With house prices rising and the economy on the mend, Minnesota's eight-year foreclosure crisis appears to be nearing an end.
The latest sign: The number of Twin Cities homes lost to foreclosure fell by nearly half in January compared with a year ago, said CoreLogic, a research firm.
"We saw an incredible drop," said Julie Gugin, executive director of the Minnesota Homeownership Center, which provides financial counseling throughout the state. "We're definitely heading in the right direction."
Statewide, the crisis peaked in 2008, when there were 26,000 foreclosures, a sharp jump from just 6,000 in 2005. Last year, there were about 11,800 foreclosures in the state.
While those sheriff's sales are happening far less often, a number of forces make it difficult to say when they'll return all the way to their pre-crisis lows.
Many families earn less than they did five years ago, and thousands of homeowners will never regain the equity they lost when house prices crashed, leaving many still on the verge of default. During January, 2.63 percent of all mortgage loans in the metro area were still 90 days or more delinquent, though that was down from nearly 4 percent last year.
"Homeowners are not out of the woods quite yet," said Colleen Hernandez, chief executive officer of the Homeownership Preservation Foundation, a Twin Cities-based organization that provides financial counseling nationwide. "They're doing everything they can to sustain homeownership."
Hernandez said that while call centers across the country are taking far fewer inquiries from those already in default, more are coming from people who are current on their payments but on the verge of falling behind.
She calls them "current, but struggling," and they represent about half of the 2,000 to 3,000 calls that come into her call centers every day.
"They're not calling to chat. They've got trouble," Hernandez said. "They've made all the frivolous cuts they need to make and they're still struggling."
In Minnesota, many of those calls are being handled by the Homeownership Center, which has seen a noticeable decline in calls from people who are inching toward a sheriff's sale — the last stop before turning the keys back over to the bank.
That's especially true in the state's most populous — and prosperous — communities. In Hennepin County, for example, the foreclosure rate in December stood at 0.68 percent, according to a year-end analysis of foreclosure data by HomeLink for the Minnesota Homeownership Center.
There are still broad swaths of the state where thousands of homeowners are struggling, especially in outlying communities where jobs are most difficult to find and house prices have risen the least.
Homeowners in Isanti County, on the fringe of the northern metro, have struggled the most. There, the foreclosure rate stood at 1.26 percent, double the statewide average. The same was true in Chisago and Stearns counties, where hundreds of new houses were built to satisfy the most budget-conscious home buyers. People who bought in those areas, many of them known as "drive until you qualify buyers," were also the ones most likely to have long and often expensive commutes to their jobs.
Hernandez said that while it's easier to find a job than it was during the darkest days of the recession, many homeowners are working less and have jobs that don't offer benefits, putting them in perilous financial positions.
"People can't explain why aren't things picking up," said Hernandez, noting that many homeowners aren't making the kinds of elective purchases that might jump start the recovery.
"There's a lot of work that needs to be done to make sure that the economy and the housing market improve," she said.
Still, rising home prices have already helped thousands of Minnesota homeowners regain some of their lost equity. And more stringent mortgage underwriting guidelines are enabling at-risk borrowers to buy, limiting the pool of borrowers who might end up in default.
That suggests foreclosure rates will continue to fall, but how far is still anyone's guess.
"It will be difficult to declare when the new normal has arrived, because the industry has changed," said Mike Haley, assistant commissioner at the Minnesota Housing Finance Agency. "But there's a lot to feel good about and we're clearly headed in the right direction."