Aging Boomer population affecting housing market

For most Minnesotans, housing is the place where we have most of our money invested.

But just how much money we have there is in question these days, with the market in decline.

In fact, if we could prevent any other homes from going on the market today, it would take us until the end of summer before we could sell everything currently for sale.

This is something new.

Over the last ten years, housing prices here increased 6 - 12 percent a year, in one of the longest, most profitable runs of any boom market ever in history.

But the Minnesota Realtors Association wants you to understand something - it was an anomaly.

"Normal" here, if you look at the rest of the last half-century is more like 3 percent growth per year.

Several unusual things came together all at once to drive the market so furiously. Among them:
# Record low interest rates - at 45-year lows.
# New, aggressive lending with no money down – 100 percent financing.
# And an unbelievable migration of new people moving to Minnesota, which nobody saw coming.

In the last decade here we saw a net-positive migration to this state of more than a quarter-million people.

The best decade we ever had for net migration - prior to the 90s - was the 1970s, when Minnesota had a net gain of 6,482 people.

So in the 1990s, recruiting a quarter-million people in just one decade - was a really big deal.

Net Migration in Minnesota over the Decades:
# 1940s – down 171,484
# 1950s – down 98,140
# 1960s – down 25,933
# 1970s – UP 6,482
# 1980s – down 29,515
# 1990s – UP 258,056

But things are changing.

Interest rates are up. The rush to get into Minnesota is slowing down.

And that’s leaving homeowners like Josh and Jen Reitan not knowing what to do.

They’re trying to sell a great little starter home in northeast Minneapolis.

When they bought it two years ago, they paid more than the asking price the day it hit the market.

Today it’s a whole different market.

"It's terribly obvious," Josh says, "I think we're experiencing this at both extremes."

They're asking $230,000, about 10 percent more than what they paid.

$230,000 is the median price for a home in the Twin Cities, so it should involve the greatest number of potential buyers.

But it's been almost three months and the house hasn't moved.

Josh and Jen are motivated sellers, they’ve already bought their next home.

They're Not Alone

There are 25,000 homes for sale in the Twin Cities metro this week.

In the Reitan’s price range, there is a four-month supply on the market.

With new construction, that supply is at seven months.

And they've got about the best-case scenario in town.

If you're trying to unload a twin home or town home here, depending on price, you could be up against an 18-month supply or more.

Increasingly, housing experts, economists and demographers are looking at changing demographics in this state to help explain what’s going on.

Demographics fed the boom of the last decade, with the infusion of the quarter-million people who moved here for jobs in our dramatically growing economy.

Demographics are expected to play bigger role going forward, but perhaps in another direction.

Fewer people are coming here.

And those of us who are here are getting older.

Not just individually.

For the first time in history our society is aging. We literally have fewer young people coming up behind us.

That will affect a lot of stuff, including, the number of people available to buy your home.

"There've always been more young people coming in than people leaving at the other end," says state demographer Tom Gillaspy. "But that will end in about 2010. That's only three years from now."

Gillaspy says the coming change will be quick and profound.

Next year the rate of retirement in this state will increase by a staggering 30 percent.

Within 10 years, we'll have more people over the age of 65 than we'll have kids in school.

State economist Tom Stinson agrees. The demographics, moving forward, will be a significant force.

"Nationally, it's expected that housing prices are going to decline in 2007," he says. "That's really unusual. We haven't had a full year's housing price decline since the Great Depression."

Stinson says these demographic changes are putting stress on the construction industry already.

Job cuts have already taken place at Anderson Windows and the Ainsworth Lumber plants in northern Minnesota.

Those demographic shifts will also put the screws to the real estate market.

Housing Less of an Investment

Glenn Dorfman has been with the Minnesota Realtors Association for 24 years.

He believes people need to think about their homes less as an "investment" – and more as "a place to live."

"What we have to get the public to understand is two things," he says. "If you're selling your house, you won't get what your neighbor got two years ago. And if you want to sell you have to listen to a good realtor to price it correctly."

"If you're a buyer," Dorfman continues, "if you find a house you like you better buy it. Because good houses are going to go."

Bidding wars that drive a home's price up over the asking-price are rare these days. But it does happen.

Heidi Olson and Andrew Stoltmann lost two homes to competitive bidders in recent weeks, despite their bidding over the asking price.

Good houses, well priced, can be hard to find.

They wanted to live near the city center but their search for a home in the mid-$300,000 price range has found them on a hunt throughout the metro.

Recruiting People from out of State

Webb Friedly and Cara Mulder have also found this market challenging.

Prices are high and surprisingly unwavering despite the slowdown in the market.

"You would expect the price to go down, just based on wanting to move it," Friedly said. "But we didn't necessarily see that."

They just closed on a home in Wayzata. The house had been on the market for months but the bidding was competitive. They got it for less than the asking-price.

Webb and Cara are particularly good recruits for this state.

Their jobs allow them to pretty much work from anywhere.

Dorfman says, to the degree we can find more people like this, choosing to live here, the future will be brighter.

Barb Davis is another, unpacking her boxes this month and making Minneapolis home.

Davis is a single woman coming here to work in real estate. She'll be selling to her own demo - the one that does not replace itself.

Families with children have been the biggest buyers of homes here forever.

But within three years 'people living alone' and 'couples without children' will makeup 80 percent of the growth in the housing market.

Less money does not mean "loss."

Less Money Does Not Mean a Loss

The hardest thing for homeowners to wrap their brains around is the idea that they're not losing money, just because their house might bring less today than last year.

"Rather than getting 10 percent a year," Dorfman says, "they're going to get 2 percent a year. Now some will see that as a cut. Those aren't very smart people, because a loss is minus two percent and two percent, is a gain." "With tax benefits it's more like 5 - 6 percent, " Dorfman points out.

What will happen to this market in the future?

Are there too many big box houses in the burbs for the smaller families and the older and single people living here?

Could we have another big, unpredicted boom in our workforce?

That would change everything.

The variables - are endless.

"But," Dorfman says, "timing is the most important one. If you bought in the last 2 - 3 years and you bought 100 percent equity or took equity out of your house, whatever, you're going to lose money. If you buy and hold, you're in good shape."