95 Percent of Twin Cities Homes Have Retained More Than 96 Percent of Their Value
Roseville, MN (March 29, 2009)
A new study reveals that almost all Twin Cities homes have not suffered the double-digit declines in median home prices often reported. Traditional homes, those not in foreclosure, represent 95 percent of the homes in the Metropolitan Area and show a median sales price decline of just 3.9 percent.
“Home prices in the Twin Cities area are either up, down or stable in the Twin Cities, depending on a range of factors, all of which affect price,” explains Jim McComb, president of McComb Group Ltd., a Minneapolis-based real estate research firm. “Unfortunately, none of these important factors have been taken into account in the multitude of news articles that report a steady drum beat of double digit declines in home values.”
Chief among these frequently ignored factors which influence home prices are whether or not there is actual foreclosure or an imminent threat of being foreclosed; the home’s location, type and physical condition; the number of homes in the immediate area listed for sale; and the number of for-sale homes that are in foreclosure.
The McComb Group report was released jointly today by the Minnesota Builders Association, the Builders Association of the Twin Cities and the Minnesota Association of REALTORS during their annual Builders Day on the Hill and REALTOR Day at the Capital at a rally in the Capital Rotunda in Saint Paul.
McComb said that there are actually two distinct home markets in the Twin Cities Metro area. “One of them, and by far the larger of the two, is the market representing ‘traditional’ homes, homes that are not in foreclosure, making up more than 95 percent of all of the homes in the two cities and their surrounding suburbs.”
“The other market, representing a mere 5 percent of all homes in the metro, are those which are ‘lender mediated,’ and are either already in foreclosure or are threatened with foreclosure,” according to McComb.
McComb Group’s just released study of actual home price trends in the metro area reveals major differences between the two markets. “Our analysis uncovered the facts that the national home price surveys has largely failed to notice, “ McComb said. “Median sales prices of traditional homes—those not in foreclosure and not in danger of being foreclosed--- declined by a mere 2.6 percent in the metro area between the 4th quarter of 2007 and the end of 2008, and in several areas, such as Edina and Woodbury, they actually increased.”
Although there is no way to accurately compare the median sales price of lender mediated, or foreclosed, homes with their former sales prices in a normal market, the McComb Group study found that as a group, these homes may have declined by 30 to 40 percent during the same period.
Price performance has also varied greatly depending on the type of home involved. The decline in median sales price has been lowest for traditional single family homes, down 3.5 percent, followed by condominiums, down 4.7 percent and townhomes, down 6.3 percent.
The same home types, when lender mediated, showed significantly larger value losses, with single family homes down 30 percent from a year earlier; condominiums down 17 percent; and townhomes down 15.2 percent. The difference between traditional and lender mediated townhomes and condominiums was -30 and -50 percent respectively.
The McComb study shows that where homes are located in the community has also had a large effect on prices. The heaviest concentrations of foreclosed, or lender-mediated homes, are in north and south Minneapolis, with far fewer located in Calhoun-Isles, Southwest and Edina. This difference in the concentration of foreclosed homes has had a dramatic impact on prices of both traditional homes and lender mediated homes in each of the areas studied.
Lender mediated sales prices of $162,000 in the 4th quarter of 2007 were about 30 percent below traditional home median sales prices of $227,000. One year later, at the end of 2008, the lender mediated sales prices had fallen another 10 percent, to 40 percent of the traditional median home sales price. But McComb cautions that these price declines of 30 to 40 percent still only apply to a small fraction of all homes in the Twin Cities.
The high proportion of foreclosed homes in Camden and North Minneapolis is clearly depressing the price of traditional homes along with those which are lender-mediated. Overall median sales prices have declined by as much as 44.4 percent in North Minneapolis, 27.6 percent in Camden, and by smaller percentages in Calhoun-Isles (1 percent) and Southwest (7.9 percent), while they have actually increased by 6.5 percent in Edina.
Of the top 100 Minneapolis Area Association of Realtors areas, sales of traditional homes have increased in 17. Median sales prices of traditional homes have declined by less than 10 percent in 58 MAAR areas, while traditional home prices have declined by more than 15 percent in only 11 MAAR areas. In the 17 MAAR areas with increasing traditional home
prices, fewer than 33 percent of the listed homes are lender mediated, or in foreclosure.
“The fact that lender mediated homes currently represent only 5 percent of all homes but are a much larger proportion of closed sales is distorting the changes in home prices for traditional homes, while that fact understates the decline in sales prices of lender mediated homes,” McComb said. “The current market for traditional homes, which make up 95 percent of the Twin Cities housing stock, is clearly much stronger than is indicated by such widely quoted national home price surveys as the Case-Schiller Index and Zillow.”
Key conclusions of the McComb Group study:
• Traditional homes are a separate market from foreclosed or lender mediated homes, and currently represent 95 percent of all homes in the Twin Cities metro area.
• Foreclosed and lender mediated homes, although making up just five percent of all homes, constitute a far larger percentage of closed sales.
• Areas with a high proportion of foreclosed homes are experiencing greater declines in median sales prices of both traditional and lender mediated homes.
The Builders Association of Minnesota and The builders Association of the Twin Cities represent over 4,800 builders, remodelers and firms that do business within the homebuilding industry across the state of Minnesota. MN REALTORS represents 19,500 real estate brokers and agents throughout the state of Minnesota.
