Lower-price homes took biggest hit
- Article by: JIM BUCHTA
- Star Tribune
- January 2, 2008 - 11:45 PM
The prices of the state's most affordable houses have taken the biggest hit during the recent housing downturn, but those declines are expected to level off by fall, according to research released Wednesday during a housing event at the University of St. Thomas' Opus College of Business.
Across 38 Minnesota counties (those that have the most transactions), the median sale price of single-family houses, condominiums and townhouses fell 2.3 percent between the third quarters of 2006 and 2007, with the bulk of those declines in the metro area, according to Thomas Hamilton, the study's author and an associate professor of real estate at St. Thomas' Opus College of Business.
For houses priced at less than $165,000 -- those in the lowest 20 percent of the market -- the median sale price in the 38 counties fell almost 9 percent, while for houses priced at more than $315,000 -- those in the top 20 percent -- there was a 0.4 percent rise. In the eight-county metro area, the median sales price at the low end of the market fell almost 10 percent, while at the upper end it rose almost 1 percent.
Hamilton attributed the declines in part to the proliferation of subprime mortgages and predatory lending in the most densely populated areas, which are more likely to result in foreclosures and subsequent erosion of property values.
The state's housing market is fragmented and can vary -- even from block to block. And while it is still in serious decline in some areas, the drop in the number of transactions and in the median sale price showed some signs of abating, Hamilton said.
Based on an early analysis of end-of-the-year data, he said he expects the market statewide to hit bottom by the third or fourth quarter of 2008, after losing most of the gains it made between 2005 and 2006.
Hamilton said he previously expected the market to level out during the first half of 2008, but that he still expects "a relatively soft landing" later in the year, barring rising interest rates, declines in the employment rate or other developments that might bruise consumer confidence.
But Hamilton cautioned against expecting a rapid recovery, saying that once prices have bottomed out, they could remain stagnant for nearly a year.
The silver lining to the downturn is that housing affordability in the state has increased dramatically, and that the homeownership rate in Minnesota remains at or near the top of the nation, according to Tim Marx, commissioner of the Minnesota Housing Finance Agency, which co-sponsored Wednesday's event.
The study, funded in part by the Minnesota Association of Realtors, is based on data from the Minnesota State Demographic Center, the National Association of Realtors, the U.S. Census Bureau, the Federal Reserve Board of Governors and the Northstar Multiple Listing Service.
Marx said the number of entry-level homes on the market, those priced at less than $150,000, has risen dramatically, which translates into opportunities for buyers who were shut out when the market peaked two years ago.
"There's much to celebrate about Minnesota, even in these difficult circumstances," he said, noting a significant increase in the amount of mortgage money and downpayment assistance that the agency is providing to first-time and low-income borrowers at a time when other lenders are pulling back.
Jim Buchta • 612-673-7376
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