Mention Minneapolis and the inevitable association will follow: Yes, the winters are tough. Because the Minneapolis-St. Paul area has no natural barriers to prevent the onslaught of cold air masses heading south from Canada, inhabitants learn to bundle up during a snow season that often lasts from November to April. Enclosed skyways stretch between downtown buildings, providing office workers a way to maneuver throughout the area without having to brave arctic outdoor conditions. Even the Hubert H. Humphrey Metrodome, home of the Minnesota Twins, offers indoor roller-skating during the winter.
Scratch the Twin Cities’ surface, however, and you’ll quickly find snow is the tip of the iceberg. Minneapolis is known for its technological advancement—in 2005 the city was named the country’s “Top Tech City” by Popular Science—as well as its robust theater scene. Minneapolis is second only to New York City in its number of theater seats per capita and is home to the Minnesota Fringe Festival, the country’s largest performance festival of its type. The city is widely considered America’s most literate city and is home to Open Book, the most expansive literary and book arts center in America.
With 3.3 million people, the Twin Cities region is the sixteenth-largest in the United States. The U.S. Census Bureau in 2006 estimated that Minneapolis itself had 372,833 residents.
A ‘Dynamic’ Real Estate Market
Aaron Dickinson, a broker associate with Edina Realty, maintains the Minneapolis Real Estate Blog (www.aaronsold.com/blog) to help buyers, sellers, and prospective investors keep track of local market conditions.
“The Twin Cities is a very dynamic market in terms of the age, price points, and features of its housing,” Dickinson says. “We have 100-year-old Victorians, 1940s-era Cape Cods, 1950s-era ranch houses, colonials, contemporaries, and traditional new construction. This dynamic means that each community, and individual neighborhoods inside those communities, can each have a different feel and be at a different stage of this market.”
In October, Dickinson and Minneapolis Area Association of Realtors research manager Jeff Allen produced “Foreclosures and Short Sales in the Twin Cities Housing Market: Q3 2008 Update.” This special research report found that both foreclosures and short sales continued to rise in the Twin Cities during the third quarter, comprising 28.1 percent of all active listings, 34.1 percent of new listings during the quarter, and 34.5 percent of completed sales during the quarter.
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Some of the hardest-hit areas include:
- Baldwin Township, with 50 percent of homes for sale during October 2008 lender-mediated and 63 percent lender-mediated this year to date;
- Lexington, with 53.8 percent of homes for sale lender-mediated during October 2008 and 28.6 percent lender-mediated this year to date;
- Spring Lake Park, with 60.5 percent of homes for sale in October lender-mediated and a year-to-date total of 40 percent.
Dickinson says areas such as these may stabilize in the coming months, but others are in for more turbulence. “Prices in the areas hardest hit by foreclosures and short sales have taken the largest fall in pricing, but may also be near bottom because they were hit so hard and so early in the cycle,” he says. “Nearly all neighborhoods have seen an increase in these lender-mediated sales in the last six months, though, so the market is not near the end of the cycle yet.”
The next two to three months will bring some of the Twin Cities’ best deals, he says, given the large amount of lender-mediated listings as well as the onset of a traditionally slow sales season. In the longer term, Dickinson adds, next year will look similar to current conditions, but with further price declines likely.
Assessing Investor Risk
In mid-November, Twin Cities officials announced that they will be the first in the country to participate in the First Look Program, a national pilot program designed to address the glut of foreclosures by letting the city buy properties before they emerge onto the open market. Minneapolis properties will be purchased by the Greater Metropolitan Housing Corporation, while St. Paul properties will be bought by Dayton’s Bluff Housing Neighborhood Services.
However, Dickinson says, many lender-mediated properties already on the market represent failed gambles by real estate investors. “Many investors in the peak of this market found that they could not afford what they bought at inflated prices and have let their properties go into foreclosure, which has brought down prices on these properties dramatically – 30 percent or more on many.”
In October, the Twin Cities showed a median sales price of $180,000, a drop of 21 percent since 2006. Those figures can be further broken down into two types of properties: lender-mediated, which have tumbled from an average of $170,000 in third quarter 2006 to $150,000 in third quarter 2008; and properties offered by traditional sellers, which have fallen from an average of $235,000 in third quarter 2006 to $226,000 in third quarter 2008.
This could equate to great bargains for the right buyer, Dickinson says: “With the current distress in the real estate market, there are great opportunities—but investors must make a trip up here to see it in person before making decisions as to whether to invest and what investments make the most sense for them,” he says. “It takes some hands-on efforts to be assured you are getting the right one.”
Fell in Love With the City
Performer and writer Courtney McLean first visited Minneapolis in 2006—a trip that had such impact that McLean soon moved there from New York City. “I visited for their Fringe Festival and fell in love with the city,” McLean says. “Since moving here, I have connected with so many more people in the theater and performance world than I ever did in New York. I just think it’s a little more manageable here with the smaller scene. It’s so much easier to network here; it’s not as overwhelming as New York.”
McLean points to the city’s extensive bike paths as a major draw, and in particular, the 5.7-mile Midtown Greenway used by bikers as well as runners. She also sees the extensive theater, music, and literary scenes as some of the Twin Cities’ major attractions, as well as the central library in Minneapolis (“an amazing piece of architecture”) and the Midtown Global Market, an internationally-themed public market with more than 50 independent local businesses.
She’s also noticed a proliferation of condo developments—a boom that began in the late 1990s, according to Dickinson. “We had a huge push for condo conversions in Minneapolis-St. Paul and the inner suburbs,” he says. “That took substantial numbers of rental units off the market, and with the rising tide of foreclosures, there’s been an increased demand for all rental housing.”
That could possibly drive up average rental costs throughout the city, which McLean has discovered are far lower than in New York City. “I pay $625 a month for a large one-bedroom apartment just two blocks off one of the main drags of Uptown,” she says. “I live just a short walk away from cool happenings. That is bang for my buck.”
Of course, McLean’s discovered that winters are indeed tough—but, she says, there’s an upside. “The thaw of spring brings everyone out in droves and it is amazing,” she says. “The spring and summer and fall make it all worth it.”