Hints that Minnesota and Twin Cities housing markets may be close to hitting bottom are welcome as we near the end of 2011, but don’t expect a fast upswing for housing.
The reason: Jobs.
Keep in mind, the housing bubble burst after reaching a peak in 2006 because it was unsustainable. The collapse in home values, however, has been excessive because falling markets and tight credit scared off home buyers.
Bad public policy and corrective action after unregulated lending led to financial disaster are largely to blame for housing woes. We keep laying off middle-class workers—teachers, public servants, constructing workers. While private industry is creating jobs again, the pace isn’t nearly enough to balance the damage from public sector cuts.
For the record, the Minnesota Association of Realtors said in mid-November that statewide Minnesota median home prices dropped another 7 percent in October to $140,000. The median seven-county Twin Cities metro area price was $157,900 – a 9.8 percent drop from the same month a year ago.
The Twin Cities median price peaked at $236,850 in June 2006, then tumbled nearly $80,000 since then.
Granted, the peak price was inflated equity realized only by the people who sold homes in June five years ago. However, the bubble took more equity than it created. That’s what’s holding back some entrepreneurs. Those people looking to tap built up home equity for cash or collateral to start or expand a business lost most of it when housing prices sunk, thus stalling job creation from small business.
How can either the job market or the housing market recover? A first giant step would be for federal, state and local officials to find ways to stabilize public employment and stop putting extra downward pressure on both markets.