Seller beware

Twin Cities home buyers begin to gain more leverage as the housing market shows signs of cooling.

BY GITA SITARAMIAH
Pioneer Press

Back in December, Jason Thorman put his family's spacious, 5-year-old Lakeville home on sale for $325,000. The multilevel home drew few prospective buyers as the winter months passed.

Growing impatient, he dropped the listing price to $300,000, below its appraised value.

But Thorman still hasn't gotten a bite. He advises other sellers not to count on a quick sale. "It's a pretty hot market — for buyers," he said.

Sellers no longer dominate the Twin Cities housing game. As the peak buying-and-selling period begins, buyers will find more houses on the market — about 7,000 more than a year ago. And it's taking about 2½ months on average to sell a house, nearly 20 days longer than last spring.

"From a buyer's perspective it's as good as it could have been in the last five years," said Gregg Roeglin, president of the Minneapolis Area Association of Realtors.

The days of widespread bidding wars are over. Instead, "price reduced" is becoming an increasingly common pitch. Sellers are more willing to slash prices and cover closing costs. Some are covering association fees for a year. One agent selling a Woodbury home last weekend offered to throw in a week's stay at her Florida vacation home near DisneyWorld.

In some cases, sellers are devising a Plan B.

Joel and Alissa Lobland, who are selling their Woodbury home to move to Belgium, have held open houses for a couple of weeks. If the house, listed at $309,900, doesn't sell soon, they plan to rent it out. "We thought we'd give it a month or so and see how it goes," he said.

Another factor swinging the market away from sellers is a shrinking pool of people hunting for homes.

"Over the last four or five years at our fevered pitch of selling lots of properties, we've used up a lot of the inventory of buyers," said John Lockner, past board president of the St. Paul Area Association of Realtors.

The Twin Cities housing market has galloped at a torrid pace the past five years. Home sales in the 13-county metropolitan area have set records during each of the past five years, topping 58,000 in 2004. The median selling price has jumped more than 40 percent since 2000, hitting $219,000 in March.

Signs of a slowing housing market have been streaming in recently.

Fewer sales were closed in the Twin Cities housing market in March than in the same month last year, though the median selling price continued to increase. For the first quarter, sales increased slightly along with the median price. But pending sales — which can signal future trends — were off nearly 4 percent.

Building permits, a key indicator of housing demand, were off 9 percent in March from the same month last year. Year-to-date figures are behind the previous three years, according to the Builders Association of the Twin Cities. Nationally, housing starts fell 17.6 percent in March, the biggest monthly drop in 14 years, according to the U.S. Commerce Department.

Experts aren't ready to call this a buyer's market. "What we have is something closer to a normal market in which the advantage lies neither with the buyer nor the seller," said George Karvel, professor of real estate at the University of St. Thomas.

Though longer than it was a year ago, the average time on the market remains under 90 days, the point at which oversupply becomes a concern. Other key factors: The job market, though lackluster, isn't in decline. And mortgage interest rates, while higher, remain relatively low.

"To get a buyer's market, you almost have to create an economic recession in which people cannot sell their homes, typically because of high interest rates or high unemployment, and we're not there," Karvel said. "That doesn't mean we won't be there in six months."

To determine the nature of a housing market, real estate experts look at the "housing supply rate" or the number of months it will take for the current supply of properties to sell.

Five months is a key point for the market. Around that mark, the market is considered balanced between buyers and sellers. Go lower, and then sellers have the upper hand. Go higher, buyers rule.

For the overall Twin Cities market, the supply appears balanced at 5.5 months, according to an analysis by the Minneapolis Realtors group. But that's up from 4.1 months six months ago.

Looking at segments, sellers appear to have the upper hand for houses priced between $150,000 and $200,000, where the supply rate is 3.9 months. For housing between $200,000 and $300,000, it's 5.4 months. Between $300,000 and $500,000, it jumps to 7.8 months — a tilt to buyers.

The increased supply means that setting a proper list price is more important than ever. "If it's priced correctly, it's going to sell," said David Christensen, a Keller Williams Realtor in Lakeville.

Not every part of the market has taken a noticeable hit.

Homes from $150,000 to $200,000 are still going quickly, something Alan Bills learned as he shopped for a house in that price range in St. Paul.

"There were three or four houses we looked at that we liked that got sold out from under us," Bills said. When Bills and his partner spotted the bungalow of their dreams off West Seventh Street, they didn't waste time. "The one we finally bought went on sale on a Friday and we made an offer on Sunday," said Bills, 44.

In a sign of the times, they did get a perk as part of the deal. When Bills and his partner closed on the house last week, the seller paid their closing costs.

Making the most of 'lifestyle housing'

Terry Fiedler
Star Tribune
Published April 18, 2005

Jayme Arezzo doesn't seem to have much in common with Paul Lerdal.

Arezzo, 24, is at the beginning of his career, single and about to make his first real estate buy. Lerdal, 54, and his wife, Joan, are empty nesters making what they expect will be one of their last home purchases.

Together, they represent what the National Association of Realtors calls "the bookends" of the resurgent demand for condominium living. Arezzo and the Lerdals both recently bought condos in downtown Minneapolis.

"This works for me now. I'm young, single, working downtown and I travel a lot," said Arezzo, who scouts store sites for Target Corp. He's looking forward to big changes in his life when his unit in the 720 Lofts development on N. 4th Street is ready by the end of the year. No more 45-minute commutes from Plymouth to his office. Vikings and Timberwolves games will be an easy walk away, and winter parking will be in a heated underground garage.

It's a different life for the Lerdals, too, after decades in traditional homes.

"Some of our friends think we are crazy, but Joan runs into people all the time who are jealous of our lifestyle," Paul Lerdal said.

Between 1970 and 2000, the percentage of traditional families -- married couples with children -- among U.S. households dropped from 43 to 24 percent. According to the research firm Dahlgren Shardlow, these childless households are signaling the rise of urban, low-maintenance "lifestyle housing," such as condos.

In Minneapolis, the trend is responsible for the first significant migration of residents back to the city core since suburban flight started a steep decline from the 1960 downtown area population of 34,338.

The city's downtown population, which stood at 19,035 in 1980 and 21,158 in 1990, is now believed to be approaching 29,000. The six core neighborhoods are Downtown East, Downtown West, Elliot Park, Loring Park, Stevens Square and the North Loop.

Minneapolis Mayor R.T. Rybak said that if trends continue, the city could be one of a few in the country to regain all the population lost in the post-war suburban sprawl.

In the meantime, he said, "As people move back, it makes it more of place to live and work. Other downtowns are just overgrown shopping centers and office parks."

It's important to keep the growth in perspective: Even at 29,000, the downtown population is still smaller than the suburb of Richfield (about 35,000 residents), and 29,000 people equals about 1 percent of the metro-area population of 2.7 million. Still, the reversal of years of suburban flight and downtown's growing population compares favorably with many other urban areas -- it's smaller than Chicago's, for example, but bigger than Dallas' and Denver's downtown populations combined.

Many market observers see the condo phenomenon as early in its life cycle, with some optimistic estimates putting the number of Twin Cities residents switching to an urban lifestyle growing by perhaps another 5,000 or 6,000 in the next five years.

"The more the downtown gets built up, the more desirable it becomes. You've got Lunds putting up two grocery stores. Three to four years from now, this will be a hot place," said Fritz Kroll, an Edina Realty agent who specializes in downtown Minneapolis.

New digs, new life

While the condo boom is foremost a real estate story, it carries wide-ranging ramifications for the way some Minnesotans will live and interact, for the future of some city neighborhoods and for the health of the city's finances.

For buyers, condominium living can mean freedom from frustrating commutes, proximity to downtown entertainment and ownership without all the chores of a single-family home. But it also can mean a substantial, even difficult, transition for people who have never lived in an urban area, never lived in multifamily housing or in spaces quite this small.

"It will be interesting to see how Minnesotans adapt to living in an association environment," said Tom Reid, executive director of Elliot Park Neighborhood Inc. The neighborhood is home to the Grant Park development and several other condo towers. "Historically, there have not been a lot of big condo associations. [Condo owners] will have to adapt to a situation in which some decisions are made apart from them by a board."

Still, many people seem ready to embrace the change. Mary Hickey, senior designer for Gabberts Furniture and Design Studio, said most of her condo clients are consciously closing a chapter of their lives and opening a new one. Many are so eager to chuck everything from their former homes that Hickey frequently has to talk them into keeping at least a few pieces.

"It's a huge transition, and to make a successful transition and a move without remorse, they have to bring some of the history with them," she said.

Lois Bollman figures that she and her husband, Lynn, probably got rid of 80 percent of what they owned when they moved about a year and a half ago from a home near Lake Harriet in south Minneapolis to the Humboldt Lofts, a condo next door to the new Guthrie Theater in the flour-milling district.

The Bollmans -- she's an administrator, he's a teacher at Minneapolis Community College -- had been contemplating the move for years, but they waited until their two children were out of college.

"We were just ready to try something very different," she said. "We moved from a lot of house care to freedom."

Their new home has less space than the house they moved from, about 2,000 square feet, but Lynn Bollman said he likes the other trade-offs.

"I don't miss the shoveling, mowing, raking and trying to make grass grow under huge oak trees," he said. He also enjoys the contrasts of the city. "The really nice times are when it's quiet on Sunday morning, and the opposite, when there is a football game and tailgaters or it's the Fourth of July."

As for the Lerdals, they live in about 1,500 square feet now, down from the 2,500 they once had.

"That's been an adjustment," Paul Lerdal admitted. "Material possessions have gotten to be a lot less important."

Paul, a clinic manager, now commutes once a week to St. Cloud and telecommutes the rest of the time. Joan works in the Minnetonka Public Schools as a speech pathology teacher.

"We were surprised by how much we liked it," Paul Lerdal said of their new life. "We walk to just about everything, to Williams Arena for a Gophers game, to Target Center and to the Metrodome, to Theatre de la Jeune Lune. I'm shedding pounds."

Jody Kern, a Wells Fargo mortgage broker, said that many clients she has worked with have a condo in the city and a cabin elsewhere, so they can keep their gardening habit. She's considering the same thing now that she's bought a condo.

Kern, who lives in a 4,500-square-foot home in Bloomington with her son, has bought a 21st-story unit in the Carlyle project near the Mississippi River. It will be ready in late 2006.

"I have a great house for a family, with a pool and a hot tub," she said in talking about why she's moving. "The dog has his own floor, and my son, when he is home from college, has his own floor."

Kern was impressed with the Carlyle and bought in early to secure her unit. She likes the idea of little maintenance and a "walking lifestyle," with downtown, the river and the Near North Side close by.

She's excited about making the move, and as someone in the real estate business, she plans to keep an eye both on how the downtown condo market performs and how Minnesotans adapt to the condo lifestyle.

"This is really new to this marketplace," she said. "It's not like it is in Chicago."

Benefits for the city

Some city neighborhoods, such as Elliot Park, are taking on a new feel as condo buildings are finished.

"A lot of good things come with more density," Reid said. Elliot Park "was a neighborhood that was trending toward the poverty line. Now it has a chance to really be a mixed-income neighborhood. [Along with the condos] we have some high-quality, low-income housing that is locked into the neighborhood with tax credits."

One small indication that the neighborhood is on the upswing: "Grant Park allowed dogs from the start, and that made a difference for street traffic," Reid said. "You see a lot of people walking their dogs."

For Minneapolis as a whole, an influx of downtown residents is welcome because it means a bigger residential tax base (most of the condo projects received no city subsidies). It also brings a bigger commercial tax base generated by new businesses serving the residents, and a generally higher activity level, which increases safety and attracts more entertainment options.

"It makes [downtown] a more interesting place to go to," Rybak said. "There are now two or three new grocery stores. There are more interesting shops and restaurants. It's also important in a period of increasing gridlock. Every person who moves into a downtown condo and walks to work is one less person in front of you in traffic."

However, not everyone moving to the downtown represents a new taxpayer. Reid noted that many of the people he's met from Grant Park moved to the tower from elsewhere in Minneapolis. Mortgage banker Kern said many of her condo buyers are moving from older downtown condos to newer ones.

Arezzo is pragmatic about his upcoming move. While he's eager to make the change, he knows he'll miss some aspects of life in Plymouth, such as the Luce Line bike trail and nearby parks. He doesn't necessarily see condo living as a forever proposition.

"If I get married, I don't think I want to try to raise kids in a one-bedroom condo downtown."