Lingering US housing problems threaten Minnesota

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“It could be worse” is the old Minnesota explanation of weather conditions. It might apply to our housing markets as well.

Minnesota 2020 and Minnesota Housing Partnership have been collaborating on a series of articles looking at the “Uneven Recovery” for our state and local housing markets in the five years since the housing bubble burst. Now come data showing more severe problems in other parts of the country, and why the entire U.S. economy may hang on the housing market going forward.

Katie Doyle of Bankrate.com has assembled data showing “Foreclosures: 10 Worst States Right Now.” Nationally, one mortgage in 1,055 is in some stage of foreclosure – improved from 655 in second quarter 2012 – while Florida continues to lead the pack with one in only 346.

Following behind Florida is Nevada, one if 533; Maryland, 543; Illinois, 603; New Jersey, 619; Connecticut, 752; Delaware, 818; South Carolina, 850; Ohio, 885; and California, 921. Whew. Minnesota doesn’t make the list.

A related real estate data offering from msn.com sheds more light on how vulnerable the housing market recovery might be to rising interest rates and possible Federal Reserve policy going forward. In a slide show presentation on “Home, sweet unaffordable home,” it uses Zillow Inc. data and analysis to list cities and metro areas especially vulnerable to interest rates.

Consider this example: San Francisco homeowners have historically paid 38.2 percent of median household incomes on housing costs. If mortgage interest rates go up to 5 percent, housing costs will take a projected 46.4 percent.

Other areas that should be of concern for the national economy include San Jose, where a mortgage rate increase to 5 percent would raise housing costs from an historical median of 35.6 percent of household income to 42.4 percent; Santa Rosa (Calif.), from 32.2 percent to 40.3 percent; Honolulu, from 37.5 percent to 39.6 percent; and San Diego, from 35.6 percent to 38.9 percent. Los Angeles homes are hanging on the same interest rate cliffs.

Such data beg a couple of Minnesota observations.

First, it means homeowners in California and a few other high-cost areas face the same range of housing cost burdens we’ve noted for 66 percent of renters in Minnesota. Federal guidelines say everything above 30 percent of household income spent on housing is a burden.

Second, our Minnesota economy might withstand downward pressure from a housing collapse and regional recession in states such as Nevada, South Carolina and even Florida. But there is no way we would escape economic shocks from a collapse of California – America’s most populous state.

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