Many of us have long been aware of the tight rental market in the Twin Cities, as well as across the state, as former owners have moved back into the rental market post-foreclosure. But more recently, we've been seeing a tightening of the ownership market, too. What exactly is going on here, and what does it mean for Minnesota when it's hard to find apartments and to buy homes?
We've been thinking about this and plotting out some numbers at MHP, but we'd also like to hear your thoughts. Please add your comments below.
First, the ownership market is clearly tightening. We don't have ready access to data for the state, but the Minneapolis Area Association of Realtors gives us a lot of good Twin Cities information. Home prices have risen 16% year to date since last year. At least two factors are contributing to this rise:
- The rate of "distressed" sales has fallen in recent months, since foreclosures and short sales are now making up a smaller proportion of sales. This means that "traditional" sales are a larger proportion of sales, so sales prices will naturally be higher.
- The supply of homes for sale is low. That is, there is more demand than supply, both for market rate homes as well as for foreclosures and short sales (i.e. "lender-mediated"). "Months of supply" looks at the number of homes on the market in relationship to the current number of sales per month. The "normal" rate is between 5 and 6 months, and we are well below that, for both types of homes.
Along with the owners' market, the Twin Cities rental market has been tight too. Rental vacancies have been continuously below 3% over the past 2 years, as reported in our most recent 2x4 Report.
So how can it be that housing is limited for both owners and renters? We can think of several factors at play.
- Household growth. The most recent Census Bureau estimates are that the population of the Twin Cities, and Minnesota as a whole, has grown, even since 2010. In the seven-county Metro, where data is accessible, the number of households grew by 17,500 or 1.6% from 2010 to 2012. Similar household data is not yet publicly available for the state. Whether due to migration from other places, young people leaving their parents' homes, or other reasons, there are more households needing a place to live, at least in the Twin Cities.
- Loss of supply. Some housing units have been lost and demolished, or continue to be vacant and boarded. After foreclosure, many homes have been in such tough shape, especially in the hardest hit neighborhoods. Sometimes it has been more expensive to fix them up than to demolish and possibly rebuild them. See trends for St. Paul below and for Minneapolis on the city website.
- Limited construction since 2008. Housing construction reached record lows in the years following the financial and housing collapse. In fact, construction reached a 50 year low in the 2006-2010 period. Home building has picked up some since 2010, but there's a long way to go before the supply catches up.
Due to data limitations, most of the chart above feature the Twin Cities, but we hope that Greater Minnesota folks will chime in with what you're seeing locally.
Lastly, and most importantly, what will these housing changes mean for low income Minnesotans? With the cost of constructing and rehabilitating housing being so high and with such strong demand for housing, there looks to be little relief in sight for low income families. The data remind us how important it is to invest public resources in creating housing that's affordable, and making homeownership possible for low income homebuyers. In the meantime, it's always worth exploring sensible ways to keep costs down in constructing affordable housing.
Do let us know your reactions, whether you are inside or outside the Twin Cities metro.