Today I am pleased to announce the release of the Foreclosures and Short Sales in the Twin Cities Housing Market: Q4 2008 Update.  This is the 4th installment of quarterly reporting of lender mediated sales and their impact in the Greater Minneapolis/St. Paul area, which I co-author with the musically, intellectually, politically and statistically talented Jeff Allen.  2008 reports from quarters 1, 2 and 3 are also available.

Here’s how to know if buying a foreclosure or short sale is right for you.

This quarter’s report continues to show the same trends we’ve seen all of 2008, mainly an increase in the market share of lender mediated MLS listings both for sale and those that sold in the quarter.  Traditional sellers are very seasonal and so while the fact that 46% of sales and 42% of new listings in Q4 were lender mediated is very notable, it is somewhat inflated by the seasonality.

While some trends have certainly continued from previous quarters, we have seen a new trend develop as well: the Q2-Q3-Q4 period showed a relative peak of new lender mediated listings coming on, and Q4 showed our first drop in both lender mediated new listings inventory for sale at quarter-end.  Prior to Q2 2008 we saw dramatically more new lender mediated listings each quarter since 2006, while the Q2-Q4 period demonstrated a stop to that growth, at least for now.  There’s no way to know whether this near-term peak will turn out to be the long-term peak of this market activity or simply a stepping block to higher volume in 2009 but the fact that this trend is solid for 3 straight quarters is certainly an optimistic indicator.

Hennepin County, who publishes their sheriff sales online for a rolling 12 month period, reported 550-700 sheriff sales each month for all 2008, with a significant trend down since July 2008.  November and December’s relatively low number of foreclosures may be at least partly attributable to Fannie Mae and Freddie Mac’s decision not to take foreclosure actions from Thanksgiving through the end of January (it was extended).  While Hennepin County is only one of 13 counties in the RMLS’s definition of the Twin Cities, it is by far the largest in terms of foreclosures and is a good (but not complete) indicator of what is going on in our market on the foreclosure side of things.  Keep in mind that the Lender Mediated report that Jeff Allen I produce includes foreclosures AND short sales while this data is only sheriff sales, which is a middle-step in the foreclosure process.  Most homes take 6-8 months after the sheriff sale to get listing on the MLS.

But Wait!  There’s Much More!

I’m glad you kept reading… this is where it gets really good.  For the first time in the Twin Cities, and I believe the first time anywhere in the country, we are able to release city/area level lender mediated sales information.  While the metro-wide reports are very helpful, they do not adequately explain what is happening in individual communities throughout the area.  Some communities are barely impacted by these listings, while other communities find that well over 50% of their recent sales and current inventory for sale lies in foreclosures and short sales.  It also demonstrates using actual market sales information that the higher the proportion of lender mediated sales you have in an area, the more “pain” the traditional sellers in that community suffer as well, in terms of more significant year-over-year median sales price decreases.

As every expert in this field has said, this housing market is very localized and these new reports help give a better glimpse into how true that statement really is.  While this information is very helpful, it can sometimes be misleading as well.  We are working with smaller sample sizes when we get down to the local level and in many communities there simply was not enough data to accurately report what is happening, so we didn’t publish data in those communities.  In the communities we did publish, there is the occasional “huh?” moment where the data reported simply doesn’t match up with the daily experiences in the market.  This could be because of the low sample size, which allows individual listings to have a major impact on the results, or it could be because what is selling today is different than before… i.e. some communities have very few Traditional Seller townhouses and condos selling but many single family houses selling so the Median Sales Price actually is higher this year over last year.  It isn’t that prices increased, but that the “typical” house selling this year is at a higher price point.  Unfortunately there wasn’t a reasonable way for us to take those kind of events into account and so we leave that interpretation to you.  Take a look at price per square foot as another good indicator of value changes… while this too can be skewed in some cases, it seems to be reporting numbers that FEEL more accurate to me in terms of change year over year than the Median Sales Price sometimes suggests.