Big discounts push increase in September home sales

With the stock market skidding and the credit markets in disarray, Marissa McDonald and Travis Gehling are paying close attention to what's happening in the economy. None of that, however, will deter them from buying a house, McDonald said, as they drove to an inspection on a house they plan to buy in Cottage Grove.

The first-timers said that sellers were offering serious discounts on just about all of the 20 or so houses they looked at during the past couple of months, and they're hoping to get a 7.5 percent discount on the one they plan to buy.

Such discounts and a flood of clearance-priced foreclosures helped drive a 42 percent increase in pending home sales last month compared with a year ago, the third consecutive month of year-over-year increases, according to data released Friday by Twin Cities-area Realtors associations. Whether that translates into a long-term recovery against a backdrop of economic uncertainty remains to be seen.

Among sales that closed in September, the median sale price declined 15.6 percent, to $189,000.

Much of that decline was caused by a steady increase in foreclosures and "short sales" -- sales where lenders agree to a sale for less than what is owed on the mortgage -- that are moving through the market. Almost 42 percent of September pending sales were these lender-mediated transactions, up from 17.5 percent last year at this time, according to the Minneapolis Area Association of Realtors.

The distressed sales are putting tremendous downward pressure on sale prices across the board. The median sale price of lender-mediated transactions only was $146,000, 11.5 percent decline over 2007, and even the sale price of traditional homes fell 8.6 percent.

Such declines are an indication that sellers are offering steep discounts. During September, sellers on average received 92.2 percent of their asking price; just two years ago they got 96 percent.

The September spike in pending sales will help the market regain some ground after a very slow start to the year. So far this year, pending sales are now running neck-and-neck with last year.

Although a 42 percent increase sounds impressive, the 4,036 pending sales last month were less than the five-year September average of 4,138. The increase was due in part to a particularly slow September 2007, which was the slowest September in a decade.

Dogged by record numbers of distressed sales, the market is also getting a boost from a slowdown in listing activity. Last month the number of new listings to hit the market was 4.2 percent behind last year at this time and 13.2 percent below 2006. That's a trend that's been underway for most of the last half of this year; so far this year new listings are off 11.2 percent compared with last year.

While sellers are certainly cursing the market and the flood of bargain-priced foreclosures they're competing with, the fundamentals for buyers like Gehling and McDonald who have good credit and cash for a down payment remain strong. Mortgage interest rates have remained relatively stable and near 30-year lows, there are nearly 10 houses on the market for every buyer and the government is offering a $7,500 tax credit for first-time buyers. And that's why the housing affordability index rose to 159, its highest level since the spring of 2003.

With consumer confidence waning but discounts on the rise, the market is becoming increasingly nuanced as segments of the market improve while others decline. In Minneapolis, for example, there was nearly a 40 percent increase in the number of closed sales last month, but nearly a 24 percent decline in the median sale price.

Data were even more extreme in St. Paul, where the number of sales in September rose nearly 44 percent from 202 during 2007 to 290 last month with the median sale price falling 28 percent. The same was true in several suburbs, where there were fewer sales, but many striking examples of huge increases. The number of sales in Richfield, for one, doubled from 26 to 52.