Home sales fell again in September, leaving inventories at their highest level in more than a year.
The Twin Cities housing market continues to suffer from a post-tax-credit hangover with falling home sales, sagging prices and growing concern that a partial moratorium on foreclosure sales by some of the nation's largest lenders will only add more turbulence to the market's recovery.
According to a report released Monday by the Minneapolis Area Association of Realtors, there were 33.5 percent fewer home sales last month compared with the same time last year. On an annualized basis, the monthly total was the lowest in 15 months.
Prices also fell, to $166,000, 2.4 percent lower than a year ago and the lowest median price since February.
Analysts said it's important to keep the numbers in context. The federal tax credit of up to $8,000, which expired in April, boosted sales during much of 2009 and early 2010. Now the market faces months of grim comparisons to those strong months of a year ago. Still analysts noted that sales are down just 1.4 percent this year compared with the first nine months of September 2008.
Despite record low mortgage rates -- the 30-year fixed-rate mortgage continues to hover around 5 percent -- the market suffers from a serious lack of confidence as buyers wonder whether prices will continue to fall, or if they'll lose their job and not find another one.
"I think consumers are still being very conservative," said Brad Fisher, president of the Minneapolis Area Association of Realtors. "They're still waiting for jobs, and they're waiting for the economy to improve."
With buyers in short supply and many sitting on the fence waiting for an indication that the market has finally hit bottom, inventory levels are up almost 14 percent compared with a year ago. The metro area had 28,129 homes for sale, the highest level since June 2009.
Such increasing inventory levels are tough on sellers, who face price cuts along with more competition. One bright spot is that new listings are down as potential sellers assess bleak trends in te market.
But more listings are a boon to buyers, particularly those like Ross Heier, who never thought that he'd be able to afford to own a home. But he discovered that with mortgage rates -- and home prices -- falling, he could buy for less than rent. Tomorrow the Minneapolis newlywed will close on his first home, a three-bedroom house that an investor had bought out of foreclosure in 2009. The investor had almost sold it months ago to a tax-credit buyer, but the deal fell apart days before closing.
Because the tax credit was no longer available, the house sat on the market for three months and the seller dropped the price $23,000 to $77,000. Heier, a sous chef for a local restaurant, said that he got a 4.25 percent 30-year mortgage, so his monthly payment will be less than $650 a month.
"In a way, it almost feels like stealing it," he said.
The stability of the market, and the prospects for a recovery, have come into question in recent days as Bank of America, one of the nation's largest lenders, announced a moratorium on foreclosure sales nationwide as it evaluates the way it processes foreclosures. That announcement came on the heels of earlier warnings from three other lenders that they would halt foreclosures in states where judicial foreclosures are the rule, not including Minnesota.
The moratorium is voluntary, could end at any time and its impact is still being debated.
Prentiss Cox, a law professor at the University of Minnesota, said the national moratorium is unlikely to have a big impact on the housing market in Minnesota. Nonetheless, the issue has created "massive uncertainty," he said. "Long term, it's unclear whether it's going to have a substantial impact."
Dayna Murray, a sales agent for Keller Williams Premier Realty, said that if prospective buyers are worried that an offer on a foreclosed property, or one that's in default, could be jeopardized by the moratorium, there could be stronger demand for traditional deals. And Pat Paulson, president-elect for the Minneapolis Area Association of Realtors, says that could translate into more upward pressure on prices for non-lender-mediated home sales.
Scott Anderson, a Twin Cities-based economist for Wells Fargo, said that his company is confident in its foreclosures processes and has no plans to curtail sales or implement its own moratorium, but he acknowledges that it's just one more challenge for an already unstable market.
"It's a big mess at this point. Any impact is just speculation because we don' t know how bad or how deep problems are," said Anderson. "It's going to a slow slog, and housing will be a laggard in this recovery."
Kara McGuire contributed to this report.
For more housing market news visit the Star Tribune's real estate blog, Just Listed, at www.startribune.com/justlisted.
Jim Buchta • 612-673-7376