[Mpls] Why Would Anyone Settle In Minneapolis?

[Bill Cullen]

John Harris asked:

Perhaps there is a real estate agent out there that
can give us some accurate info on the housing market
here in Minneapolis.  Most say the rise in housing
prices is largely due to record low interest rates.

Bill Cullen Responds:

I am a Realtor / Real Estate investor.

Recently, the Realtor's association reported that the median price of a home
in the metro area climbed 8% in 2003.  Below are the changes in median
values for Minneapolis.  I added the difference and percentage calculations.

District Name    2002 Median   2003 Median Difference   Percent change
Calhoun/Isles    $292,000      $287,900    $(4,100)     - 1.4%
Camden           $130,000      $144,900    $14,900       10.3%
Central          $233,000      $219,000    $(14,000)    - 6.4%
Longfellow       $169,900      $180,000    $10,100        5.6%
Nokomis          $179,650      $195,000    $15,350        7.9%
North            $121,950      $139,900    $17,950       12.8%
Northeast        $162,000      $179,950    $17,950       10.0%
Phillips         $129,950      $144,000    $14,050        9.8%
Powderhorn       $157,000      $166,500    $9,500         5.7%
Southwest        $237,000      $257,500    $20,500        8.0%
University       $179,000      $210,500    $31,500       15.0%

I cannot explain why some districts saw large increases while others saw
significant decreases.  North Mpls did particularly well -- and this is
years AFTER the flipping scams Dyna mentioned.  Finally, if we look at the
"average sales price" and not the "median", the average was up significantly
in all Minneapolis districts.

I think this data does not allow us to declare that prices have fallen.  In
fact, the national Realtors Association (and the Minnesota association) is
reporting 2003 as a record year in terms of listings, sales, dollar volume
and median sales prices.  All data I have is that real estate is doing
great.

This is precisely what the stock market was saying in 2000.  The more
interesting question is -- are things changing?  There is no data I can
think of that conclusively shows the market has changed.  However, I have
seen reports of the following:

1) Comparing December '03 with December '02, the inventory of homes for sale
in the metro area is up 22.22% and the number of pending sales is down
7.98%.  This signals the market moving towards a buyers market.

2) The median sales price for the metro area has dropped over the past 6
months.  It was approximately $210,000 last fall, and is now $199,900. The
Realtors association claims this is normal for the slower home buying
season.  Time will tell.

3) Greenspan is threatening higher interest rates.  This is bound to have
the greatest effect on the value of real estate.  To put the interest rate
effect into perspective, take a look what someone that makes the Hennepin
county median income can afford at different interest rates:

median income     5.5% interest    7.5% interest
$75,300           $261,305         $212,190

In this case, the family lost approximately 20% of their purchasing power
because the interest rate climbed back to a more normal level.  This will
have a huge impact on housing.

4) As interest rates tick up and rental housing continue to lower their
rents, I expect people to return to renting and wait out the owner occupied
housing.  This was clearly outlined in a Money Magazine article a week ago:
http://money.cnn.com/2004/02/10/pf/yourhome/rentalprices/index.htm.  I think
Money Magazine has it right.

5) Historically, housing has closely mirrored inflation, but over the last
few years housing has exceeded inflation.

But, Dyna really asked why settle in MPLS?  It isn't because of financial,
security, freedom or good schools.  The burbs usually beat Mpls on those
notes.  Many people described the arts and parks.  Good points.  But for
most people, the arts are an occasional thing (and an easy drive).  Parks
are plentiful in the burbs too (sometimes the back yard qualifies).  The
only reason I can see is the culture of Mpls.

Regards, Bill Cullen
Whittier landlord