Why even a strong job market couldn't stave off distress tsunami
Why even a strong job market couldn't stave off distress tsunami
Steve Bergsman
Inman News?
Minneapolis, Minn., has proven to be a hard market to predict.
During the heart of the Great Recession, the housing market there was hard-hit yet employment remained stable. Then when the housing market in other metros started to improve post-recession, Minneapolis home prices redeflated, and, as a result, the city lags the recovery starting to happen elsewhere.
Minneapolis is often perceived as a white-collar town, as five Fortune 500 corporations plus a host of medical device companies and healthcare firms maintain their headquarters there. United Healthcare, which is the largest healthcare insurance company in the U.S., is based in Minneapolis and it kept hiring and expanding throughout the recession, according to Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas.
"Our unemployment hangs 1.5 percent to 2 percent below the national average," Tousley said. "At the end of 2012 our unemployment was at 5.8 percent, and we are starting to see some good job creation numbers."
Considering the strong employment numbers, it was odd that one of the problems in the Minneapolis housing market was a large amount of foreclosures, which usually happens when people lose their jobs.
"When the bubble burst, we saw a lot of people get foreclosed," said Cari Linn, a broker with Coldwell Banker Burnet in Eden Prairie, Minn., and former president of the Minneapolis Area Association of Realtors (MAAR). "Our foreclosure market was high. We had always been a good market for lenders, but there were a lot of mortgages that were fraudulent."
Indeed, there were a number of months over the past couple of years when more than half of the homes sold in the Minneapolis metro had been foreclosed.
"In late 2010 and early 2011, about 60 percent of the homes in the market were foreclosed," Tousley said.
The Twin Cities had always been a stable market with small, annual increases in property values.
"We never saw the huge increases in home prices except in the 2005 to 2006 years," Linn said. "Still, when the bubble burst, we saw a lot of people get foreclosed and homes go to short sale. Foreclosures became a large part of our market."
The high foreclosure rate was one key reason that this normally stable housing market took a tumble.
As in most cities, first-time buyers owned a lot of the distressed properties in Minneapolis.
Traditionally, a local market depends on first-time-buyer households to improve financially and then move up to a better home. In Minneapolis, that economic progression stopped because of the foreclosure problems, which created a domino effect. If households don't move up into the next bracket of homeownership, those in that next bracket don't move up to the top tier, meaning there's trouble from the bottom to the top of the food chain.
"We had so many distressed properties, we had no sellers to move forward to the next market," Linn said.
It looks like that period of difficult is finally coming to an end.
"We are seeing the foreclosure market decreasing. Foreclosure sales are down, as are new foreclosure listings," Linn said. "Traditional sales are increasing."
According to MAAR, the median sales price for area homes plummeted in 2008 and by the first half of 2009 had declined by more than 40 percent. Then one year later, the median sales price skyrocketed 30 percent, and it looked like the recession was short-lived in Minneapolis. That recovery was just a false promise as median prices slipped into another steady decline until the second half of 2011.
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