Housing prices were just starting to slip a decade ago when Erin Simonson paid $152,000 for a tidy split-level on the northwestern edge of the Twin Cities suburbs.
The market tumbled for the next three years. Her house lost more than half its value. Simonson couldn't sell, but unlike many in a similar situation she opted not to walk away and let the house go into foreclosure.
"I decided to pull myself up by my bootstraps and wait it out," she said.
She's still waiting. While prices have risen in Simonson's neighborhood in Zimmerman, she still has barely enough equity to cover the cost of selling.
More than 20 percent of metro homeowners who have a mortgage are in the same position. They wouldn't clear enough money in a sale to cover real estate commissions and other selling costs and to make a down payment on another home, according to a Star Tribune analysis of data from Zillow.com.
The situation is keeping a broad swath of homeowners on the sidelines of the recovery, especially those who bought starter homes near the top of the market. It is also limiting the supply of houses available to the next generation of buyers.
"So many people want to move up, but they can't," said Joslyn Panka Solomon, a sales agent with Century 21 Moline Realty in Cambridge, Minn., where about a quarter of all homeowners with a mortgage are in a similar situation. "We're coming back, but we're still not there."
The lack of equity for many homeowners is a big reason listings in the Twin Cities are near all-time lows. On Friday, the Minneapolis Area Association of Realtors said that during April only 7,749 houses hit the market, 8.3 percent fewer than last year.
Prices have increased enough that only 7 percent of homeowners with a mortgage actually owe more on the loan than their home is worth. But a larger group is stuck in "effective" negative equity, where they still own less than 20 percent of the house.
The problem tends to be most acute in communities that are most popular with those first-time buyers, people who are most likely to have bought homes with low down payments.
In New Hope, Brooklyn Center and Blaine, for example, 25 to 30 percent of all homeowners are effectively underwater. The same is true in communities on the fringes of the 13-county metro including Isanti, Farmington and Big Lake, where cheap land led to a prerecession glut of new houses.
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Communities with a high percentage of homeowners in this situation also have the fewest house listings. Across the metro there were a third fewer houses on the market than two years ago at the end of March, primarily because of a 55 percent decline in listings under $250,000.
Julia Israel, a sales agent and production coach with Keller Williams Integrity Lakes in Minneapolis, said that even homeowners with enough equity to cover the cost of selling are worried about putting their houses on the market. They're concerned that they might have to overpay to buy their next one, and they don't want to compete with other buyers.
"I have a set of first-time home buyers who wrote seven offers before we finally won," she said.
The situation is radically different in more expensive housing markets such as Wayzata, Edina and Medina, where house values are higher, prices have been less volatile and the effective negative equity rate is far below average. Buyers in those communities have access to the same, or more, house listings than they did a couple of years ago.
At the end of March, move-up houses accounted for 26 percent of all houses for sale in the Twin Cities compared with 15 percent two years ago. In contrast, starter houses represented 31 percent of all listings, down from 48 percent in 2015.
The result is that first-time buyers face the prospect of a frustrating — and expensive — house hunt.
Akisha Everett of Minneapolis, a first-time buyer who has spent the past year polishing her credit and saving for a down payment, said she has looked over at least 50 homes. "The real problem is we didn't even have an opportunity to write on some houses," she said, "because they'd often sell before we even got to see them."
Everett recently bid on an unremarkable starter house in Brooklyn Center. Though she bid several thousand dollars more than the list price, she didn't get the house. She later found out that there were 28 other offers.
"I have been on a constant emotional roller coaster," said Everett, who is resigned to the fact that she'll have to pay a premium to land a deal.
Even as the market overall has rebounded to prerecession levels, it could take more time for homeowners with slim equity to get into position where selling is a viable option.
House price gains in the coming year are expected to moderate, according to Zillow senior economist Aaron Terrazas, and that's likely to continue to limit the flow of houses that are effectively underwater back to the market.
Terrazas also said that homeowners who were once either underwater, or effectively underwater, will be particularly cautious about getting back into the market even if they do have enough equity to come out ahead on a sale.
"I think they'll be very conscious about what they do," he said. "I don't think there will be a flood of listings anytime in the near future, even as more homeowners emerge from negative equity."
Simonson, who owns the house in Zimmerman, said the experience has left her unwilling to take any more risks in the market. She hopes that by fall prices will have increased enough to pay a sales commission and have a bit left over to move to an even more rural setting where the cost of living is lower.
"When I bought the house I imagined having all kinds of equity within at least five years," she said. "I think the house is finally worth about what I paid for it."
Ethan Nelson contributed to this report. He is a student at the University of Minnesota on assignment for the Star Tribune.
Jim Buchta • 612-673-7376