The housing crisis lingers: Minnesota can help fix it


Equity in Minnesota homes took another beating in 2009, dropping 15 percent in value after a 13 percent decline the year before, and the new year offers little hope for a turnaround without action to prop up home prices from the ground up.

Minneapolis Area Association of Realtors data show the Twin Cities metro area median home price reached a peak of $236,850 in June 2006. The St. Paul Pioneer Press reported on Jan. 13 the median home price in December was $162,000. That means the average homeowner has lost $74,850 in home equity since the peak, including another $5,000 drop from December 2008. 

While numbers – prices – differ greatly across local real estate markets, housing groups have noted that the housing and finance crisis is statewide and not bottled up in the 13-county metro area. On top of that, foreclosure actions are on the rise throughout the state.
The Star Tribune noted signs the troubled housing market was bouncing up and down in the last months of 2009, looking for a market floor. But industry analysts also pointed to a huge overhang of foreclosure actions that will further depress home prices while credit conditions for new mortgages remains tight.

This summarizes the home real estate market a year after Minnesota 2020 proposed a Minnesota Home Values Guarantee Program to guarantee down payments for five years. The concept was similar to a Land Values Guarantee program used by Farm Credit System banks to end the farm financial crisis of the 1980s.

A pilot project proposed by Sen. Linda Scheid, DFL-Minneapolis, cleared the proper Minnesota Legislature committees in 2009 with bipartisan support, but it died on the last day of the session when the bill it was attached to wasn’t brought to a final vote.

Would the idea deserve another look in the upcoming 2010 legislative session? Yes, say officials with housing groups. While it wouldn’t be a “silver bullet” ending the housing crisis, it would help reassure both buyers and lenders that home investments would be protected until the national and state economies turn around.     
Larry Buegler, the former St. Paul banker who devised the land values guarantee program in 1987 and the home values guarantee proposal, sees these changes in the real estate market over the past year:

“There were 27,500 foreclosures in 2008. We warned there would be another 25,000 in 2009. Actually, there were more than 30,000 last year.”

Federal tax credits for buying homes have been extended but will expire by mid-year. “Something like what we’ve proposed is needed to pick up after that if consumer confidence is to come back to the housing market.

“Two things are undermining the housing market recovery: Unemployment and waning public support for stimulus actions. A creeping cynicism is setting in.

“Last year, home buyers stood on the sidelines worried about falling prices and that new mortgages might fall ‘under water.’ Now,” Buegler added, “market resistance comes from fears about job security and access to mortgage money.”

Billions of dollars pumped into the nation’s largest financial institutions have warded off a Great Depression era-like financial collapse. That isn’t doing a thing for Minneapolis, St. Paul, Duluth, Rochester, St. Cloud, Owatonna, Albert Lea, and most of rural Minnesota’s housing markets.

More problems are stacking up. Market trackers currently show 27,791 Minnesota mortgages are in some stage of foreclosure. There are 1,754 such mortgages in Minneapolis, 843 in St. Paul, 198 in Elk River, 80 in Duluth, 76 in Rochester, 74 in Burnsville, 72 in Shakopee, 67 in Monticello, 54 in Big Lake, 45 in Albert Lea, and 43 in Owatonna among cities and counties harmed by the housing crisis.
Stable housing prices wouldn’t save all these mortgages. But it would help keep more mortgages from falling below water – or carrying a higher mortgage obligation than current market value. And it would help turn the Minnesota economy.

The following is offered as a reader of literature for all who may want to track what has happened to the Minnesota housing market in the past year and access these major news stories and reports.

Daily Reckoning, “The go nowhere housing market.”

Bernard, Stephen and Tim Paradis. “Stocks fall as new home sales drop 7.6 percent.” Associated Press. Jan. 27, 2010.

Falchek, David. “Good time to buy, bad time to qualify: How to get a post-bubble mortgage.”  The (Scranton, Pa.) Times-Tribune. Jan. 24, 2010.

Grocer, Stephen. “US: Banks Set for Record Pay.” Wall Street Journal. Jan. 14, 2010.

Guest, Greta. “Good credit no longer guarantees home loan: Lenders’ strict terms put mortgages out of reach.” Detroit Free Press. Jan 25, 2010.

Haverkamp, Kirk. “Report Predicts Half of Mortgages Underwater by 2011.”

Keller, Bill. “Minnesota Economy to ‘Gradually Mend’ in 2010: Minneapolis Fed admittedly pessimistic in.2010 forecast.” Fox TV. Dec. 21, 2009.
Lindmark, Tom. “U.S. Homeowners Underwater.” Seeking Alpha blog. Aug. 6, 2009.

McGuire, Kara. “A Comeback on the Twin Cities home front.” Star Tribune. Jan. 12, 2010.”  

“Mortgage Delinquencies to Improve by Year-End 2010: TransUnion.”

Norman, Dennis. “Almost 11 million homeowners are underwater on their mortgage.” Real Estate Investor Daily. Nov. 29, 2009.

Snowbeck, Chris. “Exodus of Twin Cities Realtors slows a bit (2009 tally down 3 %, compared with double-digit declines).” St. Paul Pioneer Press. Jan. 29, 2010. 

Snowbeck, Chris. “Median metro home price: $166,000. {That’s 15 percent drop and the lowest since 2000; on the bright side, sales up}” St. Paul Pioneer Press. Jan. 13, 2010.

Zibel, Alan. Associated Press. “’09 sales up for previously occupied homes, but plunging prices show market’s still weak.” Star Tribune. Jan. 26, 2010.