The Skinny

Stage set for rebound?

Our more recent communications have included some encouraging news, as market indicators are starting to reveal positive shifts occurring in the local housing market. This does not imply that the market has rebounded—only that we're past the days where the elevator keeps on descending, as it appears we are arriving at ground floor.

What are the positive shifts?

1. The most encouraging sign is that a trend of declining inventory has likely been established (using a year-to-year comparison) and will probably accelerate.

2. The brakes have been applied on the decline in buyer activity, and there is reason to hope second-half 2008 comparisons will show break-even numbers or possibly increases as compared to 2007.

3. There are early signs that the regional decline in home prices could be stabilizing.

4. The traditional home market (excluding foreclosures and short sales) has not experienced the massive decline in price as is commonly presumed. The median price of these properties has only dipped 2.7 percent so far in 2008, as opposed to 8.8 percent for foreclosures and short sales.

So are we experiencing a recovering market? To be blunt, no, but there is a faint light at the end of the tunnel, and we are confident that it is not a train. Economists say that a recession is not validated until you have been in it for a few months. The same is true with a market recovery.

Think of it like coming home at night and turning on your house lights. When you first arrive home, you turn on your garage and entry lights, then maybe you flick switches in the kitchen or family room, awhile later you're illuminating a bedroom and bathroom.

Similarly, the Twin Cities housing market will experience a recovery in stages. The first light was a decline in listing activity, which was followed by a decline in overall homes for sale. The next light will likely be improvements in the mortgage underwriting environment, which will lead to a modest and sustainable increase in buyer activity. Another light will be a reduction of lender-mediated property activity. Eventually, we will experience modest growth in home values.

We are justified in celebrating the encouraging signs, but the housing market continues to face a variety of challenges—a large oversupply of homes for sale, lender-mediated property sales, tightened lending standards, tepid buyer activity, weakened home prices and home owners in positions of negative equity, among other grimace-inducing factors. Understandably, this tough-love synergy has produced a severe lack of consumer confidence in the housing market, locally and nationally.

These challenges will thwart a quick rebound from our current conditions and make the road back to a balanced market a long and gradual journey. The encouraging news today is we appear ready to begin the return journey.

Along the way, we will continue to gather market data, analyze housing trends and share our findings in order to keep you informed and better prepared to operate your businesses. We are in this together, and together we will persevere.

Lessons in Marketing from the Minnesota Twins

I went to a Twins game the other night. Shocking but true.

It just so happened to be the game where Joe Mauer got two balls thrown at his head, Gardy got ejected, and the Twins blew a three run lead in the late innings. So needless to say, the game could've gone better. The outcome was not the most interesting event of the evening, however.

In the third inning, I got a hankering for an alcoholic beverage of the barley and hops variety. Some people call these "beers." So I scanned the crowd looking for the closest vendor of such a delicious product and found not one, but two, available beer guys. Though they were both selling beer, they were doing it in very different ways.

The first beer hawker looked kinda like this guy on the left. Nothing particularly shocking here. Baseball cap. Polo shirt. Shorts. Clear, plastic cups with domestic draft beer. Budweiser, Bud Light, Miller, Miller Lite. The American Quartet of brews. The Everyman of beer vendors -- simple, unassuming, appealing to the masses.

The second beer guy was a completely different story.

Essentially, the second beer guy was Jeeves from www.askjeeves.com. He was wearing a nicely-pressed tuxedo shirt, formal black dress pants, fancy and completely insensible footwear for the miles of steps he would be traversing. All of this was communicating a sense of luxury and grandeur (as much as one can consider ordering a beer at a Twins game to be partaking in luxury).

What sort of beer do you suppose Jeeves was selling? Why "premium" brands, of course. Summit, Heineken, Stella Artois even.

And he wasn't selling them in clear plastic cups, either. These were the genuine, 100% real deal, glass bottles. Most stadiums won't sell glass bottles on account of the very real possibility that their fans will pelt the opposing team with life-threatening beer projectiles. I guess the Twins assume that the type of person who is willing to shell out $7.00 for a "nice" beer is not the type of person who is prone to irrational hooliganism.

The point of all this is that brands mean something. To consumers of mainstream alcohol, their beer man should reflect mainstream America. Alcohol is not a luxury item, but a tool to get you where you need to go, if you catch my drift. Consumers of premium beers make a conscious choice to gravitate towards a more sophisticated product, and therefore expect the overall experience to reflect sophistication. Once again proving that what we buy and how we buy it isn't just about fulfilling a market need, but often a psychological need to define ourselves.

Every market has niches, and understanding them is crucial, even in real estate. Ask yourself whether your current business model and marketing efforts are aimed at a specific kind of customer or whether you're attempting to provide a one-size-fits-all kind of service. Do the people you tend to work with seem like Budweiser people or Stella Artois people? And do you operate accordingly?

All these questions are making me thirsty.

Weekly Market Activity Report 6.30.08

New listings continue to lag behind last year's pace in the Twin Cities housing market. For the week ending June 21, new listings dropped by 10.6 percent compared to the same week in 2007. This is the sixteenth consecutive week of year-over-year decline, a period during which there have been a total 5,881 fewer new listings than one year ago. The total inventory of homes currently for sale is 2.6 percent lower than last year.

On the flip side, buyer demand remains relatively flat after over two years of heavy downward momentum. Pending sales for the week ending June 21 were 1.8 percent behind the same week last year, a decline of 16 sales. This is the 9th week in the last eleven where pending sales posted figures that were within 5 percent of one year ago, either above or below.

The next issue of MAAR's The REALTOR, coming soon to a desk near you, will include an update on the state of the regional housing market. While we are pleased to communicate clear signs of positive housing market shift, the ensuing rebound will be slow to start and gradual in its effect.

Click here for the full Weekly Market Activity Report.

Seller-Financed Down Payment Assistance: Friend or Foe?

When zero-down mortgages were all the rage during the boom years, eager buyers with little savings understandably took advantage. In the present day—after two years of huge bank losses brought upon by rising foreclosures, short sales and loan defaults—well, let's just say that lenders aren't exactly looking to give away free money without a little collateral in return.

So zero-down mortgages must be gone, then, right? Well, no, actually.

Zero-down mortgages are effectively gone in the conventional mortgage market, with at least a 5% down payment required on loans in that sector for even those with credit that sparkles like Vanna White's teeth. However, zero-down mortgages are alive and well in the FHA mortgage market, just in a slightly altered state, through the infamous seller-funded down payment assistance programs (DAP).

Most of you are likely familiar with this method, it having been in existence for quite some time, but it bears a re-visit considering its recent revival from the dead and renewed prominence.

Scenario: A buyer wants to buy a property but has no money to put into the loan for collateral. FHA loans "require" a 3 percent down payment for approval. To circumvent this financial hurdle, the buyer asks the seller of the property to "donate" 3 percent of the purchase price to a non-profit like this one or this one who specialize in down-payment assistance. After collecting a small fee for their trouble, usually a few hundred bones, the non-profit then "donates" the 3 percent back to the buyer, who uses it as a down payment on the loan they could previously not be underwritten for.

Some have called it legal money laundering. Others call it the best hope for first-time buyers in this challenging housing market.

Since the traditional credit markets constricted last year, DAP has had its cobwebs dusted off and been pulled from its spot at the back of shelf. From a recent WSJ article:

"The FHA estimates that down payments provided by nonprofit groups account for 34% of all 200,000 loans backed by the FHA so far this year, up from 18% in all of 2003 and less than 2% in 2000. And the agency says that borrowers are two to three times as likely to default on their payments when they receive a down payment from a nonprofit."

And aye, matey, there's the rub. Some claim that the trouble with DAP and it's rebirth in 2008 is that it only leads to the same ailment our market is already trying to recover from: foreclosure. Here's a chart from the very same WSJ article:

Note the 15+% loan default rate on DAP loans, a big difference from the roughly 6% default rate for traditionally borrowed FHA loans.

The FHA has even publicly proclaimed that it wants to eliminate DAP in the months ahead for fears of becoming insolvent, necessitating public taxpayer support to keep their loans serviced:

"The Federal Housing Administration expects to lose $4.6 billion because of unexpectedly high default rates on home loans, officials said Monday.

Brian D. Montgomery, the F.H.A. commissioner, attributed the unanticipated losses primarily to the agency’s seller-financed down payment mortgage program, which has suffered from high delinquency and foreclosure rates in recent years."

Whether or not the FHA is successful in removing DAP from its offerings remains to be seen. As a highly regulated public entity, simply wishing something away isn't that easy.

Regardless, what do you think? With some claiming that lending standards have gotten too tight already and others claiming that they're not tight enough, where does DAP fit in to the discussion? Friend or foe?

For an "uber-nerd" look at how DAP works, check this: DAP for Uber-Nerds.

Lessons from the RREAR Pt. V (The Final Edition)

Once again, we pick up here where we left off with the fifth part of our new series: Lessons from the RREAR, where we dig deeper into the data found in our Annual Residential Real Estate Activity Report. This is also the final installment of this series -- at least until next year when we have a whole mess a' 2008 data to play with.

Today's subject, and the final subject of the year: Single-Family Detached Sales.

The Twin Cities have always been a "traditional" kind of place, for lack of a better term. We're one of the least-dense metropolitan areas in the country, with our population spread out more diffusely and widely than most regions relative to our total population.

As a corollary, the majority of our owner-occupied housing units are traditional, single-family detached homes with yards and fences and lawns (2.3 children optional). As you can see, at least 7 out of 10 of every home sold in the Twin Cities over the last 6 years falls into this category.

While this single-family detached majority has steadily shrunk in recent years as the townhouse and condo market boomed (in conjunction with the new construction market, not coincidentally), we appear to have reached our peak (for now), as sales of these types of denser, attached homes retreated slightly in 2007. With foreclosures and short sales taking up a larger market share in 2008 -- and single-family the most prevalent property type in those categories -- expect the upward trend in single-family sales to increase again in 2008.

Below are the Top 20 Areas in Single-Family Detached Market Share -- in other words, the highest share of total closed sales in 2007 that were single-family dwellings. These are the spots where a backyard is a birthright:

MLS Code	Area	% Single-Family
605	Sunfish Lake	100.0%
618	Eastern Dakota County	100.0%
713	Bethel	100.0%
710	Northeast Anoka County	97.3%
716	SP – Hillcrest/Hazel Park/Daytons Bluff	97.1%
305	Mpls – North	97.0%
301	Mpls – Camden	96.9%
721	Lakeland/Afton/Denmark	95.9%
707	Ham Lake	95.8%
368	Hennepin–Northwest	95.5%
628	Southern Dakota County	95.5%
303	Mpls – Longfellow	95.1%
780	Sherburne County	95.0%
361	Crystal	94.6%
304	Mpls – Nokomis	94.4%
742	SP – Central	94.3%
602	South St. Paul	94.1%
748	SP – Town & Country/Merriam Park	94.0%
728	SP – Riverview/Cherokee	93.7%
744	SP – Como	93.5%

And below are the Bottom 20 Areas in Single-Family Detached Share. These are the spots where you and your neighbor are more likely to share a wall than a snowblower:

MLS Code	Area	% Single-Family
302	Mpls – Central	1.5%
741	SP – Downtown/Capital Heights	2.7%
300	Mpls – Calhoun-Isles	35.9%
310	Mpls – University	43.4%
740	SP – Crocus Hill	44.3%
614	Apple Valley	48.3%
608	Inver Grove Heights	48.5%
307	Mpls – Phillips	48.8%
386	Hopkins	50.9%
726	Woodbury	51.2%
612	Burnsville	52.9%
604	Mendota/Lilydale/Mendota Heights	53.0%
640	Shakopee	53.4%
374	Plymouth	54.5%
610	Eagan	54.6%
387	Minnetonka	58.0%
392	Eden Prairie	58.3%
617	Hastings	58.4%
706	North Central Suburban	59.4%
616	Rosemount	61.2%

For a look at the geographic boundaries of these MLS areas, visit here. See you next year for more Lessons from the RREAR.

Weekly Market Activity Report 6.23.08

Home sales are continuing along a relatively smooth course so far this summer, with newly signed purchase agreements (pending sales) increasing by 3.8 percent over last year for the week ending June 14. Over the last six weeks, pending sales are behind the same time period in 2007 by only 30 sales, or 0.6 percent. When you compare that to the consistent 15–20 percent declines of the last few years, this is welcome news.

Simply matching last year's numbers does not allow home sellers to celebrate recovering buyer interest in their properties. Plus, we need to keep some perspective on what types of sales are comprising this new stabilization of activity. A hearty 27.9 percent of purchase agreements from the last six weeks were made on lender-mediated foreclosures or short sales. Buyer activity is being propped up by the increased market share of these types of properties.

Traditional sales over the same six-week period are down 21.0 percent from last year, while lender-mediated sales are up 284.5 percent from 406 sales last year to 1,561 this year. So the traditional seller still faces some challenges—and some new and very different competition.

All told, heavy buyer interest in lender-mediated properties is viewed as a positive sign. We need the prevalent lender-mediated inventory to be absorbed before our market can return to some semblance of order. The sooner these properties are worked through the market cycle, the sooner that the mist of uncertainty they bring to negotiation, appraisal and home value will lift.

Apartment and Condominium Summit this Wednesday

If you're interested in sitting-in on a discussion amongst an impressive collection of players in the Twin Cities apartment and condominium markets, you'll want to come to an event that the Real Estate Communications Group is holding this coming Wednesday at the Golden Valley Country Club.

We're helping to sponsor the event, which means we'll be there at our booth, chatting, sharing ideas, handing out free and relevant research...you know, stuff we're known for. Come on down early and visit us, then stick around for the morning's events.

Check the itinerary, yo:

PROGRAM AGENDA
8:00 a.m. Welcome & Introduction
Emcee: William Ostlund, Coldwell Banker Commercial Griffin Companies

8:05 a.m. Update on United States Apartments Markets
Jack Kern, Kern Investment Research Counselors

• How is today’s economics affecting the apartment industry
• Growing trends and what we can expect 3-5 years from now

8:35 a.m. Investing in Multi-Family Projects
Solomon Poretsky, Marcus & Millichap

• Identifying your goals/criteria
• Assembling a team: broker, lender, inspector, accountant, attorney, etc.
• Analyze the investment: operation, physical systems and market conditions
• Own in today's market

9:05 a.m. Local Market Update: Apartments
Moderator: Bruce Heller, Coldwell Banker Commercial, NRT
Rick Fenske, Weis Builders, Inc.
Julie Lux, Colliers Turley Martin Tucker
Mark McLane, Apartment Brokers of Minnesota
Herb Tousley, Coldwell Banker Commercial Griffin Companies

• Where is the apartment market heading?
• What are some trends in new buildings
• How does the Twin Cities Market compare to other markets?
• Evaluating properties in today’s marketplace

10:00 a.m. Break 

10:15 a.m. Legal Update
John Nolde, Winthrop & Weinstine, PA

• Collections & foreclosures
• Condo conversions
• Mixed-use developments

10:45 a.m. Condominium Market Analysis
Mary Bujold, Maxfield Research, Inc.

• Demographics of today’s buyer
• Market feasibility
• Where are condominiums selling?

11:10 a.m. Buying, Selling & Leasing
Moderator: Michael Lander, Lander Group
Patrick Carson, Downtown Resource Group
Joe Grunnet, Downtown Resource Group
Mike Seebinger, Downtown Resource Group

• What types of clients are leasing?
• What buildings are in demand?
• What projects are selling and why?
• What are buyers looking for?
• How to differentiate your project in this market
• Strategies for surviving the slowdown

12:00 p.m. Adjourn & Networking

Housing Prices Plotted as a Roller Coaster

Some of you have likely seen this before, oft-forwarded via email as it was, but it bears another look with a fresh set of eyes.

It's a video made in early 2007 by one of those pesky interweb bloggers that plots inflation-adjusted U.S. housing prices as a roller coaster, painting a visceral picture that helps explain why prices had to come down and finally did. Remember: these are inflation-adjusted prices, which means that any home price gains that were dead-even with inflation would be flat. With that in mind, the immense upward trajectory of this thrill ride highlights just how much faster home prices grew than other consumer goods did during the last 10 years -- an unsustainable trend to say the least.

It would be fun to see this updated through today's data.

*Note: keep an eye on the lower right corner under the little YouTube icon for occasional updates on what year in history the roller coaster is at in it's journey.

Check it:

The Season is the Reason for Housing in this Region

Winter is an omen of change, both positive and negative, in Minnesota. Dying leaves, falling snow, stalled cars and chapped lips on the negative side. Holiday spirit, the Super Bowl, skiing and ice fishing on the positive side.

It's also a sign of seasonal change in the Twin Cities housing market.

Market activity slows down during the fall and winter months of most metro markets across the country, but it's affected more dramatically in Minnesota where the extreme differences in meteorology between the summer months and the winter months make the difference like night and day. For buyers and sellers, this means a substantially different set of market conditions to face in the winter months than they find in the summer months.

Let's take a look at seasonal differences by using some of our more common metrics.

Supply-Demand Ratio

To put it simply, our Supply-Demand Ratio (SDR) is a measurement of how many houses are for sale for each buyer. The higher the number, the more the buyer has to choose from, the more competition the seller faces.

Without fail, our SDR is at its lowest point every year in the early spring and summer months of March through May, when buyers are at their most active. Not surprisingly, the SDR is at its highest point every year in the year-end months of October through December, when buyer activity drops like an anvil after the start of the school year, temporarily hibernating until it unthaws in the sunshine of the following spring. The average SDR for March through May over the last three years has been 4.76, while the average for October through December has been 9.30—almost double the number of homes per buyer.

So even though there is less supply on the market in the winter, there's even less sales activity, which means a tougher environment for sellers.

Percent of Original List Price Received at Sale

Another measurement of changing supply and demand, the Percent of Original List Price Received at Sale (heretofore referred to as SP/OLP in the interest of brevity) changes significantly by the season. The SP/OLP is always at it's highest in the summer months, when the increase in buyer activity from signed purchase agreements in the spring leads to slightly higher closed sales prices two months later when those pending sales finally close. The winter months always bring the lowest SP/OLP rates, as homes that sell in the winter months have typically been on the market much longer and been forced to drop their prices further.

Like this:

   

Days on Market Until Sale

Not surprisingly, this metric follows a similar pattern as the first two with respect to seller disadvantage in the winter. It's almost like they're all related trends, or something.

The winter months always report a higher Days on Market Until Sale, again due to the fact that properties which sell in that time of year have already typically been on the market for many months already. The months of spring and early summer, when sales are "poppin,'" see the lowest numbers.

See here, eh?

So let's wrap this all up and put a nice bow on it.

Buyers: while you seem intent on purchasing the majority of your homes during the spring and summer, bear in mind that you have fewer buyers to compete with in the winter.

Sellers: despite the drop in supply, you face tougher conditions in the winter months than you do in the early spring and summer because there's fewer buyers.

Regardless, houses still sell in the winter and deals are still done. This post is not an attempt to say that you should only attempt to sell your home in the spring or to imply that buyers can demand thousands upon thousands of dollars in price reductions in the winter. The market will determine price and negotiating dynamics on a property-by-property basis. Houses that are priced right and in good condition are moving no matter the time of year.

But bear in mind that the drastic changes in Minnesota seasons do have an effect on everything, including real estate.

Falling Home Values: What Effects for Relocation?

Corporations, especially in these globalized times, are geographically diffuse beasts.

Let's dust the academic snobbery of those words and restate them: companies operate in a lot of different areas.

Therefore, they commonly move their employees around the country (and the world) in an attempt to capitalize on efficiencies and the unique skills of specific employees. Northwest Airlines employees may be asked to move from the Minneapolis hub to the Detroit hub, or vice versa. A Best Buy employee may head to the U.K. to coordinate the launch new superstores on foreign shores. Corporations the world over rely on this flexibility and mobility.

But recently, the declining housing market and accompanying falling property values have put a crimp in this process. How can one of the employees from either of the scenarios above actually make the move if the house they currently own isn't worth the amount of money they owe on it? Or it takes over a year to sell because of a slow market, necessitating two mortgage payments and a hemorrhaging negative cash flow?

The result is less flexibility in the world of corporate strategy, as the geographical mobility of any corporation's most prized asset—its people—is hindered. The Washington Post recently dug in to this issue:

"A survey last year by Worldwide ERC, a nonprofit association that represents relocation specialists, found that depressed home values emerged as the No. 1 reason for resisting job transfers for the first time in more than 10 years.

Of the member organizations that reported employee reluctance to move, 71 percent cited the sluggish real estate market as an impediment to a job-related move, up from 16 percent last year."

Click here for the full article. And click here to read one from the Houston Chronicle on the difficulties that Houston companies are facing in extracting promising employees from their mortgages in other parts of the country.

Just another reason that the Federal Reserve's claim in 2006 that the troubles in the housing market wouldn't spillover into the general economy seems either a) uninformed or b) willfully rose-colored, in hindsight.

Hat-tip to Calculated Risk.

Weekly Market Activity Report 6.16.08

“Whoa, we’re halfway there, whoa-oh, livin’ on a prayer” – Jon Bon Jovi, second-most-famous New Jersey rock idol and noted housing economist

Bringing our market back to balance involves a two-step process: supply needs to draw down, demand needs to bounce back up. It’s as simple as that. So far, 2008 is proving to be the year that we can confidently check the first item of this list, as the number of homes for sale continues to dwindle relative to one year ago. There are currently 33,219 homes for sale in the Twin Cities region, down a hearty 4.9 percent from one year ago, a year-over-year figure which should continue to drop in the months ahead. New listings for the week ending June 7 were down 13.9 percent from a year ago, while pending sales declined by a smaller 5.3 percent for the same time period comparison.

All in all, we’re halfway there: supply is coming down, but demand is only flattening, not coming back up just yet. Regardless, the signs are encouraging.

This week’s edition of the MAAR Weekly Market Activity Report features updated figures for our Housing Affordability Index (HAI) and Months Supply of Inventory. The HAI dropped slightly to 149 due to another increase in interest rates, while inventory increased to 10.4 months of supply. This means that it will take 10.4 months to sell through our current inventory, should buyer activity remain constant and no other homes come on the market for sale.

Click here for the full Weekly Market Activity Report, and for a reminder of just how far album artwork has come since 1986, see below.

June Monthly Skinny Video

The June 2008 Monthly Skinny Video is live on the internets!

This edition is another quick-fire look at the current state of the Twin Cities housing market, this time narrated by our fearless leader and CEO, Mark Allen (no relation). Please feel free to share this with others wherever and whenever you'd like.

Click here to view the video in a separate window.

Check it:

June Housing Supply Outlook

The June Housing Supply Outlook is out. As usual, here's a quick list of what to watch for, in the interest of making your time with this detailed report as efficient and productive as possible:

• The big story in the Twin Cities housing market this month is that the total marketwide inventory of homes for sale is now below a year ago. A closer look at property categories paints a more nuanced picture. The number of previously owned homes is actually up 1.2 percent from last year, while new construction inventory is down a whopping 26.3 percent (1,422 units).
• Condominiums are down the most, with 7.6 percent less inventory than a year ago, while single-family detached homes are down the least—only 2.3 percent for now. With foreclosures and short sales maintaining their increased market share and single-family detached homes a more common foreclosure type, this is not shocking.
• Inventory below $190,000 is actually up 33.4 percent from last year, while properties listed above that mark are down 15.9 percent. Once again, the prevelance of foreclosures and short sales is undoubtedly having an impact here.

Click here to view the full June Housing Supply Outlook.

How Much Has Affordability Really Improved?

One of the chief causes of declining home sales in both the Twin Cities and national housing markets was the troubling affordability picture. As we've discussed countless times before, consumer income was outpaced in growth almost three-to-one from 1992 to 2005:

This is the the darker side of the boom-year housing price increases. To use formal economics terminology, home values got so crazy-out-of-wack with consumer income that the writing was already on the wall for our housing market far before the credit crunch and dampened consumer confidence added fuel to the downward trajectory. Those are just instances of adding insult to injury, really.

So it stands to reason, then, that if affordability were to improve then buyers would have reason to flock back en masse and restore a semblance of balance to the market proceedings. Right? Right (assuming they can now save for a down-payment and come to the table with good credit).

So it has been with great joy that we've watched our Housing Affordability Index (HAI) figures increase over the last two years, brought up to higher, healthier levels by falling home prices and relatively stable interest rates. The picture being painted was one of an attractive, low-cost environment with affordability levels unseen since 2003.

But let's think about this further.

After perfecting the foreclosure and short sale search methodology used in our recent report on the subject, we can parse out those types of properties from the general population. This gives us an important new layer to this picture.

The hearty price declines in our data that were so crucial to improving the affordability picture aren't being experienced uniformly. The increased market share of foreclosures and short sales has been dragging our overall median price down, all while the traditional, non-lender-mediated home has only seen a slight decline in value. Like this:

The major gains in affordability can be found in the foreclosure and short sale market. So perhaps a more accurate way to describe the current Twin Cities affordability picture is that a segment of the market has seen dramatic improvements in affordability.

If affordability is crucial to our market recovery, but is still a troubling issue in the traditional sales market, it could very easily mean further price declines are in-store for the non-bank-mediated market.

An alternative opinion is that the differences between the two property types are so severe that today's real estate consumer is willing to pay more for a traditional property than a lender-mediated one. I'm not sure I have the answer as of yet as to which theory sounds more compelling.

All we can say for certain right now is that the affordability picture is still a little more complex than we'd originally thought.

Homes for sale show first decline in years

There are fewer homes on the market today than there were a year ago. This is good news. It's the first time that we have been able to report negative year-over-year movement in monthly inventory since we began tracking the figures in 2004.

As for new listings, there were 9,436 of them in May 2008, down a healthy 16.2 percent from May 2007. Traditional, non-lender-mediated new listings (excluding foreclosures and short sales) were down 31.5 percent for the same time period comparison from 10,349 in May 2007 to only 7,092 in May 2008. There were a total of 4,418 pending sales in May, down 7.6 percent from one year ago, a much smaller percentage decline than seen in new listings.

The May median sales price of $205,000 is a slight uptick from last month, but down 9.9 percent from a year ago. Lender-mediated properties had a median sales price of $156,250—down 8.0 percent from last May—while traditional properties had a median sales price of $226,000, a decline of only 3.8 percent.

read the full press release, including quotes from our leader-types