Twin Cities-area home prices in December fell for the third month in a row, as the holiday season hit its stride and the urgency to buy was flushed from the market with the extension of the home buyer tax credit. Prices dropped 0.5 percent from November to December, according to the closely watched S&P/Case-Shiller home price index released Tuesday. The dip mirrors the 0.5 percent slip that took place from October to November.
The local drop was slightly higher than the 0.2 percent decline experienced by the 20-city composite index; 15 out of 20 metro areas showed a decline in December.
Year over year, local prices fared marginally better than the nation, registering a drop of 2.3 percent compared with a 3.1 percent drop nationwide. The year-over-year decline is not nearly as bad as it was last spring, when prices were down by almost a quarter compared with the same period a year earlier.
Still, current prices in the Minneapolis-St. Paul metro area haven't been this low since 2001. The median home price in the 13-county metro area was $162,000 in December and $157,000 in January, according to figures from the Minneapolis Area Association of Realtors. Case-Shiller data lags behind the local statistics.
When adjusted for seasonal variations, prices in the Twin Cities rose 0.3 percent from November to December, on par with the national increase. However, David Blitzer, chairman of the index committee at Standard and Poor's, said the non-seasonal number is a better indicator because foreclosure patterns are "erratic" and "as a result, seasonally strong periods may appear very weak due to a wave of foreclosures, or vice versa," he explained.
Celia Chen, housing economist for Moody's Economy.com, said the Case-Shiller numbers lined up with her forecast. But she expects home prices in the Twin Cities and the nation to fall another 7 to 8 percent this year, citing foreclosures that will rise in the next six to nine months as temporary loan modifications fail to be made permanent, and home buyer tax credits that "won't have as big of an impact" this year as they did in 2009.
What sales can be attributed to the tax incentives aren't likely to show up until the late spring or early summer, since buyers need a signed purchase agreement by April 30 to qualify, but have until June 30 to close the sale.
Economists also worry that the housing market will be further dampened when the government stops purchasing mortgage-backed securities on March 31 and the credit expires in April. Wells Fargo housing economists predict mortgage rates will rise about half a percentage point by midyear. The Federal Reserve buying mortgage-backed securities helped keep rates artificially low.
On the bright side, home affordability is up, thanks to fallen prices and mortgage rates that will still be low by historic standards even if they do rise to nearly 6 percent. And area real estate agents say it's a sellers market for those unloading homes in the under-$250,000 price range.
David Joy, chief market strategist for Ameriprise Financial subsidiary RiverSource Investments, likens the housing market to a pig in a python: "The digestion process is beginning," he said.
Kara McGuire • 612-673-7293