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Brett and Heather Edelson aren't looking for anything out of the ordinary: a four-bedroom house in Edina with a big yard and a finished basement. They've been shopping since March and still no deal.
"We thought it would be a buyers' market," said Brett. "We're surprised at how few houses there are to look at."
He had reason to think he'd be in the driver's seat. Since the housing crash began in 2005, home prices appeared to hit bottom just before the $8,000 federal home buyer's tax credit helped boost prices early last year. The credit expired in April 2010, causing sales to slow and prices to fall again.
Home prices in the metro area have fallen another 10.2 percent since the credit expired.
Not so in Edina, however, and in about 15 percent of metro-area communities where prices have defied gravity by actually rising in this sustained housing downturn.
Signs of recovery? Perhaps.
While rising prices are a positive indicator in a market that has had little to celebrate, it's too soon to tell whether prices will continue to climb in those areas.
"The answer is a lot more complicated than a simple number at the end of an equation," said Aaron Dickinson, a Twin Cities sales agent who provides analytical support for the Minneapolis Area Association of Realtors. "You have to peel back more layers of the onion to get a feel for it."
While increases in sale prices have helped boost confidence in the market, data prepared for the Star Tribune by the Minneapolis Area Association of Realtors suggest that many of these pockets of recovery -- about 20 -- still face significant challenges, including too many listings, high levels of foreclosures and slow sales.
"Whether this is the bottom is something we won't know for another year or two," Dickinson said.
Herb Tousley, director of the Shenehon School of Real Estate at the University of St. Thomas, said that while a recovery is "going to take some time," it's promising to see rising prices in at least a handful of communities. "They'll hopefully lead the whole market out, assuming that the economy keeps improving and employment and consumer confidence keep increasing."
Here's a look at communities that are showing some signs of life -- and why.
One of the best indicators of a stable market is a low foreclosure rate. Edina has it. During the first six months of the year only 19 percent of all sales were foreclosures or short sales, compared with nearly half of all sales for the metro area. At the same time inventory is getting low. By the end of June there was just a six-month supply of listings, in line with a general rule that a market is balanced with a five- to six-month supply of houses on the market.
Those numbers are no surprise to John Wanninger of Coldwell Banker Burnet Realty, who has sensed for several months that the housing market in Edina has been on the verge of a big shift, in part because he's getting calls from agents asking if he has listings not yet on the market. The numbers confirm his instincts. From peak (2006) to valley (2009) the median sale price has fallen only 16.7 percent in Edina. From that valley prices are up 4.6 percent to $340,000.
The correlation between low foreclosure rates and rising prices is true, as well, in St. Paul's Highland Park neighborhood, where distressed sales constitute only 18.5 percent of sales so far this year and the median sale price of $234,000 is only 5.4 percent above the low point in 2009. In Chanhassen foreclosures and short sales represented 29 percent of the market and prices are up 7.7 percent from the bottom.
All three communities largely escaped the first wave of fraud-riddled foreclosures, and with their relatively higher incomes, have escaped the second wave caused by unemployment-related defaults as the economy went south.
In Edina, demand has remained constant because parents like the Edelsons, who now live in south Minneapolis, want their kids to attend schools in Edina.
With developable land in short supply, there's also strong demand for moderately priced houses that can be torn down and replaced with much bigger ones. "We have multiple bidders chasing tear-down sites faster than they can get deals together," Wanninger said.
Recently, a $365,000 house got five offers the day it went on the market. The same happened late last year when a house hit the market for $849,000 and, driven up by multiple offers, sold for $899,000.
Such deals give prospective buyers confidence, Wanninger said. "There's a sense that it's a safe place to invest," he said.
Contrary to what's happening in Edina, extremely high levels of foreclosures have also helped drive a price recovery in other markets. For example, in a corner of north Minneapolis more than 65 percent of all sales so far this year were foreclosures and short sales. After hitting bottom in 2010, the median sale price has risen 9.4 percent to $42,000. The market, just west of the Mississippi River and bordered by Lowry Avenue on the north and Glenwood Avenue on the south, is known for its historic houses.
The neighborhood, part of the larger Near North community, and other inner-city neighborhoods became magnets for mortgage fraud, leading to unusually high levels of foreclosures and values that plummeted.
Those fire-sale prices have drawn investors such as Jennifer Olstad, who left her full-time job to buy and renovate houses on the North Side. She competes with other investors on properties, causing inventory to be tight.
"I've got buyers, but I can't find product," said Sarah Huss, a sales agent with Edina Realty, who lives and works on the North Side.
She said that while prices on the North Side fell fast and hard, they've recovered just as quickly.
Prices have also been propped up by millions of dollars from the federal Neighborhood Stabilization Program. That funds the Twin Cities Community Land Bank, which works with private developers to rehab foreclosures that are resold to owners who plan to occupy them. The neighborhood also has a high percentage of contracts for deed, house sales that are privately financed and not always supported by professional appraisals, meaning that sale prices on some houses might be artificially high.
A similar phenomenon is true in East Bethel, where 73 percent of all sales so far this year are distressed. Prices there fell 47 percent from their peak since 2005. The median sale price now is $154,000, up 2.4 percent from the bottom. St. Michael, a rural suburb in Wright County, has seen a similar trend.
Low inventory levels are almost always an indicator of strong demand and rising prices. And the converse is often true, too.
But in Forest Lake, there was a 12.5-month supply of listings on the market last month, almost twice the metro-wide average. Despite that glut of listings and the fact that about half of all sales this year were distressed, sale prices so far this year there have increased more than almost every other market since the low point in 2010.
They could use the gains. Prices there peaked at more than $250,000 before falling more than 50 percent. The median sale price so far this year is $155,000 in the Washington County city, 14 percent higher than last year when the median sale price hit a post-crash bottom.
Agents who work the market are at a loss to describe the dramatic swings. One theory is that the declines were led by an oversupply of listings, especially new construction. Sheryl Craven, general manager at ERA Muske Co. in Forest Lake, said that despite high inventory, prices are now so low that buyers now see serious value.
In contrast, Little Canada, which experienced a similar 50 percent-plus decline in prices, a 23.8 percent increase in prices since last year has been accompanied by unusually low inventory.
Agents in Forest Lake say that the city is becoming popular with move-up buyers who are taking advantage of low prices on the area's lakeshore properties. Buyers are also drawn by the area's highly rated schools.
Debbie Discher, a sales agent with Coldwell Banker Burnet in Forest Lake, said that during the past three months she's been busy enough to work around the clock.
"I haven't seen it like this since I first got into real estate in the late '90s," she said.
Jim Buchta • 612-673-7376