A Realtor group's report shows the huge effect of foreclosed homes and other distressed properties on the area's median home price.
Foreclosures and other distressed properties are saturating the housing market and pushing down the median sale price of houses throughout the metro area, according to a study released Tuesday by the Minneapolis Area Association of Realtors.
During the first quarter of the year, properties identified in the survey as "lender-mediated listings" represented more than a fifth of all houses on the market and more than one in four home sales in the 13-county metro area.
When those distressed properties are factored out, the Realtors say, the Twin Cities median price fell 3.9 percent in the past year, instead of an overall 10.4 percent decline.
"The traditional seller is not doing as badly in this marketplace as what our statistics had shown," said Aaron Dickinson, an Edina Realty sales agent who conducted the research with Jeff Allen of the Minneapolis Area Association of Realtors.
The study is a useful tool in understanding the impact of the foreclosure crisis on home prices, said Chip Halbach, executive director of the Minnesota Housing Partnership in St. Paul.
"It tells a story which they're not otherwise able to tell," he said. "It's not scientific, but it does as good as job as we can hope."
A painstaking study
Dickinson started taking a closer look at the issue in November after watching the market sink deeper and deeper as the inventory of bank-owned listings piled up. His theory was that as the number of the distressed properties on the market increased, the median sale price was being disproportionately affected by the influx of those bargain-basement-priced properties.
Measuring the impact of those listings on the broader market had been difficult because when a house is listed or sold through the Regional Multiple Listing Service, there's no specific code for a bank-owned listing or foreclosure. Typically, however, agents will indicate that status somewhere in the listing. And those are the data that Dickinson and Allen mined.
They searched more than 100,000 transactions and listings in the Regional Multiple Listing Service database and cross-checked as many as possible with public records to ensure that the search terms reflected the current status of the property.
As they suspected, Dickinson and Allen found a dramatic increase in the number of low-priced listings. They saw that more than half of all houses priced at less than $120,000, for example, fit the lender-mediated profile.
Among houses priced at $120,000 to $150,000, 38 percent were foreclosures, bank-owned and "short sales" -- deals negotiated by sellers with their lenders that allow them to sell the property for less than the mortgage amount. Listings least likely to be lender-mediated were priced at more than $1 million, which accounted for only 1 percent.
Throughout the market, the pair found that nearly 30 percent of all closed home sales in the first quarter of 2008 were foreclosures, bank-owned listings and short sales. In 2007, that number was only 9 percent.
These troubled listings also represent a growing share of the listings on the market -- during the first quarter they accounted for almost 22 percent of all new listings.
Such listings were a rarity just three years ago, when they represented only 2.9 percent of all listings and 3.5 percent of all closed sales. The growth in both categories is evidence of just how severe the downturn has been, but it's also an indication that traditional sellers are faring much better than once thought and that those mainstream sellers aren't flooding the market. According to the report, the number of traditional sellers has fallen 27.4 percent over the past two years, an indication that many prospective homeowners are holding on to their homes and that builders are producing far less inventory.
The transactions involving distressed properties have been a tremendous drag on sale prices in the metro area, which have fallen 10.4 percent from a median of $173,000 during the first quarter of 2007 to $155,000 during the first quarter of 2008. When you take those listings out of the database and look at only traditional sales, the median sale price between the first quarter of 2007 and 2008 fell 3.9 percent, from $228,900 to $220,000.
"This is the first time that we've been able to put a framework around those two markets and gain some perspective," said Kevin Knudsen, president of the Minneapolis Area Association of Realtors.
Nationally, the outlook for the housing market darkened further Tuesday as Fannie Mae, the nation's largest buyer of home mortgages, said it racked up more than $2 billion in quarterly losses and forecast a steeper drop in home prices this year.
Forecasting still difficult
The Twin Cities report reveals the complexities of gathering data and drawing conclusions about the market, which tends to be very local, with some communities and even subdivisions outperforming others at a time when foreclosure rates increase at double-digit rates.
A recent Housing Link study commissioned by the Greater Minnesota Housing Fund says that it expects the foreclosure rates to continue unabated for the next couple of years, with another 28,000 foreclosures statewide during 2008.
Dickinson said that while comprehensive in its scope, the survey isn't being treated as a scientific survey, but rather as a baseline to get a better sense of how much damage the wrecked credit markets are having on the broader housing market. He also hopes the survey will help to identify trends that might suggest a turnaround.
"This tool can't forecast anything," he said. "It informs the consumer about what's really going on, and it shows that there are differences in the market."
The Associated Press contributed to this report. Jim Buchta • 612-673-7376
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