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Twin Cities Foreclosures & Short Sales – A Report Analysis

For several weeks now, Jeff Allen (and several others) from MAAR and I have been working diligently to provide an update to our one-of-a-kind research report we released a few months ago.  We’ve just released Foreclosures and Short Sales in the Twin Cities Housing Market Q2 2008 UpdateThe report contains updates to a lot of the data we’ve previously reported on, but also contains some new information and trend analysis.  Jeff Allen is a real wizard with data and analysis and this report is the best snapshot of lender mediated sales activity in the Twin Cities.

While the full report is very worthwhile to read, I wanted to pull out some of the most important data for easy reference.  The images are from the report.  The red comments on the images were added by me for this post and are not in the full report.  This post’s commentary is based upon my opinion and is not necessarily the opinion of Jeff Allen (who co-authored the report), MAAR, or its membership.

The lender mediated sale has always had some level of activity in our market (low single digits), but it has really become a force over the last two years.  While the condo market has so far had a much lower share of these transactions, I expect that this segment’s market share will continue to grow.

While the bulk of the short sale and foreclosure properties today are in the first time buyer category, the problem occurs at all price points.  It is not unusual to see 3-4 houses in the same $300,000 – $500,000 neighborhood all listed as a foreclosure or short sale… I’ve seen a lot of this for subdivisions built 2004 – 2007.

Early this year the local associations held a press conference where one of the presidents said that “there will be no bell that rings when we hit bottom.”  Well I might have to find a bell to ring for when that time does come.  Due to the acceleration of the downward pricing on the lender mediated segment, I think it will become fairly clear when prices have bottomed.

This trend really did give me pause… it shows that the very cyclical nature of this market makes it look like Q4 2008 and potentially Q1 2009 will be the domain of the foreclosure and short sale.  This will moderate again come Q2 & Q3 2009 when Traditional Sellers seasonally come back into the market and it is hard to make any forecast of activity that far out.  As all the mutual fund commercials go, “past performance does not guarantee future results,” but trends are usually quite good at foretelling the general direction of our future.  At some point the lender mediated new listings and sales will peak, just like traditional sellers did, but the biggest question remains when.

Many people will look at the trend above and think: “I should wait to buy a house since we haven’t hit bottom yet.”  For buyers that have substantial cash to put down, I think in general that waiting might be good for you.  If you are a buyer who has very little money to put down into a house, your best option might be to buy now so that you can lock in both your interest rate (around 6 3/8 today) and your financing program.  Interest rates are still likely to climb in the future due to continued inflation worries and financing continues to get harder and harder to get, especially for the buyer will little cash to put down.  On the flip side, buyers who make a purchase with little money down now might find themselves “upside down” in the coming months if prices fall further.  It comes down to this: it is a good time to buy for some buyers, it is not a good time to buy for others.  Everyone’s situation is unique and should be looked at individually.

As co-author of this report and someone who is doing a lot of transactions in this market, I have a better feel for this market than most.  I’ve been actively looking for a new house for myself and have written several offers this year.  It looks like I’ve finally found the right house for me, which should close by the end of the month.  I’m comfortable that the offer I made was appropriate for the property and I received good terms on my loan, so even if prices fall further from here, I feel that 5 years from now I will still be quite happy with my decision.  To All Current Buyers: will you feel the same way?

NEW FEATURE: Foreclosure and Short Sale Information by City and MLS Area

I’m thrilled that in this updated report we have produced a breakdown of the active listings and sales at the local level.  While there are some communities in this list that have high lender mediated activity and have been heavily profiled by the news media, there are many, many, many other cities that are struggling to handle the burden of these listings in their marketplace as well.  This phenomenon is affecting the inner cities, the suburbs, and the exurbs, buy not all of them!  To look at this list is to see one community with 30% or 40% of sales being lender mediated while their neighboring cities might only be experiencing 10% lender mediated sales.

There are Three Kinds of Lies: Lies, Damned Lies, and Statistics

When producing this report, there’s one data set that just isn’t right, and we can’t prove why it is wrong.  See below:

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All of us who are out in this market on a daily basis know that Traditional Seller condos have not gone up in value in the last two years but that’s what the Median Sales Price says.  I looked at Median Price Per Square Foot as well and there, Traditional Seller condos have fallen 5% in PPSF in the last two years.  This seems more plausible but still sounds a little light.  There’s a theorey that the condo market has seen far fewer lower-end condo conversions selling in the last couple years, helping hide the price declines, but that’s just a theorey.

In Conclusion

It would be easy to simply ignore the outlier in the data to make this report sound like it is perfect but that’s not fair to the users of the report.  This is an inexact science due to the fairly generic nature of the data we’re looking at.  When the data you have isn’t precise, neither can the analysis.  With that being said, I am quite certain the trends are accurate and that, more than anything else, is what we as an industry need to be looking at today.  There is good news in these numbers, and there is bad news too.  With this information I hope that consumers, agents, brokers and government officials will all become better educated on the current situation so that they can make the best decisions for their situation.

I welcome any questions and comments.

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TwinCitiesRealEstateBlog.com is not a Multiple Listing Service MLS, nor does it offer MLS access.
This website is a service of Aaron Dickinson of Edina Realty, a broker Participant of the Regional Multiple Listing Service of Minnesota, Inc.