Ripe for the Buying
In today’s balanced market, a home remains a good investment and buyers have the time to weigh their decisions
Real Estate Guide
By Kevin Driscoll
August 24th 2005
National economist who predict a bust in the so-called housing bubble, similar to the dot.com bust at the turn of this century, don’t know what they’re talking about, according to local real estate professionals.
“People who say that they don’t have a shred of evidence to back it up,” said Kathie Phillips, vice president in the Highland office of Coldwell Banker Burnet Realty. They keep thinking and saying that because the (Federal Reserve) keeps hiking the federal funds rate, which in turn forces lenders to raise the prime rate. But the prime rate hasn’t affected mortgage rates for at least 10 years.
“Even (Federal Reserve Chairman Alan) Greenspan is puzzled by the phenomenon,” said Wells Fargo Mortgage Specialist Al McPhail. “The prime rate has risen several times over the past 16 months, from historic low of 4 percent to its current level of 6.5 percent. But that has only affected short term rates – for home-equity loans and credit cards, for example. Long – term mortgage rates, though not at least year’s all-time low of 5 percent for a 30-year fixed rate, are still predominantly less than 6 percent.”
As of August 12, interest on a 30-year fixed- rate loan stood at 5.875 percent, and 15 – year mortgage rates were running about 0.5 percent less. “Those rates change daily,” McPhail said, “but they’ve been hovering between 5.2 percent and 5.9 percent for more than a year.”
According to Phillips, bond market rates have a greater effect on mortgage rates. “Mortgage fund investors are still active and plentiful enough to keep those rates down,” she said. “If they start selling their bonds more quickly and in higher numbers, mortgages rates would then begin to rise to attract investors back. But for the housing bubble to burst, you’d need to see huge increases in the rates of un-employment, interest-bearing bonds and inflation, and those things just aren’t happening, especially in the Twin Cities. The Twin Cities’ economy is very divers, so it would take a major breakdown in many industries to burst our so called bubble.”
In the eight real estate areas served by the Villager (see chart on page 42), the change in the median sales price of a home for the first six months of 2005, when compared to all of the 2004,ranged for +9.8 percent in Summit Hill/Summit University to -1.8 percent in Mendota Heights. (The median market price at which half the homes sold for more and half of sold less.) The median sales price of homes in the 13-county metropolitan area rose 4.2 percent, from $215,900 to $224,900, during the same period.
The local real estate market is “a lot more balanced than just a few months ago when sellers held most of the cards,” said Matt Barker, a Realtor in the Highland office of Re/Max Results.
Homes in Highland Park that are selling for between $200,00 – $700,00 are averaging about 45 days on the market, according to Phillips. However, for the entire Twin Cities area, that figure is closer to 90 days, according to Barker.
In general, most homes are taking an extra 20 days to sell, Barker said. The biggest increase in time on the market has been for homes in the $200,000 to $700,000 range. “That figure rose from an average of 56.2 days during the first six months of 2004 to 92.1 days during the same period in 2005,” Barker said. “That’s another 35.9 days tacked on to the average time on the market, and is something young couples moving out of condos and apartments into homes should know.”
“Many sellers, aware of the multiple bids and quick sales of the homes of their friends and neighbors, are now disappointed at how long their homes are on the market and few bidders there are,” said Sheryl Craven, manager of Edina Realty’s Highland office. According to her, the slower sales pace is often due to the seller asking more than their home can be sold for in the present market. “People are proud of their home and they often think they deserve more of it,” Craven said. A good Realtor, she said, can help the seller establish a reasonable price based on, among other things, recent sales of comparable homes in the neighborhood.
“In the peak of the sellers’ market, many homes sold for $10,000 to $15,000 or more over the asking price because of the number of bidders,” Barker said/ “Now, if the seller is lucky and they are enough bidders, the sale price may go up to $5,000 over the asking price. But if the house has been on the market longer and bidders are few and far between, sellers may be forced to take less than the initially asked for, though that is still fairly rare.”
The prospect of multiple bids is largely dependent on the list price, the neighborhood, mortgage rates and the condition of the house. “The better the condition of the home relative to the neighborhood, the higher list price usually is,” Craven said. “On consistent feature of the housing boom is recent has been people’s desire for turn-key homes (that require little or no immediate work). “Given the continued rise in home prices, it comes as no surprise that buyers want to avoid spending even more just as they move in.”