Rising foreclosure sales and falling mortgage interest rates drove home sales last year while lender-mediated sales caused prices to fall.
If you think the foreclosure crisis hasn't hit your neighborhood yet, think again.
Nearly one-third of all Twin Cities area home sales in 2008 involved lender-mediated transactions, including foreclosures or short sales, according to data released Wednesday by the four area Realtor associations. That's up from 1 percent just four years ago.
Those lender-mediated transactions, which often involve houses in disrepair or marketed at discount prices for a quick sale, caused the median home sale price in the 13-county metropolitan area to fall 13.3 percent.
That fact will send deep ripples through the area economy, squeezing local tax revenue, driving down home values and making it harder to get home improvement loans and lines of credit.
There is a silver lining, however.
At a news conference in Brooklyn Center Wednesday, leaders from the four associations said the recent decreases in mortgage interest rates coupled with the decline in home prices make homes more affordable than they've been in years. That helped drive a late-year spike in home sales, primarily by first-timers and investors, which tempered last year's overall decline in sales.
Pending home sales during the second half of 2008 -- signed purchase agreements for sales yet to close -- increased 15.7 percent over the same period of 2007, capped by a late rush in December that beat December 2007 by 30 percent. The net effect: Home sales last year slipped just 3.3 percent from 2007.
"There are some fairly remarkable opportunities out there for first-time buyers that weren't available a few years ago," said Tony Maurer, president of the Southern Twin Cities Association of Realtors. "The improvement in affordability in 2008 was dramatic."
Nathanael Beelen, for example, is among those who took advantage of that.
Beelen started shopping for a house last spring. The goal: spending less than $130,000. So many of the houses he looked at were foreclosures or short sales. Beelen steered clear of short sales (where the existing mortgage exceeds the market value) because he didn't want to get caught in a prolonged offer and acceptance process, and he took advantage of an FHA mortgage with a low down payment and a $7,500 federal tax credit aimed at stimulating the market.
Beelen, who closed on that mortgage Wednesday afternoon, said he stepped up the hunt after mortgage interest rates dipped in recent weeks, allowing him to buy a much better house than he could have afforded earlier. When he made an offer on a house this summer, he faced a 6.5 percent interest rate. But the mortgage rate on his Crystal rambler, appraised for $200,000 in 2005, is only 5 percent.
"We could have never got this house if rates weren't this low," Beelen said. "We figured that this was the time to buy."
Discounts on houses like the one Beelen bought are increasingly carving the area housing market into two segments: sales being handled by lenders who are trying to dispose of homes that have come back to them through foreclosure and homes that are being sold the old-fashioned way by their owners.
In 2008, the median sale price of traditional sales fell only 4.1 percent, to $223,000, while the sale price of lender-mediated transactions fell at more than three times that rate, to $145,000.
The foreclosure rate in Minnesota was less than 1 percent last year -- well below the national average of 1.84 percent -- but the total number of filings increased 76 percent from 2007 and was up 337 percent from 2006, according to a report released Wednesday by RealtyTrac, a national research company.
It appears that housing inventory levels this year will moderate slightly from 2008, when several monthly records were set. New listings last year declined 10.9 percent -- to the lowest number since 2003. In addition, the number of new foreclosures and short sale listings during the last quarter of the year fell 4.3 percent from the third quarter, marking the first consecutive-quarter decline since 2003.
"The flattening of lender-mediated properties does give us some hope that the pain caused by foreclosures may be reduced in 2009," said Bob Day, president of the North Metro Realtors Association. "Time will tell whether this trend continues."
Tremendous uncertainty still plagues the market. Consumer confidence remains at record lows. Inventory levels hover near record highs despite recent declines in new listings. And rising unemployment hampers predictions for the coming year.
"I don't think anyone has that kind of foresight. If they did, what would they be doing selling real estate in Minneapolis?" said Ross Kaplan, a sales agent with Edina Realty in south Minneapolis. "I would be dubious about anyone who says they know what's going to happen."
On the positive side, the market got a boost in recent months as mortgage interest rates dipped to generational lows. Keith Gumbinger of HSH Associates in Butler, N.J., said continuing government intervention and a flight to the safety of Treasury bonds should keep 30-year fixed-rate mortgages in the 4.5 to 5 percent interest range on through much of the coming year.
Tom Musil, director of the Shenehon Center for Real Estate Studies at the University of St. Thomas, said that he expects expanded FHA financing and economic stimulus efforts to kick in by the third quarter of 2009, and that could have a meaningful and positive effect on the market -- barring any significant calamities. Musil said that lenders have also stepped up their efforts to complete workout programs with borrowers who are in danger of defaulting on their mortgages, something that should help constrain foreclosures.
Musil forecasts a 2 to 4 percent decline in the median home sale price next year, with a 5 to 7 percent increase in total home sales. That, however, is contingent on many variables and assumes that the next wave of adjustable-rate mortgage interest resets isn't as big as the last one. "That could drive a stake through the heart of any real estate market," he said.
Jim Buchta • 612-673-7376 To search real estate transactions by price, address and date go to www.startribune.com/infocenter.