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Twin Cities home values still skidding downward

  • Article by: JIM BUCHTA
  • Star Tribune
  • February 9, 2011 - 10:39 PM

With each passing month, woes continue for the Twin Cities housing market.

A steady stream of reports show the housing market still faces a mighty struggle, as home values continue to fall and the number of homeowners who owe more on their mortgages than their houses are worth continues to rise.

The latest data, from Zillow.com, said that by the end of 2010, 42 percent of all single-family homeowners in the Twin Cities were underwater on their mortgages, significantly more than the 27 percent figure for the nation.

During the quarter, home values fell 12 percent in the Twin Cities metro area compared to the prior year, and Zillow said it was one of the worst quarters since it started tracking real estate trends in 1996.

"It almost seems like what you'd see in Florida," said Mark Vitner, a senior economist for Wells Fargo Securities.

Not all data are that dire, and some real estate experts question Zillow's methodology. Last month CoreLogic said that by the end of the third quarter 16 percent of all Minnesotans were in a negative equity position, flat with the previous quarter, and tempered by statewide data. Outstate housing prices generally have been more stable than in the Twin Cities.

Zillow.com and Corelogic are among more than a half dozen organizations that track the health of the nation's regional housing markets. And while their data-collection methods vary, the data all suggest the same thing: The housing market is still not out of the woods.

Not by a long shot.

Estimates for a recovery in the Twin Cities metro area range from early 2011 to late 2012. Last month the local Realtors' association said Twin Cities home sales during 2010 were the worst on record. Foreclosures continue to play havoc with the market, keeping prices low and flooding the market with hard-to-sell inventory.

Economists closely watch the housing market because of its impact on the broader economy. Consumer spending habits are based in large part on whether or not homeowners feel wealthy.

Rob Grunewald, associate economist with the Federal Reserve Bank of Minneapolis, said that when it comes to consumer confidence, the latest report might not be as devastating as it would have been a year ago.

The difference today, he said, is that continuing declines in home prices have been offset by increases in stock markets.

In recent weeks sales agents in the Twin Cities metro area say that they've seen plenty of signs that the market is on the right path. Showings are up. Inventory levels have stabilized. And declines in sale prices have leveled off, according to the Minneapolis Area Association of Realtors.

"People are out and looking," said Matt Baker, branch vice president for the Lakes office at Coldwell Banker Burnet. "And where there's smoke there's fire."

Questions about the data

Aaron Dickinson, a sales agent for Edina Realty, questions Zillow's data because it's based on public tax records that often are incomplete or inaccurate. "It's great for voyeurs, but it's not something I'd ever bank on," he said.

Greg Sax, spokesman for the Minneapolis Area Association of Realtors, which provides data management services for several such groups across the country, said that while he prefers using actual home sale data for such analysis, Zillow's data mirrors price and equity trends produced by his group.

Zillow, which acknowledges that its estimate is within 10 percent of the actual sale price 40 percent of the time for its house value estimates in the Twin Cities metro area, says quarter-to-quarter home values in the Twin Cities have fallen 5.8 percent, just shy of the national average.

Its Twin Cities home value index, which is based on a "secret formula," was $166,300, down 32.6 percent or $80,500 from the July 2006 peak.

Several Sunbelt states had larger declines. Zillow's chief economist, Stan Humphries, said the spike in underwater loans locally was due in large part to a steep decline in the number of sheriff's sales at end of the end of December in the Twin Cities.

Since the homes weren't sold, that left more mortgages in default -- and underwater -- during the survey period.

A very long slide

In addition, the period between the peak and plummet for home prices in the Twin Cities was much longer than for many metro areas around the country.

That means that more homeowners in the Twin Cities bought houses during periods of elevated prices than in some metro areas.

Humphries said the housing market in the Twin Cities metro isn't as bad as it is elsewhere, and he expects the carnage to end soon.

"My hunch is that we're not going to see much increase in depreciation and as 2011 selling season increases we will see some reductions," he said. "Prices will still fall, but by less each month."

Jim Buchta • 612-673-7376

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