The Twin Cities housing market continued its positive path to recovery for the sixth month in a row, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county Twin Cities area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business.

“Median prices continued to increase and the percentage of distressed property sales continued to decline,” observed Herb Tousley, director of real estate programs at the university.

The median price of a traditional (non-distressed) home increased from $214,000 in June to $217,250 in July. (Distressed property sales are foreclosures or short sales, which are homes sold for a price less than the outstanding mortgage balance.)

The median price of a non-distressed home is approaching the levels of early 2005, when it was hovering near $220,000.  Also, the July median price is 5.9 percent higher than the $205,165 recorded in July 2011, marking the second time since February 2011 that the median price of a non-distressed home has been higher than the previous year.

St. Thomas’ composite index uses nine data elements to track the health of the traditional, foreclosure and short-sale markets. The index for traditional or non-distressed homes in July was 1004, the highest level since August of 2007 when it was 1015.

The index scores for short sales and foreclosures showed small but positive gains in July. Tousley said the stabilization of the median sale price of foreclosed properties, and the fact that the percentage of distressed sales continues to decline, are signs of a healthier housing market.

Meanwhile, the overall inventory of homes on the market remains at record low levels in the Twin Cities area. In July 2012 there were 16,981 homes for sale compared to 24,312 in July 2o11. This is the lowest number in more than eight years.

On top of that, the supply of lower-priced, single-family homes continues to fall, a problem compounded by the fact that home builders are still underproducing relative to growing consumer demand. Low interest rates and historically low home prices have created increased buying pressure, especially in lower-priced homes.

“This increased buying pressure will continue to put upward pressure on prices,” Tousley said. “If this trend continues, however, the lack of inventory of homes for sale may begin to affect sales volume as potential buyers are unable to find homes to buy at reasonable prices.”

Some concerns have been voiced about a potentially depressing effect on the market if a “shadow inventory” (homes in the process of foreclosure) is dumped on the market by lenders. Tousley feels that is unlikely to happen in the Twin Cities.

“Lenders are working much harder, using loan modifications, to avoid foreclosure and keep people in their homes,” he said. “They are also more willing to do a short sale that will usually result in a higher sale price than a foreclosure.”

The percentage of distressed sales is expected to continue its slow decline for the balance of the year.

The final story of the 2012 housing market in the Twin Cities will unfold in during the fall and winter months when historically the number of sales and median prices decline.

Whether or not the market continues to rebound will depend on the strength of the local economy, Tousley said. Local employers have added approximately 17,000 jobs during the last 12 months and unemployment has dropped to 5.2 percent.

“If these trends continue, 2012 could end up being the turnaround year for the housing market,” he said.

More details about the market can be found on the Shenehon Center’s website.

Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu.