Update on the short sale mess

We posted recently that while the Twin Cities housing climate was improving, the market wouldn’t really recover until the short sale problem gets worked out.

New detailed reporting released today on short sales by the Minneapolis Area Association of Realtors shows there’s still a long way to go.

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.

It’s a drag on the rest of the business and on home prices generally. The Minneapolis Realtors report today showed a stubbornly high inventory of short sale homes — about 4,300 in the Twin Cities, only about five percent less than October last year and still way up from 2007.

New listings of short sale homes in October were almost exact to October 2008.

On the positive side, lender owned homes in foreclosure are still selling at a good clip with less than a month and a half of inventory. Compare that though to short sales, where there’s a 13 months supply, according to the most recent data.

Markets recover. But it’s going to take more than an invisible hand to fix the short sale mess, which right now could be with us until 2011.

BONUS INFO: Here’s the MPR story from today on the Realtors’ overall market analysis.

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