Renting Tops the Trends in 2011 Minnetonka Real Estate

When Jason and  moved to Colorado in December, they remained owners of their house in Minnetonka. They quickly found a renters for the house they left, on Williston Street, and were able to buy a home in their new city.

“In an ideal situation, I would have been able to sell my home and move, but it just wasn’t financial feasible,” Jason Greves said. “A bad time to sell my home in Minnetonka means a good time to buy one in Denver.”

“The rental market is actually quite hot,” said , a realtor from Minnetonka who works with Coldwell Banker Burnet.

The Greves, Holds said, are just one example of families able to hold onto and rent their former homes here while either renting or buying in their new locations, hoping the market will turn around.

“The renters are really good families who either got laid off or got a new job for less pay," Holds said of that niche of clientele. "They all want nice neighborhoods, so the quality of renters is really good.”

These are also long-term renters, Holds said, with some staying put for up to three years. The price range for rentals should be $2,500 per month or below, Holds said.

“That’s the sweet spot,” she said. “Anything above that is hard to fill.”

Mike Winship, who sells alongside his wife, Sue, for REMAX Advantage Plus in Minnetonka, said renting is easier for many people who have trouble getting financing.

"We own a couple of apartments in Hopkins, and we switched tenants in 2011," Winship said. "They were filled almost immediately."

Contrasting the rental market is a sticky marketplace for homes priced at or over $500,000, which didn't sell well in 2011. People with higher-priced homes may be stuck a while longer.

“They can’t do anything,” said Holds. “They are upside down on their mortgages and can’t refinance and can’t afford two mortgages. So they have to stay. That kills a whole level of move-up buyers.”

However, Winship said condition and price will always sell a home—in any price range.

"It's amazing—there are a lot of people who have survived the recession without taking a hit and they do have the money to go out and buy some of the bigger homes," he said. "You can get some fantastic deals in that price range right now."

Other Trends Are Changing

Exactly half of all closed sales in 2011 were either foreclosures or short sales, up from 47.9 percent in 2010 and 48 percent in 2009. These typically go for about 60 cents on the dollar compared to traditional homes.

Winship is confident the real estate market will make a turn around in 2012.

"We are fairly certain that prices are going to start going up," he said. "We're seeing the foreclosure rates drop, so we expect prices to go up again."

Holds has seen the foreclosures dropping from hundreds at a time to a mere trickle.

“Basically, they underprice them and get multiple bids. That drives the price up,” said Holds. “They are gone within two or three days.”

If they are not sold right away, Holds said it usually means there is something really wrong with the house or it is priced at over $500,000.

Meanwhile, realtors are looking to Generation Y—those born in the mid-1980s—to replace Baby Boomers in the housing market. But Generation Y, thus far, isn't cooperating, Holds said. People from Generation Y tend to wait for the house they want rather than buy the house they can afford, Holds said, and they're also reluctant to commit to mortgages in a shifting job market.  

“Generation X can’t make up the buying power of the Baby Boomers, but Generation Y can,” Holds said. “We’re trying to get this bubble moving, but they just aren’t buying houses. It’s just a completely different attitude, and we’re struggling with that.”  

Another change in real estate during 2011 that both Holds and Winship point to is the dwindling of the realtor pool.

"A lot of them have struggled to stay in the business," Winship said. "We're hopeful that it's going to be a good year for the realtors, as well as the sellers."

A Balanced Market in 2012

Winship said foreclosures have been on the market already and are re-sold. "That will help the sellers that are owner-occupied," he said.

With foreclosures getting under control, there is a shortage of houses on the market—down 14 percent over the last three months. Moving into 2012, there were three to four houses on the market for every one sold.

Twin Cities area sellers listed 68,875 homes on the market in 2011, down 15.8 percent from 2010 and the lowest level since 2002. Inventory levels dropped 28.7 percent from 2010 and are at the lowest level in eight years.

This means the real estate market is almost balanced. If no other homes came onto the market, it would take less than five months to burn off the inventory.

“Now buyers have to choose from what’s out there," Holds said.

Some buyers, she said, are still operating under the assumption they can get huge discounts off any listing. Some go so far as to accuse relators of "hiding houses" in their frustration at not finding the exact house and price they're looking for. Holds points out sellers that have put tens of thousands of dollars of improvements into their houses. 

Buyers are slowly getting the message.

“There’s only so much loss that people can take,” she said.

Ordinarily, a big drop in inventory would lead almost immediately to rising home prices. But the region’s median price is still held down by the properties being sold through the foreclosure process or through short sales, said Richard Tucker, vice president of Coldwell Banker Burnet in Hastings.

In 2011, the median sales price of homes in the 13-county Twin Cities region fell to $150,000, down 11.7 percent from the already depressed levels of 2010. The area’s median sales price peaked at $230,000 in 2006.

But there is good news.

Tucker noted that the National Association of Home Builders this month included the Twin Cities to its list of 76 “improving housing markets,” which measures housing permits, employment and housing prices for at least six months.

In 2011, consumers purchased 41,429 homes in the 13 county Twin Cities region. That's up 8.2 percent from 2010.

"Consumer confidence is slowly building right now," Winship said. "There are a lot of people who want to buy a house. They've just been sitting on the sidelines until they feel more comfortable. We're expecting big things in 2012."