Rock Bottom May Have Already Hit...In Some Markets

As some markets across Minnesota seem to be languishing in excessive inventories of unsold homes, along with rampant low ball offers, I am starting to get a few reports from around the state that vary from that a bit. I have a few ideas on why this might be happening.

While I was at a wedding in International Falls on Saturday, the county assessor mentioned to me that the recent sales coming through his office prove that prices are holding steady at last year's levels. Holding steady!...Hasn't the media been telling us that everything is in a downward spiral? And isn't International Falls only mentioned sporadically as one of the top relocation markets in the nation? Why would their prices be holding steady?

If we all think back to about five years ago, it seemed like real estate prices in some parts of Minnesota - and in many parts of the country - were increasing in value at an unbelievable pace. Some areas of the Twin Cities had over 20% appreciation from year to year, even higher than the adjustment in most peoples' wages. There were many supposed reasons for this rapid escalation, from the high cost of building materials to a huge shortage of labor. In fact, there were reports that gypsum may become extinct, so if you were going to have sheet rock walls, "you better get them now!"

Of course, in retrospect, all of this was silly. Just as silly as the thought of a corn field development house, in the outer rings of the Twin Cities, increasing at 21.3% in one year. I guess people thought that corn fields would become extinct, too (in fact they may have if developers would have been able to keep up that pace much longer).

But the Twin Cities wasn't the only area that prices had superb appreciation over the last decade. Waterfront properties in some of the more popular vacation areas of Minnesota and Wisconsin had their lakeshore values (just the land costs alone) increase to over $5,000 per front foot - or more - on the most sought after lakes, and not much lower on some of the secondary ones. However, there were a few markets around that didn't share as much in this free-for-all, and they might be the ones that are holding their own better than the rest.

Areas like Lake of the Woods, Rainy Lake, Grand Rapids, Park Rapids and Duluth, among others, have no shortage of spectacular recreational opportunities and beauty. However, due to certain factors, and possibly their increased distance from the Twin Cities, the prices have not escalated in those lake areas nearly as much as some others. In fact, you may have to try real hard to even spend $2,000 per front foot on some of the best lakes in those areas, even for some of the most private and attractive lots around. And many times you can throw in a pretty nice lake home or cabin for another 20-30%. Try building for $20 a square foot these days (plus a free septic, well, driveway, landscaping and garage).

There is no doubt in my mind that areas like Brainerd, Lake Vermilion and Hayward will be popular markets for lakefront real estate far into the future. They have vast amounts of water, great fishing, plenty of interesting ways to pass the time, and good proximity to Minneapolis and St. Paul. That is what caused them to become attractive vacation home markets in the first place...and what gave them their quick appreciation over other lake areas.

Only time - and some warmer weather - will tell if certain markets around Minnesota still have a little cleaning out to do. But from what I am seeing, rock bottom may have already hit in others. If that has truly happened, I would wager that the rest of them aren't too far behind!