Holmes Group Magazine - Issue 22

Family, Friends, Clients & All

From direct cash offers OR full listing services for all of our sellers to a buyer team that covers the entire metro area – we’ve got you covered. Residential sales & purchases, investment properties, land acquisitions, second homes, commercial real estate and more – call us today for any real estate needs.

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Joe Holmes

June June

August August

The State of Real Estate Economics of 2023

In this edition of Holmes on Homes we’re going to share some of the research and economics that we study to provide our insights and predictions on the market. We recently had the opportunity to spend time with Gary Keller at an event in Los Angeles and these are the key economics we felt impacted our market. If you’re a stat-geek like me, you’ll enjoy. If not, feel free to jump ahead to Tanner & Parker making the most amazing chocolate cake on page 12.

WHAT ARE WE LOOKING AT?

This is the number of homes (in millions) sold annually in the US for the last 32 years.

MY TAKEAWAY

The total number of homes sold has been above average since 2013 and went crazy the last couple of years. From ’21 to ’22 we dropped almost 20% in sales and that trend will continue this year. The only question is how much. We see indicators that it could be 15% or so. January of ’22 to January of ’23the 7-county metro dropped 30% in sales! We’re not going to jump to conclusions on the whole year based on January but something for us to watch!

WHAT ARE WE LOOKING AT?

This is a chart of home prices for the last 32 years.

MY TAKEAWAY

Long-term trends have always been 4%. You can go back 50+ years and this is the same chart. This is as steady as it gets everybody! The big takeaway is the “above trend” of the recent couple of years really isn’t out of line. Yes, home values were above the trendline of the last couple of years. However, if you’re a buyer waiting for the bottom to dropout, you might have better luck getting tickets for the next Prince show at First Ave. Projections for this year are a flat year but lets face it, the trend line will keep going up – forever.

WHAT ARE WE LOOKING AT?

This chart shows a combination of inventory mixed with appreciation over segments of time.

MY TAKEAWAY

We’ve been slipping on inventory for about 10 year running now. You’ve heard my soap box of price = supply + demand. This sums it up just about perfectly. Going back to the last chart of the 4% long-term trend.. this is a great example of why pricing won’t be tanking anytime soon. Does anybody want to guess what happened 10 years ago to knock out our inventory?

That’s right.. another soapbox of mine: builders stopped building after the ’08

Not by their own fault of course, as most went out of business. More on this a bit later.

WHAT ARE WE LOOKING AT?

This is a chart of historical mortgage rates for the past 50 years!

MY TAKEAWAY

Love this chart! My take is simple.. we’ve had it easy for so long on interest rates that we have forgotten what’s normal. If you bought a house in the last 10 years, the rate was cheap! This shows the perspective on why we’ll never see 3% again and the reality of how good rates at 6% actually are. Rates are currently 5.875% as I type this (March 1st) and we should see rates in the 5%-6% range all year.

Continued on page 14

bust.

With 150’ of sandy shoreline and west facing views of Pine Lake, this home is a must see! An absolute gem with over 3,000 square feet of lake living and quite possibly the best lot on Pine Lake with 1.3 acres of level lakefront. Enjoy all that the outdoors has to offer with a lakefront gazebo, sandy shoreline, large outbuilding with lower-level boathouse big enough for RV storage. This home features a main floor primary suite with lake views, screened in porches on upper and lower levels, multiple patios, large wraparound deck and more. Lower-level features a separate kitchen, 2 beds / 1 bath and has a private entry – perfect for guests or short term rental options. Amenities inside and outside including stone surround woodburning fireplaces, knotty pine tongue & groove ceilings, main floor mudroom & laundry, upper-level bunk room (not included in bed count) and more! This home is a must see and perfect timing for lake season!

COMING THIS SUMMER

8050 Golden Valley Rd., Golden Valley, MN 55427

Call us for pricing

Fantastic townhome in the heart of Golden Valley. Enjoy amenities & updates inside and out. The inviting entry opens to your main floor living space with 9' ceilings, luxury vinyl floors, gourmet kitchen and more. Main floor highlights include tile surround gas fireplace with mantel, courtyard views, informal dining & breakfast bar perfect for entertaining, smart thermostat and freshly painted. Your gourmet kitchen features stainless appliances, undermount sink, breakfast bar, quartz tops and new addition of back bar with wine storage. The

upper level features a remodeled bathroom, loft, and an over-sized primary suite with courtyard views. The exterior is inviting with walkways and paths, generous landscaping and private patio. With heated underground parking & walking distances to bars, restaurants and shops, this home has it all.

Schedule a tour today before it’s gone!

Chocolate Cake

So easy, kids can do it!

The Bear Chocolate Cake Recipe

Ingredients

CHOCOLATE MOUSSE:

8 oz 64% cacao dark chocolate chopped or chips

5 Tbsp Unsalted butter

10 Large egg yolks – room temperature

¼ cup Granulated sugar

4 Large egg yolks – room temperature

½ cup Heavy cream

CAKE LAYERS

Baking spray with flower

2 ½ cups All purpose flour

1 ¼ c Unsweetened cocoa powder

2 tsp Baking soda

1 ½ tsp Baking powder

2 ½ tsp Kosher salt

5 Large Eggs – room temp

3 c Granulated sugar

1 ¼ c Brewed coffee – cooled to room temp

¾ c Unsalted butter

1 ½ c Crème Fraiche or sour cream to substitute

ICING

We cheated and bought a package at the store!

Scan the QR code to watch the boys make this recipe!

Recipe: Recipe and inspiration from Food & Wine Magazine

MAKE THE MOUSSE:

Step 1: Bring 1 inch of water to boil in small saucepan over medium to low heat. Place a heatproof bowl over the top and add chopped chocolate and butter. Make sure bottom of bowl doesn’t touch water. Cook, stirring and adjusting heat as needed until mixture is smooth and cream, 3-5 mins. Remove chocolate mixture from heat, let cool uncovered until just warm to the touch – about 10 minutes. Keep water simmering.. will need later.

Step 2: Whisk egg yolks and 2 Tbsp sugar with electric beater and place bowl over the top of the simmering water, whisking constantly until mixture registers 160’ F. Remove bowl from heat and use stand mixer or electric beater to whip on med-high speed until mixture is pale yellow and tripled in volume – about 5 mins. Fold egg yolk mixture into cooled chocolate

Step 3: In a clean bowl of stand mixer, whip egg whites until foamy – 30 seconds. Gradually add 2 Tbsp sugar in steady stream and beat on high until stiff peaks form – 1-2 mins.

Step 4: Using electric mixer, whipe cream in bowl until stiff peaks form.

Step 5: Fold in egg white mixture into chocolate mixture in 3 additions. Fold in whipped cream until no streaks. Cover and chill 8-24 hours

Step 6: Give your kids the leftover bowls and spatulas so they can make a mess of themselves.

MAKE THE CAKE LAYERS:

Step 1: Preheat oven to 350’ F. Coat (3) 9 inch round cake pans with baking spray, line bottom with parchment paper and spay those too

Step 2: Sift together the flour, cocoa powder, baking soda, baking powder & salt in a large bowl.

Step 3: Beat eggs with mixer until light and foamy -about 2 minutes. Gradually add sugar and beat on high speed until very pale and voluminous – about 5 mnins.

Step 4: With mixer running on low speed – add the flour mixture in 3 additions and alternately add coffee or melted butter until everything is blended well. Add the crème fraiche or sour cream until just combined – another 30 seconds.

Step 5: Divide the batter evenly among prepared pans. Tap pans to ensure no bubbles and bake in oven until tooth pick inserted in middle comes out clean – about 25-30 minutes. Let cakes cool for 10 minutes before removing from pans. Remove from pans – let cool another 2 hours.

MAKE THE ICING

Ok.. we bought premade icing from the store but you can make your own. They’re 7 & 9.. can’t make everything from scratch!

ASSEMBLE THE CAKE:

Trim the cakes flat with a cake leveler or serrated knife. Kids love left overs.. so don’t throw this away! Place one cake layer on a work surface and pipe icing in a circle around the outside of the cake. Spoon in ½ the mousse and spread within the icing until even and smooth. Add the next cake layer and do the same – pipe icing around the outside edge and mousse in the middle. Then when complete, cover the top and sides with the remaining icing.

This cake is crazy yummy and super dense. It’s mega-chocolate overload and if you’re into that, grab a glass of red wine, port or milk for the kiddos and enjoy!

HOLMES ON HOMES

Economics of 2023 continued

WHAT ARE WE LOOKING AT?

This is the Affordability Index of housing as a percentage of income. Avg income vs. avg home price.

MY TAKEAWAY

We’ve been spoiled over the last 10 years with home values lower than the long-term trend line AND rates well below the 50 year average. It’s been the perfect storm of home buying and affordability. This is going to correct as you can see what happened in ’22 with rates going up. Buckle up ladies and gentlemen, we’re in for some market changes!

WHAT ARE WE LOOKING AT?

This chart rocks.. this is annual inflation info for the last 34 years.

MY TAKEAWAY

It’s obvious that inflation really sucked over the last few years. Of course it did, that’s what happens when we print free money! We can see this balancing out through the year. TBD of course on how long the correction will take but we should be balanced on inflation sometime through ’23.

WHAT ARE WE LOOKING AT?

Underwater homes on average for the last 12 years.

MY TAKEAWAY

The historical average is 6% of homes are underwater and we won’t see that for a long time. If you’re in panic mode after the buying rush of the last 2 years; take a deep breath. You’re going to be ok. Go back to the historical home value trends increasing 4% per year and remind yourself of how awesome that 3% rate is!

WHAT ARE WE LOOKING AT?

Love this one too.. this is inflation as a perspective of affordability across different industries.

MY TAKEAWAY

Wow.. you’re screwed if you’re unhealthy AND paying for college tuition!! Those industries went nuts in affordability over the last 22 years. My takeaway on housing is that it’s coming in lower than the inflation of the average hourly wage and overall housing remains affordable. That aligns with the affordability chart we went over as well.

WHAT ARE WE LOOKING AT?

Home starts since 2005..“Home Starts” meaning new construction.

MY TAKEAWAY

We’ve been on this info for a few years now. One of the reasons that we have such low inventory today is because builders dropped off the face of the earth after the ’08 bust. We didn’t get back to normal new construction starts until 2019 or 2020. That’s a lot of homes that didn’t get built and quite frankly we could use a few. Let’s go builders!!! Time to shine!

HOME & STYLE

SAGE ADVICE: The homeowners (and designer Victoria Sass) didn’t love the kitchen’s previous all-white cabinets: “They didn’t have a personality,” Sass says. Now, sage-green cabinets blend the home’s modern and traditional elements. An added column of storage includes an appliance garage that tucks the coffee station and dishes out of sight.

A NEW CLASSIC

A growing Minneapolis family’s 1920s home gets some modern upgrades that look like they could have been there all along.

Interior designer and Prospect Refuge Studio owner Victoria Sass loves old houses. The strong bones, unique details, and sense of place and history throughout speak to her as both a designer and a Twin Citian—she lives in an old home herself. But she knows the floorplans of 100-year-old houses, which generally have small kitchens and minimal storage, can be challenging for young and growing families to work with—and she’s passionate about designing solutions to keep people in the houses they love as their needs and families change.

In 2019, she met her perfect match: Erika Reid and Nathan Hopkins, who had a 1920s Craftsman-meets-colonial in Minneapolis’s Lynnhurst neighborhood that they adored, a busy toddler, another baby on the way, and a problem. “We bought our house in 2015, and at that point it was just me and my husband,” Erika says. “We thought it was enormous. But as our son was going through toddlerhood, we realized that we loved the house and that we wanted to stay here, but it would be difficult.”

The home’s back entryway, which led right into the kitchen, didn’t have storage or a drop zone for diaper bags and groceries, and the couple craved a real mudroom area. They also dreamed of refreshing the home’s impersonal white kitchen, adding a casual kitchen seating area—with two small kids, they knew they wouldn’t eat in the formal dining room every day—and building a main-level powder bath. Over the course of the pandemic, Sass and architect Will

Spencer began transforming the house: Spencer designed a small addition that included a bump-out for a quartersawn white oak banquette and a new mudroom and vintage-inspired powder bath on the main level. The additions look like they have been part of the house all along.

“I’m loving this phase we’re in as a society, where people are really appreciating old homes,” Sass says. “They may need to modify them to stay in the neighborhood and the property, but they do as little as they have to. It’s not historic preservation—we don’t need to live in a time capsule—but we respect what’s there.”

COZY CORNER: The banquette addition was inspired by Erika’s grandmother’s kitchen, a space Erika loved growing up. The quartersawn white oak wood, complete with a custom table from Ingrained Wood Studios, matches the home’s original woodwork, and drawers under the seats hold kitchen appliances like Crockpots.

SWEET AND SOUR: Sass added a touch of personality with lemon-printed wallpaper in the sunroom, which leads to the kitchen. “It feels warm and inviting and makes the space feel more alive during Minnesota winters,” homeowner Erika Reid says. Lemon Tree wallpaper from Morris and Co. (morrisandco.sandersondesigngroup.com)

"I’m loving this phase we’re in as a society, where people are really appreciating old homes."

- Victoria Sass

CURRENT LISTINGS

6500 74 1/2 Avenue N, Brooklyn Park, MN 55428

$284,000

The Holmes Group

Keller Williams Premier Realty

12375 104th Place, Finlayson, MN 55735

$649,000

The Holmes Group

Keller Williams Premier Realty

3251 224th Street W, Farmington, MN 55024

$489,000

Market Pass

Keller Williams Premier Realty

Fantastic one-story home with updates and amenities all around. Enjoy the open main floor with tons of natural light and hardwood floors throughout. The kitchen was renovated with new cabinets, countertops, fixtures and shiplap wall panels. Bathroom updates include new vanity, fixtures, flooring and reclaimed wood accents. All the big stuff is complete with new AC, furnace, 200+ AMP electrical panel, dishwasher and garage door opener. Enjoy the rear patio and private views with generous landscaping. Conveniently located near schools, parks, shopping and more.

With 150’ of sandy shoreline and west facing views of Pine Lake, this home is a must see! An absolute gem with over 3,000 square feet of lake living and quite possibly the best lot on Pine Lake with 1.3 acres of level lakefront. Enjoy all that the outdoors has to offer with a lakefront gazebo, sandy shoreline, large outbuilding with lowerlevel boathouse big enough for RV storage. This home features a main floor primary suite with lake views, screened in porches on upper and lower levels, multiple patios, large wraparound deck and more. Lower-level features a separate kitchen, 2 beds / 1 bath and has a private entry – perfect for guests or short term rental options. Amenities inside and outside including stone surround wood burning fireplaces, knotty pine tongue & groove ceilings, main floor mudroom & laundry, upper-level bunk room (not included in bed count) and more! This home is a must see and perfect timing for lake season!

Fantastic two-story with amenities inside and out! Enjoy the soaring entry and sun-drenched main floor. The gourmet kitchen features stainless appliances, walk-in pantry, breakfast bar and walks out to your main floor deck. Main floor highlights include living room with stone surround fireplace, oversized office, large foyer and refinished hardwood floors. The lower level is perfect for entertaining with a wet bar, rec room and family room with built-in entertainment. The oversized garage is heated, has floor drains and has room for an extra car or huge workshop. Don’t miss the private patio with a pergola and hot tub. Convenient touches throughout with accent lighting, upper-level laundry, walk-in closets, generous landscaping, front porch and more.

8448 224th Court N, Forest Lake, MN 55025

$539,900

Pat Kinney

Keller Williams Premier Realty

4214 Vincent Avenue S, Minneapolis, MN 55410

$689,000

Hames-McDonough Real Estate Group, Keller Williams Premier Realty

Seller transfer makes this home available. Located on a corner lot just one block off Forest Lake’s Third Lake with easy access. Like new, beautiful home boasts neutrals throughout, sleek stainless appliances, granite countertops, kitchen island, three large bedrooms on one level, private primary bath and walk-in closet, oversized and insulated 3-car garage, water softener, lakeview to the South.

Charming and renovated bungalow in the heart of Linden Hills! 4 blocks to Lake Harriet and 5 blocks to Bde Mka Ska, and a short stroll to coffee shops, the library and great eats. This home has been lovingly restored since 2015 with a lower level walk out addition including an owners suite with 3/4 bath that could easily be converted to a separate living quarters. The main floor features a chef’s kitchen; Viking gas cooktop, Thermador wall oven/microwave, Fisher Paykel fridge, Bosch DW, Marvel under counter freezer, granite countertops, stone tile backsplash, + large island. You will find a spacious living room with a gas fireplace, sunroom & dining on the main floor along with a half bath. Upstairs features 3 bedrooms & another fully renovated 3/4 bath w/ a combo European style washer/dryer unit. New roof, windows, mechanicals, plumbing, insulation, electrical, siding, windows, deck, patio, and SO MUCH MORE!

Joe answers questions he received from clients. Feel free to submit your own question.

Email us: joeholmes@kw.com

If you’re renovating a home, where do you start?

The more important question when renovating a home is knowing where to stop. There really is no off switch and the project can simply keep going and going. You have to define the purpose of the renovation first. If it’s for you personally to enjoy the home – then it’s a combination of function, space and budget. If you’re renovating for the purpose of listing a home or purchasing/ renovating/selling – then you have to get your ducks in a row. Cosmetics go a long way! Paint is the biggest return on investment followed by flooring. From there you need to decide on price vs. reward. If you’re doing a kitchen remodel, do the whole thing – not just parts. If you’re going to do the kitchen but your bathrooms are outdated, you may need to do those too. This is that ‘off-switch’ I mentioned – where to stop. If the kitchen & baths will cost $30k, how much resale will you get out of it? Of course, that’s where your realtor can help. One thing not to skimp on is the staging! Presentation, presentation, presentation!!!

How does the market look for ’23 so far?

Great question and Minnesota Seasonality is back! Our real estate activity has always had seasonal aspects with our slower months being December, January and February. Over the last couple of years of a crazy hot buyer market, we pushed through seasonality and didn’t really have the usual downturn in activity. Well, it’s back and pretty sure 7% rates in October helped that along! Rates are hovering at 6% and do see days here and there below that as well. We had a 30% drop in homes sold in January of ’23 compared to January of ’22. I’m not going to go as far as to say we’ll drop that much year over year but feel it was more an indicator of that seasonality coming back into play. We had a crazy amount of snowfall this year too which slows people down a bit. We do expect a slight drop in overall sales in the metro this year but if you look at the charts in Holmes on Homes –it’s still a robust and healthy real estate market.

What about home prices? Will they come back down?

No, home prices aren’t going anywhere but up. They may be a little flat and could see a slight decline potentially in the luxury market but overall home prices will continue to go up. Over time, prices go up. It’s as simple as that. Home appreciation for decades and decades has trended at a 4% annual increase. There are small blips on the radar of over & under valued markets. Most recently, our crazy hot covid market was over-valued by about 12%. This does not mean prices are coming down 12% or a correction is coming. The appreciation will be flat and not as apparent, but the longterm trend is 4% annual appreciation. So if you’re waiting for the bottom to drop before you buy, it’s not a good strategy.

When will the listing inventory bounce back?

The million-dollar question and a tough one to answer. It depends on many factors including the demand side of the equation. Part of why we have low inventory is that homes are selling. Even though our ‘days on market’ has increased to 40+ days, it’s still a very good market for sellers but let’s focus on sellers. New Construction starts will help us on inventory but builders aren't putting up spec homes like they used to. They’ve slowed down a bit with the interest rate hikes. The record number of sellers that just bought in the last couple of years all have 3% (give or take) interest rates. Given that rate will never be seen again AND most people don’t sell for a while – it could take a few more years to see those homeowners in the market. Foreclosures.. HA! Don’t count on it. They currently make up less than 1% of our market and with the advent of iBuyers like Open Door – I don’t suspect we’ll see any inventory from foreclosures making a dent. It’s going to take some time and assume we’re in a 3-5 year range before we see “normal” inventory again.

Did your kids really make that chocolate cake.

Oh yeah...for sure! They love being in the kitchen and making things. Parker saw the picture of the cake on the cover of the Food & Wine magazine and was looking at the recipe. He asked if they could make the chocolate cake over the weekend and who am I to say no? We did cheat on the icing though and didn’t actually make that. The icing was packaged but they did the rest including making the mousse, whipping eggs, baking the cakes, trimming them, etc.. They love that stuff and it turned out really nice. Take a look at the QR code in that section for the video…it’s hilarious!

Where do you see rates going this year?

HA! All over the place.. hang on for the ride. Keep in mind that when the Fed changes rates, it doesn’t equate to your mortgage rate. There are many things in between the Fed Funds rate and mortgage interest rates available to you. When we began writing this it was March 1st and the 30-year fixed was 5.875% to 6%. Today it’s March 13th and we’re at 6.5%. You can get 6% but you’d have to pay a few points to get there (points being a % of the mortgage amount). From what we watch and people we follow, we expect rates to stay around or below 6% for the year. We’ll see how this goes. Part of that expectation is that inflation was on its way out and unsure of that at this time. It may take a few months longer to see inflation slow than we originally expected. Keep in mind the rate available to you for a mortgage has a ton of personal details built in. Credit score, debt-to-income ratios, loan-to-value, purchase/refi/cash-out refi, type of property and so on. Remember that your rate isn’t permanent!

24

17. In custody

dog

holder

5. Many a test answer

6. Ike's command

46 Loathing

7. Substitute for the unlisted

8. Bank check?

9. Improvise with numbers?

10. Harass

11. Part of FAQ

12. Cubic meter

13. 19th president

18. Bring up to snuff

19. Anthroponym

23. Having only magnitude, but no direction

24. Facing

26. Proverbial healer

36

37

27. Famous evictee

28. Excellent condition

29. Hawaiian dish

31. Most current

39. Actress Thurman

32. Batiking need

35. "September " (Diamond)

36. For some, it could be a lot

37. Achieves with difficulty (With "out")

39. Actress Thurman

40. Borough island

41. 32,000 ounces

45. Avoids work

46. Loathing

48. Formed into a circle

49. Actress/comedian Anne

50. Unpleasantly pungent

52. Nautical direction

54. Portrayer of Pierce

55. Desolate

57. Green pod

58. Have to have

59. "Auld Lang "

61. Honorarium

62. Irish Sea isle

63. Gun's offspring?