Twin Cities foreclosure crisis subsides as home prices surge

By almost every measure, the foreclosure crisis is fading — and fast.

Home prices are going up and repossessions are going down this summer, marking another pivotal shift for the housing market in the Twin Cities.

"Foreclosures no longer pose a major threat to the housing recovery in the Twin Cities," said Daren Blomquist, vice president at RealtyTrac.

Foreclosures and short sales made up just 12 percent of all home sales in June, down from 60 percent three years ago. And less than 1 percent of housing units in Minnesota had entered the foreclosure process. That's a 41 percent drop from last year and half the national average.

The comeback is riding the wave of the economic recovery. As more people return to work, fewer are at risk of losing their homes to foreclosure. Short sales also have declined dramatically, with home values rising to the point where many homeowners no longer owe more than their homes are worth.

The end of the foreclosure crisis brings new challenges for the market. The decline in distressed sales has meant fewer options for lower-income and first-time buyers.

"I'd heard that everyone is being foreclosed on and that there are short sales all over the place, but there wasn't a whole lot for us," said Maggie Lofboom, a first-time buyer who was shopping for a home priced under $100,000.

It was a short sale and dealing with the lender wasn't easy, nor was it quick. She closed on the house in July and is thrilled. "It was overwhelming," she said. "But I'm really excited."

Chris Willette, a short-sale expert with Edina Realty, said short sales are tougher to do because many lenders are holding the line on price.

"There just aren't a lot of good deals out there," he said.

Willette said the combination of higher asking prices and the prospect of a long negotiating process on a short sale is intimidating for traditional buyers who might be dealing with a tight closing deadline.

In June, only 3 percent of all closings in the Twin Cities were short sales, or properties that sold with bank approval for less than their mortgage, according to the Minneapolis Area Association of Realtors.

Investors are also feeling the pinch of the decline in distressed sales. After driving the housing recovery by purchasing thousands of foreclosures, large institutional and individual investors are struggling with a lack of supply.

Jeremy Peterson, a sales agent for ReMax Results and a top foreclosure agent in the Twin Cities, said that within the past year Fannie Mae and Freddie Mac's inventory had fallen nearly 40 percent, while HUD's declined 30 percent.

At the same time, higher home prices have made foreclosures less appealing to investors.

"Because our market has rebounded in such a way, prices are too high for the average person looking for a rental investment," he said. "In most cases, after the financial analysis, the numbers just don't make sense."

Eric Visker, a part-time real estate investor in Rosemount, bought two rental properties at the height of the housing crash, including a suburban bank-owned townhouse that he bought for just $35,000 in 2011. Now that it has appreciated, he's ready to sell it — and reinvest the profit in another more expensive rental.

"It's not as easy to get your hands on those low-dollar houses," he said. "It's slim pickings."