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Sometimes when we look at market numbers, especially in smaller market segments, we see things that don’t make a whole lot of sense at first glance. Instead of accepting what we see as gospel, it’s a good idea to delve a bit deeper into the metrics and look at the parts that make up the whole. While updating our Facebook page with an infographic detailing the median price per square foot for homes sold using the 6-month rolling average method ( I’ll refer to them as MPPSQFT and 6MRA to save my fingers from here on out), the numbers for Lake Minnetonka condominium sales jumped off the page at me. So without further adieu, let’s look under the hood of our Lake Minnetonka 4 District Area MPPSQFT (TM) at the end of January, which clocked in with an overall value of $161 (+6.6%). Here we see that not all price growth has been equal. Although our overall number of 6.6% (6MRA) appears to indicate extremely strong growth, it is not even across all market segments. Single-family homes saw a modest 3.8% growth through January. Townhouse MPPSQFT grew at an incredible 11.8%, and condominiums an exciting (alarming?) 40%. The Lake Minnetonka condominium price increase is what interested me. Did a lack of supply and robust sales really push up MPPSQFT 40% YOY? It probably pushed it up some, but there is another factor there that is making it shoot to 40%. To see where that number is really coming from, let’s break things down to new construction sales (NC) versus previously owned sales (PO – we’ll leave the “S” off the end of that acronym. Many previously owned condos are actually quite nice.). First, let’s look at closed sales in the past 6 months. There are 24 NC sales (an increase of a laughably absurd 1,100% year over year) and 48 PO sales (a modest 4.3% bump). This gives a total figure of 72 condo sales, or 50% more during the same period last year. That’s a huge increase in new condo sales! Since new construction sells at a large premium over previously owned construction, and the market share of new construction in the condominum segment has recently jumped considerably, it might be reasonable to assume that our big price increase is a product of all these fancy new condo sales. Let’s see what those are selling for versus previously owned condominiums, shall we? Here is our culprit! New construction condominiums are selling at an astronomical $712 MPPSQFT (+4.9%). Now if we look at previously owned condominiums they are selling at $174 MPPSQFT (+18.4%). Although this is a much smaller number than the overall metric of $217, it is still remarkable price growth for a 12 month period and an almost 10-year high water mark for previously owned condominiums. I think we can safely say that the entire condominium market made broad gains in median price last year, but that the number was significantly inflated by a bevy of new construction sales. A private seller of a condominium that is not new construction should be aware of this reality and set expectations for price accordingly.
It’s important that when we read about broad market figures that we do not take too much from them on their face. Instead, we need to delve deeper into our local markets and specific property types to find the real trends about where prices and demand are heading. We’re always here to help you navigate the market, and are happy to evaluate your house based on the specific market conditions that might affect value.