Local home prices edged up for the third month in a row in June but still fell nearly 11 percent from a year ago as the Twin Cities led another round of annual price declines in major metro areas.
The Standard & Poor's/Case-Shiller composite index of 20 major metro markets dropped 4.5 percent in June from last year. Meanwhile, the U.S. national index, a measure that covers the bulk of the nation's housing market and that Case-Shiller releases every three months, rose 3.6 percent in June from May but was down nearly 6 percent year-over-year.
The latest index readings offer more evidence that housing is in a postbust swoon that has been a major drag on the stalled economy. For the fourth month in a row, the Twin Cities posted double-digit or near double-digit price declines -- falling 10.8 percent in June -- and was the worst performing of the 20 metro areas on a year-over-year basis, according to the index. Detroit, by comparison, fell 6.6 percent. Portland, Ore., sank 9.6 percent; Phoenix fell 9.3 percent.
However, home prices have been ticking up on a month-to month basis recently. Spring buying helped push home prices up for a third straight month in most major U.S. cities in June. The Twin Cities and Chicago led the month-to-month gains among the top 20 metro areas, both markets up 3.2 percent from May.
The Case-Shiller tracks repeat sales of single-family homes and doesn't include townhouses or condominium sales. The numbers are not adjusted for seasonal factors, which S&P now prefers because it says foreclosures are disrupting normal seasonal patterns. The prices each month are a rolling three-month average.
While no one knows exactly why the Twin Cities market is posting such heavy yearly declines, experts suspect foreclosures are the culprit. David Blitzer, chairman of the S&P index committee, said he suspects that states such as Minnesota, which don't require home foreclosures to go through the court system, may be getting homes back on the market and resold more quickly than other areas.
He also noted that the Twin Cities home price numbers are "bouncing around a whole lot" compared to larger cities with more home sales.
Heavy load of bank sales
Local real estate watchers agree the crummy Case-Shiller readings for the Twin Cities are related to the area's heavy load of bank-mediated sales, which have been weighing down the metro area's median sale prices. Distressed, or bank-mediated home sales such as short sales, accounted for about 38 percent of closed sales in the Twin Cities in June, said Herb Tousley, director real estate programs at the University of St. Thomas. A year ago they were 31 percent of sales.
Tousley called the change a "contributing factor" in the Twin Cities Case-Shiller drop, but not the whole explanation.
Tousley said he is concerned because he's seeing weakness in the local median sale price for "normal" or nondistressed home sales, too.
"We're going to be watching August very carefully," Tousley said.
Brad Fisher, president of the Minneapolis Area Association of Realtors, speculated that the Twin Cities might be doing a better job of clearing its distressed inventory on the low end than other cities, but said he doesn't know of any data to show that.
"The good news is we're selling through them," Fisher said of the foreclosure inventory.
The home buyer tax credit, which pushed sales activity higher before it expired at the end of April 2010, has also been cited as a possible contributor to the declines.
The depressed housing market is a key reason the economy has struggled to recover two years after the recession officially ended. Home sales are on pace this year to be the worst in 14 years. High unemployment, larger down payment requirements and tighter credit are preventing many buyers from entering the market. Many who can afford to buy are waiting because they are worried prices have yet to hit bottom.
And growing fears that the U.S. economy is close to another recession "are likely to leave a mark" on both home prices and sales over the next few months, said Stan Humphries, chief economist at the real estate website Zillow.com.
"Monthly home value appreciation in June may mark the last hurrah before beginning to weaken in the back half of this year," Humphries said.
Home prices are certain to fall further once banks resume millions of foreclosures, which have been delayed because of a government investigation into mortgage lending practices.
"There's no theoretical floor for prices. If the economy worsens, housing will get into a vicious cycle of falling prices and foreclosures," said Mark Zandi, chief economist at Moody's Analytics. "When prices fall, confidence wanes."
The Associated Press contributed to this report. Jennifer Bjorhus • 612-673-4683