Home is where bucks are

Jim Buchta
Star Tribune
Published January 12, 2005

Home sales in the Twin Cities area again broke records in 2004.

Several Twin Cities-area Realtors groups announced their year-end sales numbers Tuesday, and as expected, they showed that 2004 was another record year not only for home sales but also for median sale prices and the number of new listings on the market.

Realtors sold 58,233 houses, townhouses and condominiums for the year -- 3 percent more than in 2003 and an all-time record. The median sale price in the metro area set a record, too -- $215,900 -- an 8 percent increase over 2003.

That follows percentage increases of 8.1 percent in 2003, 8.8 percent in 2002 and 11.8 percent in 2001, making the past four years one of the most explosive periods in history for home sale price increases in the Twin Cities.

Homeowners might want to savor the moment, though, rather than bank on more big gains to come. The annual percentage increases in median sale prices have fallen for four consecutive years. Meanwhile, the number of houses for sale is at a five-year high and 13 percent higher than at this time last year.

What's more, mortgage interest rates are expected to rise slightly this year.

Mark Allen, chief executive officer of the Minneapolis Area Association of Realtors, said that buyers will enjoy a better selection but that sellers should expect slightly longer market times and more moderate sale price increases in the 4 to 6 percent range next year.

The home-building industry is already seeing a return to a more measured pace of activity. The Builders Association of the Twin Cities said Tuesday that during 2004 the number of permits issued to build houses fell 5 percent, while the number of units planned rose 2 percent to 18,591, about half of which were condos and townhouses.

Nevertheless, Metropolitan Council Chairman Peter Bell said the housing industry remains a bright spot in the economy with continued strong prospects. The population of the metro area is expected to increase by nearly a half-million households by 2030, and the region must add 16,000 to 18,000 housing units each year to keep pace with demand.

"More and more [Twin Cities] residents are moving into home ownership and more people are moving into the Twin Cites region," said Gregg Roeglin, president of the Minneapolis Area Association of Realtors.

Four of every 10 home buyers in the metro area last year were first-timers, Roeglin said.

The lowest mortgage interest rates in 40 years helped a significant number of renters, single people and immigrants become homeowners. Move-up buyers took advantage of low rates and rising values, too. Those who bought before the boom have been able to cash out their equity and trade up to more expensive digs.

Nowhere has the phenomenon been more pronounced than in downtown Minneapolis, where a residential construction boom is well under way. Several thousand condominiums and townhouses have been built there and several thousand more are on the way.

Grant Park Tower, the site of the Realtors' Tuesday news conference to announce the home-sales numbers, is a 288-unit condo building that opened last fall and is nearly fully sold out, including two $4 million-plus penthouses.

That high-end construction is just one reason that the MLS district that includes Grant Park Tower as well as downtown and the Central neighborhood posted the biggest sale price gain in the 13-county metro area. From 2003 to 2004 the median sale price there jumped 22 percent from $219,000 to $267,000.

The condos and townhouses being built downtown routinely sell for more than $300 a square foot. Older houses that are more typical of the neighborhood are more likely to sell for $100 a square foot or less.

Mayor R.T. Rybak said congestion and gridlock are driving many people to abandon life in the suburbs for downtown living.

"This is one of the reasons why so much downtown growth is happening," Rybak said. "People are sick of being stuck in traffic."

With prices out of reach of many buyers, Rybak said the city is stepping up to fund affordable housing programs. During the past year the city helped build 241 new units and renovate another 464. In 2003 the city set a three-year goal of building or renovating 2,100 affordable units by 2005.

St. Paul, too, is on its way toward meeting its affordable housing goals. Susan Kimberly, St. Paul Planning and Economic Development director, said the city hopes to reach its Housing 5000 initiative goals by September by building or renovating 5,000 units.

Affordability continues to be a growing problem throughout the suburbs, where median prices rose throughout the metro area. In Sunfish Lake, for example, the median sale price rose 20 percent to $807,500.

In most suburbs the annual increases were in the 5 to 9 percent range. In Prior Lake, for example, the median sale price rose 7 percent from $255,000 to $274,000 and in Burnsville the median sale price increased 6 percent from $208,450 to $221,500.

Jim Reiter, president of the St. Paul Area Association of Realtors, said it's common for a home that fetched $150,000 in 2000 to change hands for about $211,000 -- a more than 40 percent increase.

The median sale price fell in a few areas, though that doesn't necessarily indicate that housing there is becoming more affordable in general.

In the Calhoun-Isles area, the median sale price dropped 10 percent from $287,900 to $258,958. And in Northwest Hennepin County the median sale price dropped 5 percent from $359,950 to $343,000.

Mark Allen of the Minneapolis Association said these are areas with fewer than average transactions that are statistically vulnerable to a variety of changes in the market, including the construction and sale of lower-priced condos and townhouses. In addition, the median is simply a barometer of what's happening within each market, and throughout the metro area there are big variations in sale prices.

"It's almost like the weather," Allen said. "When they say there was 4 inches of snow, one area might have had 2 inches but on average there was 4."