Q&A: Herb Tousley on housing, real estate index
By: Hank Long Hank Long November 27, 2015 7:00 am
Herb Tousley is a numbers guy at heart.
The commercial real estate veteran and director of real estate programs at the University of St. Thomas said that while he still enjoys watching the transformation of a solid development project, he is more prone to indulge in the statistical side of the industry– before the dirt moves.
Since his appointment as director of the university’s Shenehon Center for Real Estate in 2009, Tousley has taken that love for the numbers side of real estate to help produce analyses on the residential market in the Twin Cities.
The Shenehon Center launched the Minneapolis St. Paul Residential Real Estate Index in 2010. Every month since then the report has offered a specific focus on the Twin Cities residential market, whose distinct characteristics make it a stable, healthy, even a little bit boring market, compared to others across the country, Tousley said.
Finance & Commerce sat down with Tousley to talk about the index and the state of the Twin Cities housing market.
Q: What was the impetus for the Shenehon Center’s creation of the Residential Real Estate Index in 2010?
A: We decided to do our own, because at the time the S&P/Case-Shiller report was the only one around. We were in the depths of the housing crisis. There were a lot of distressed sales, and when you read the Case-Shiller index about Minneapolis, they treated foreclosures and short sales and traditional regular sales as if everything was all the same. So we looked for a way to break out those numbers for people to make them more meaningful.
We wanted to show people, “Hey, look if you’re in a regular house in a regular situation you are not down 40 percent; you might be down 18 percent.” Before that time it didn’t make a big difference, but during that housing crisis we thought being able to break out those numbers for people in this market was important.
Q: Things have changed quite a bit in five years.
A: Well, the housing market certainly has come back since we debuted the index. In 2010 and 2011 there were months where 58 percent of all houses sold were distressed. Now we are back to 7 to 8 percent distressed sales. So we are getting back to what is more like normal.
And we’ve seen this market turn into a seller’s market now. Housing supply is down. Right now there are probably 14,000 to 15,000 existing houses on the market. People are at a point again where they want to buy, and it’s been running in that direction for the last 18 months or so.
Q: Is that a reflection of more buyers looking specifically for existing homes, or is it a lack of new construction?
A: There isn’t as much being built right now, for a couple reasons. For a while we had a shortage of buildable lots available. That’s starting to get better, but the price of construction materials and labor are increasing now that things are getting busy again.
If you look at the difference you’d pay between an existing home and new home for the same square feet, that difference has gotten larger. We will probably have 5,500 to 6,000 (new) single-family homes this year. But in what they called the “good old days,” we had double that (number).
Q: What other features exist in the Twin Cities today that might differentiate this housing market from what national reports indicate?
A: One of the things that makes us different is we are a steadier market than a lot of other places. Our economy is good here. Job growth, income and wage growth is healthy. Our industries are diverse — that has meant we weren’t affected as much by the (housing) crash. We haven’t had the extreme lows or extreme highs to the same extent that other markets have had. If you looked at it from a newsworthy point of view, we are pretty boring.
Q: What do you teach your real estate students as it relates to the importance of spotting trends in the real estate market?
A: You really need to pay attention to what part of the cycle we are in. If you think of your typical commercial project, it may take a couple of years to complete. Where you start in the cycle is one thing. But where is the market going to be two years from now when you are done? Those are the important things we tell them they need to watch for. And that’s what I enjoy most about the work we do here.
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