Mortgage rates are also still low compared to the 1980s. In all, houses are still moving, albeit at a snail’s pace compared with much of the last decade.
It not only takes longer to sell, but with more to choose from, prospective buyers expect well-priced perfection. Deb Greene, 2007 president of the Minneapolis Area Association of Realtors and a Realtor with Coldwell Banker Burnet, says that in a sellers’ market (as recent as 2006), the key is competitive pricing. That meant listing your house in the middle of the price range for comparative homes. Today, the key is termed “compelling pricing”—which means listing your home at the low end, if not the bottom, of the price range.
The Hard Facts
Pricing to sell is difficult for many sellers to swallow. “Some people have an over-inflated sense of how much [their house] is worth when it’s time to sell because they put a lot of blood, sweat, and tears into it,” says Joy Erickson, the agent with Edina Realty who sold the Waters’ Shoreview home. The couple’s house went quickly, she says, because they took her advice about its worth. If it had gone on the market, she’s confident that there would have been a bidding war. Then there’s the left over euphoria from the real-estate bubble. Prospective sellers typically keep tabs on what the neighbors fetched for their homes and shape their concept of their own home’s worth using those numbers, Erickson says. And some can’t let go of what they think they would have gotten for their home last year or the year before, despite knowing the market has changed. A slower housing market in 2007, plus a lot of attention in the media, is helping realism set in, says Greene.
For both buyers and sellers, the ultimate question is, how low will the market go? Sans a crystal ball, no one can predict whether or not it’s hit rock bottom.
George Karvel, a real estate professor at the University of St. Thomas’ Opus College of Business thinks that as long as interest and unemployment rates don’t rise, the housing market will begin to recover sometime during 2009. Some pockets of the market haven’t seen as much of a decline, such as first-time buyer properties under $250,000 and upper-end homes priced at $800,000 and above, says Rob Mehta, Re/Max Realtor and president-elect for the Minnesota Association of Realtors. On the other hand, a recent study, co-sponsored by the association and St. Thomas, detected softness in the low end of the market for the first time. Says Mehta: “The first-time market isn’t as bad, but it’s still bad.”
In fact, despite recent declines, median home prices have roughly doubled from $116,500 in 1997. Minnesotans who bought their homes prior to the 2005 peak have seen impressive price appreciation and should have plenty of equity—unless they used their homes as ATMs for consumer spending, debt payoff, or remodeling. Likewise, those who purchased more recently and bought with a no-money-down loan, may find their home’s appraised value in this new market is less than their mortgage.
For homeowners whose circumstances require a near-term move, this market reversal can spell disaster. For those who can wait it out, Karvel believes that the current market won’t have a big impact on equity or wealth for the majority of homeowners. “It’s not like [houses] are all being sacrificed at 50 cents on the dollar,” he says. “It isn’t as though there’s not a slowdown...but not all is bad.”
The Numbers
- In November, median sale price of a home in the 13-county Twin Cities metro area was down about 5 percent with $216,500 compared with the same period last year, according to the Minneapolis Area Association of Realtors.
- Median home prices roughly doubled from $116,000 in November 1997 to $216,500 in November 2007.
- In December, more than 13 homes were on the market for every buyer.
Selling in a Tough Market
- Price properly. The key to selling your home is “compelling pricing.” List your home at the low end, if not the bottom, of the price range.
- Dressed to sell. Make sure your home is in pristine condition or be prepared to negotiate.
- Adjust your expectations. The market has changed. Don’t let what the neighbors fetched for their home two years ago shape your idea of what your home is worth now.
Kara Mcguire is a business reporter at the Star Tribune.
11 ISSUES (1 YEAR)
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