Twin Cities home prices suffer a 20% plunge

In the Twin Cities, home prices fell 20 percent in January from a year earlier, the largest annual decline on record.

By JENNIFER BJORHUS, Star Tribune

Last update: March 31, 2009 - 10:48 PM

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Housing continues to grope for a bottom in the Twin Cities, new numbers out Tuesday show.

Local home prices in January took their steepest annual dive yet, according to the latest Standard and Poor's Case-Shiller home price index, while the number of residential construction permits issued locally in March fell to one of the lowest monthly totals on record.

The upshot: Housing, the economic sector that triggered the nation's worst recession in generations, remains ravaged by foreclosure-related activity and still has a backlog of inventory. Buyers benefit, but the slide in values is squeezing household balance sheets and wallets.

In the Twin Cities, home prices fell 20 percent in January from a year earlier, according to the Case-Shiller index of home prices in 20 major metropolitian areas. That's the area's largest yearly drop on record, though the index declined less in January than in December, possibly indicating that the bottom is nearby.

The Twin Cities was one of six metropolitan areas where month-to-month price declines slowed. Still, national housing experts said the widely watched housing index offered few bright spots. The overall price index of 20 major metro areas dropped a record 19 percent from January 2008.

Brad Fisher, president-elect of the Minneapolis Area Association of Realtors, said he doesn't think the number is as bad as it sounds because it indicates lenders are getting serious about moving inventory and slashing prices -- in some cases, to less than $20,000 a house. The Case-Shiller index doesn't distinguish between distressed sales, which have a lower median price, and what agents call traditional sales, which have a higher median price. The association has been tracking the two local markets separately to illustrate the different dynamics behind the Twin Cities overall median sale price, which now stands at a very low $150,000.

Like many brokers and agents, Fisher remains optimistic that the dismal housing market is finally going to turn.

"We'll see the bottom somewhere in the next 60 days," he said. "I think the spring market will take a lot of inventory out. We are seeing a resurgence of first-time home buyers."

A near halt in home building has helped whittle away excess inventory, although the pullback has been brutal for workers in the building industry. Last month, the number of permits issued to build new homes and apartment buildings fell 45 percent from last year to 113 -- one of the lowest monthly totals in the more than 10 years the Builders Association of the Twin Cities has been tracking it. As inventory falls, prices should stabilize.

Mary Bujold, head of Minneapolis-based Maxfield Research Inc., said dramatic price drops are attracting more first-time home buyers into the market. She's even spoken to a few residential developers who are looking to buy land again, she said.

"I would say that we're at or very near the bottom," Bujold said. "We've already started to see some inklings of improvements."

Jennifer Bjorhus • 612-673-4683