New vs. Existing Housing

"How's the Housing Market?" -- Vol. 27

"Where" (location) is certainly one of the key qualifiers for anyone seeking to divine the health and direction of the housing market.

But so is "what?" -- as in "what kind of housing?"

In the housing market, the key distinction is between existing and new housing.

Conflicting Signals

That distinction explains how, literally in the same paper (the Star Tribune, on July 30), the front page ran a story saying that new housing inventory was shrinking, and that new permit applications were up.

Conclusion: things are getting better.

Meanwhile, the lead article in the business section attested to the slow-down in sales of existing housing, and an uptick in foreclosures.

The takeaway?

Things are getting worse.

Relative Size

Certainly by size, what happens to existing housing matters much, more more: existing homes account for more than 90% of the market, or about 5 million units annually, vs. less than 500,000 units for new construction.

However, economically, new construction exerts an influence far greater than its 10% market share would suggest.

That's because each new home represents tens (if not hundreds of thousands) spent on labor, material, land, appliances, furniture, etc. -- expenditures that reverberate through the economy many times over due to what's called the multiplier effect.

Overlapping Demand

It's also true that new homes frequently compete with existing ones for Buyers, just as used (pre-owned) cars compete with new ones.

So, the supply (and therefore) price of new homes affects the supply (and price) of existing homes -- and vice versa.

However, at least in the Twin Cities, my experience is that the two markets -- existing and new -- overlap less than elsewhere.

I see two reasons for that: 1) the vast majority of new housing locally is put up in the outer suburbs ("exurbs"), where land is cheapest; and 2) the price difference between a new home in the 'burbs, vs. an existing one closer in, isn't as extreme in the Twin Cities as it is elsewhere -- for example, the Bay Area.

Going back to "location, location, location," most Buyers first settle on "where," before they get to "what" (kind of housing).

P.S.: is Jim Buchta back? The long-time real estate reporter for the Star Tribune -- switched to the travel section 2(?) years ago -- has has several housing article bylines in the last few weeks.

If true, that's very good news!

Jim Buchta Reassigned?

More Turmoil at Star Tribune

The stager I work with most often, Lori Matzke, mentioned in passing that her regular Saturday column in the Star Tribune is ending. The column was a highlight for many readers, and juxtaposed "before" and "after" staging shots with Lori's (always insightful) commentary.

That's one less reason for people to read (or buy) the paper, which is not a good omen for a publication already in bankruptcy protection, and suffering a precipitous decline in advertising and subscription revenue.

Lori also mentioned that the "dean" of the Strib's real estate reporters, Jim Buchta, had been reassigned to the Travel section. Not sure what the motive was -- and I haven't independently confirmed it.

However, Jim's byline has been conspicuously absent from the real estate section lately.

If true, that would be a real loss: Jim's regular articles (many with me as a source!) were always well-reported and well-documented, and gave readers real insight into the Twin Cities housing market.

P.S.: I wish this was only an April Fool's joke . .

A Tale of Two Markets

Read Jim Buchta's Article
in Today's Star Trib

Jim Buchta, the Star Tribune's top real estate reporter, has an excellent article in today's paper surveying the Twin Cities housing market ("Best Sellers: Foreclosures"). And I'm saying that not just because I'm quoted and served as background for the story.

In particular, Buchta does a very nice job conveying that the local market -- like many others nationally -- has essentially cleaved into two. One market consists of lender-mediated properties (foreclosures and short sales) that are selling at dramatic discounts. The other market consists of traditional, owner-occupied homes that are selling for relatively small markdowns -- or even appreciating, in a few cases.

The difference between the two markets is stark: the '08 change in local prices ranges from Mahtomedi's up 11%, to Minneapolis' Camden neighborhood, which experienced a 54% drop.

So what does '09 hold in store? As Buchta notes:

'Tremendous uncertainty still plagues the market. Consumer confidence remains at record lows. Inventory levels hover near record highs despite recent declines in new listings. And rising unemployment hampers predictions for the coming year.'

What does all that add up to?

Here's one prominent local realtor's take (okay, mine): 'I don't think anyone has that kind of foresight. If they did, what would they be doing selling real estate in Minneapolis?" said Ross Kaplan, a sales agent with Edina Realty in south Minneapolis. "I would be dubious about anyone who says they know what's going to happen."