Recent national data show Twin Cities home values rebounding at a pace faster than many cities in the country. But the market won’t really recover until the short-sale problem gets worked out. And it’s hard to see any way out of that hole any time soon.
Why? Short sales need buyers and the process scares buyers away.
“Short sales are languishing,” says Aaron Dickinson, a local Realtor who writes a detailed blog on the area’s housing market. There are about 5,000 short sale properties for sale now and fewer than 500 sell per month, he adds.
So there’s at least a 10 month supply that needs to be worked through. That inventory’s likely to climb with the next wave of mortgage problems.
In short sales, the homeowner owes more on the house than he’ll get from the sale. The bank, which likely ends up losing money on the deal, must sign off on the sale. That creates a tough situation with banks wanting to protect their financial interests and Realtors, sellers and potential buyers frustrated by an approval process that can drag on for months.
A few months ago, Adam Leistico seemed like the perfect short-sale customer. He was in the hunt back in May. Though frustrated, he was looking actively to buy.
It didn’t happen.
“We did not end up buying a short sale, we actually ended up swearing them off completely,” Leistico, a source in MPR’s Public Insight Network, told me recently.
We waited for a long time, and the house was pulled out from under us by the bank, so we ended up buying a different house that we are very happy with, albeit for a little bit more money. We have been warning everyone we can away from the short sale process.
In an analysis he co-wrote a few weeks ago, Dickinson noted that while the inventory of bank-owned foreclosures had fallen dramatically, short-sale homes hadn’t budged in a year. “It’s discouraging to see that short sales remain such a substantial drag on the market’s forward momentum…”
Here’s a chart from the Minneapolis Area Association of Realtors. The blue line shows a big drop in the inventory of foreclosed, lender-owned homes. They’re moving. They red line shows short sale homes on the market.
Ironically, Dickinson worries the $8,000 federal home buyer credit, which has done a lot in the short term to buoy the housing market, may have torpedoed the short sale market the past few months.
With the credit expected to expire at the end of this month, “a lot of people said, ‘I don’t want to lose the tax credit over a short sale.'”
Got a perspective to share on short sales and the housing market in the Twin Cities or across Minnesota? Post below or contact me directly.