Local real estate troubles are “still early on in the game”

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To get a handle on the deluge of real estate horror stories choking the news wire every day, we phoned local mortgage banker and Behind the Mortgage blogger Alex Stenback with a couple of basic questions: How’s the local housing market faring compared to those in other US metro areas? And how much further does he think the slide will go?

On the first count, Stenback says it’s difficult to tell, though he adds that housing inflation here was never as dramatic as in the most at-risk markets. On the second count, don’t hold your breath: “I still think we’re fairly early on in the game here. It would not surprise me to see values and the other metrics we use to measure the health of our real estate market decline for another 18 months.”

Hear the full interview at The Daily Mole.

On the severity of the local downturn:

“Looking at some of these studies that have pulled Minneapolis and St. Paul out specifically, I haven’t seen many credible studies that showed the Twin Cities, at the height of the housing boom, any more than 10, 12, 15 percent overvalued… The easiest way to predict where the market goes is to look at those figures and understand that we’re not a market that had the tremendous inflation that some of the coastal markets had. We’ve had robust inflation here in the Twin Cities, no question, but I think that… the higher a market gets, the further it has to fall… In our market, if you look back to 1964, housing has appreciated at between 5-6 percent annually on average. We went through a period there from 2000 to 2004 or 2005 where it was double that [rate] or more… We’ll see a regression… I would say we’re in a pretty good position [compared to other cities].”

On the most stable areas in the Twin Cities:

“Those areas that are closer to the central business districts… that are time-tested markets that have had strong demand for a long time, are going to tend to hold up better. We saw a phenomenon during the run-up to this boom where we were expanding further and further into the suburbs and exurbs. And the further away you got from the Twin Cities, the more robust the housing market seemed to be. The closer you get to the Twin Cities, generally speaking, the more stable those markets are going to be.”

On the hardest-hit sectors of the local economy:

“The construction industry is definitely one. Aside from that, there is a lot of real-estate-related activity that has flown out of this housing boom. Things like people using home-equity loans to finance major purchases… There were also a lot of people out there to serve the real estate engine: mortgage bankers, realtors, title companies. All those folks, during the boom, were making good money, paying good taxes, and spending that money in the local economy… Real estate does have a wealth effect. If people’s properties are appreciating, they’re more apt to spend money, whatever that might be on… All of that money that was extracted from the process of buying and selling and re-financing real estate goes away.”