Minneapolis Home Prices: It’s 2001 (ish) Again

by Alex Stenback on October 28, 2010

Via Calculated Risk: House Prices Have Corrected to What Year?

{ 4 comments… read them below or add one }

Ray - Edina Realty November 2, 2010 at 9:13 am

Unless demand picks up or inventory on the market drops, the price decline, I’m afraid, will continue. An increasing amount of inventory on the market are owners who have to sell as opposed to want to sell i.e. REO”S, short sales, estates, transferee’s, etc.

Alex Stenback November 2, 2010 at 10:45 am

Agree, and it is apparent that low rates are not enough to stimulate demand to an inventory clearing level.

We may find that ever lower prices will not do much either.

The economy (jobs, jobs, jobs) and time (household formation and balance sheet repair/deleveraging) is the only thing that leads us out.

erica November 18, 2010 at 9:54 am

Interesting graphs. I’ve been saying for several years now that Minneapolis housing prices would eventually return to where they were sometime between 1999 and 2001. That won’t be true for all neighborhoods–demographics do change somewhat. Given trends toward less fuel consumption and moderation in personal styles, I’d say things look bad for large, poorly-built houses in middle-ring suburbs. (Or good, if you’d like to pick up a large, poorly-built house in a middle-ring suburb.)

North Minneapolis is a disaster, which is too bad. I’m guessing that the larger the number of (poor?) people who purchased houses using subprime/ARM loans, the swifter and steeper the fall. (I’m assuming this is what happened to Detroit.) On the other hand, there is certainly some cheap housing over there in NoMi, and the neighborhood associations are working hard to bring in people willing to homestead and stay in the neighborhood. (If landlords could be persuaded that the key to keeping rents high on properties they bought for $4k is to fix up their properties and carefully monitor tenant behavior, that place could really go somewhere.)

Since 2006/7, my guy and I have also said that the Fed Govt. had an opportunity to end the mortgage crisis by stepping in and buying half the value of every mortgage undertaken between 2000 and 2005 in the hardest-hit zip codes. (Basically paying people to stay in their houses.) We figured it would have cost about $2T and would have provided a floor for housing prices instead of opening up the giant chasm that has appeared since. We were hit with a storm of protest about this idea, along the lines of “why should I bail out my neighbor who bought too much house,” etc., etc., etc. Even John McCain had a similar idea (his only good one, IMHO) during his presidential campaign and was pretty much booed off the stage.

So, would it have been a good idea? It’s obviously too late now, but I still think it would have been the right thing to do–much better than waiting a few years and then bailing out the banks without doing anything to stabilize the situation of actual homeowners. What do you real estate professionals think?

Alex Stenback November 18, 2010 at 11:06 am

Erica – I like the way you think.

A better idea that a few of us have been kicking around would just to have been to have the Federal government buy up every foreclosure from the banks at or near the mortgage value ( big enough haircut to cause pain, but not so large as to puch the banking system into an insolvency/bailout death spiral, which is basically what we have now)

We then put the properties into a “Real Estate Resolution Trust Corporation,” from which they could be re-sold into the private market over time.

This 1.) removes the moral hazard/neighbor outrage factor – if you are foreclosed, you still need to move on and rent, or whatever. 2.)Provides for a more orderly liquidation of the repossessed real estate over a longer timeline than may happen naturally (IOW: spread out the price drops over time by restricting supply) and maybe in the meantime rent some/all to the public via contracts with private companies to keep them occupied and maintained . 3.) Restores the banks to health, so we don’t have a generation of Zombie banks that can’t lend, but must lend to live 4.) Would cost far less than the bailout path we are currently on.

Anyway, many problems with this idea too (Nightmare fuel: imagine the Federal government owning 5 million homes, in various states of disrepair/vacancy/rental, spread all over the country.) but we are at the point where the choices are: Which program will cost the least, and do the least long term damage to the system when mismanaged very, very badly by the govt/politicians.

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