Can We Tell Where Burnsville Real Estate is Going Based on What We Saw in 2011?

Like any good economic prediction, the answer would be yes and no. Certainly we can use what happened in 2011 as an indicator of the trends and current conditions as we head into 2012. On the other hand, no one really knows the future and there are so many variables that impact a world economy that predicting the future is often a fool’s errand.

Ok, now that I have sufficiently hedged my bets, let me try and make sense of where we are and what is appears to be happening. We started the year with 443 homes for sale in Burnsville and ended with 369 a reduction of 16.5 percent (see chart). The significance of that is based on the simple fact that real estate at its core is a supply and demand business: If there's too much supply relative to demand and prices come down. 

The opposite is obviously true (remember 2002-2006). We have had far too much supply in Burnsville and, quite frankly, the entire country. As all real estate is local, what matters most is what happens here in our community. The reduction in supply is a good thing, if we just follow the basic economic law of scarcity, it will lead to an increase in prices. A word of caution, we are not there yet. Looking at the other side of the equation, demand, we began the year having sold 599 homes and finished selling 761 — an increase of 27 percent (see the second chart).

The charts attached give a pretty clear picture both of the roller coaster we have been on and the direction things appear to be heading. Demand as seen by closed sales appears to be increasing, which again in light of basic economic models, means greater demand for a diminishing supply will lead to higher prices. This may be a bit of a simplistic view and clearly there is an opportunity to drill down into the numbers and look at them by price range by style, by neighborhood etc. I will forgo that academic exercise here for fear of being too boring, but would be happy to do that in a more detailed way for any small groups or people who would like.

There are a number of other factors that will also impact what happens as we move forward. One of the most significant will be consumer confidence, truly one of the great self fulfilling indicators, in that it can actually drive itself forward. Confident consumers spend money which stimulates the economy which creates more confidence...You get the picture.

Another will be interest rates — cheap money. Although so far it has not stimulated the market, the absence of it will have a negative impact. 

Lastly the fact that it is a presidential election year always seems to have an impact. The outcome of that is anyone’s guess and I promise not to interject politics into this equation. I’ll update the numbers and prediction as we continue on throughout the year.  

Richard Tucker is Vice President of the Burnsville Office of Coldwell Banker Burnet and President of the St. Paul Association of Realtors. For more, go to his blog, where you can find past entries and contact information.