Minneapolis, basket case

When it comes to home values, Minneapolis has apparently surpassed even Detroit as the nation’s economic basket case.

The Minneapolis area had the worst one-month drop in the resale price of homes (seasonally unadjusted) from December to January of 20 major metropolitan areas. The Case Shiller Index, released this morning, measures the resale values of homes. It showed Minneapolis’ home values dropped 3.4% in a month. It’s the biggest one-month drop in the Twin Cities values since July of 2009, in the thick of the economic meltdown. It’s the sixth straight month of declines.

Here’s how the region stacks up:

City
Change from January

Minneapolis
-3.4%

Seattle
-2.4%

San Francisco
-1.9%

Chicago
-1.8%

Portland
-1.8%

Detroit
-1.7%

Phoenix
-1.5%

Miami
-1.3%

San Diego
-1.2%

Denver
-1.1%

Charlotte
-1.1%

Tampa
-1.0%

New York
-0.9%

Cleveland
-0.8%

Los Angeles
-0.6%

Dallas
-0.5%

Atlanta
-0.4%

Boston
-0.3%

Las Vegas
-0.3%

Washington
0.1%

On a seasonally adjusted basis, the Minneapolis drop was 1.5%. That was also the worst in the nation.

The picture brightens somewhat when considering the change over the last year. In that category, Minneapolis is not the worst; it is merely one of the worst areas in the country.

City 
One-year change
Phoenix
-9.1%
Detroit
-8.1%
Portland
-7.8%
Minneapolis
-7.6%
Chicago
-7.5%
Tampa
-7.0%
Atlanta
-7.0%
Seattle
-6.7%
Boston
-6.0%
Charlotte
-4.8%
Miami
-4.7%
Las Vegas
-4.4%
Cleveland
-3.8%
New York
-3.0%
Dallas
-2.8%
Denver
-2.3%
Los Angeles
-1.8%
San Francisco
-1.7%
San Diego
0.1%
Washington
3.6%

David Blitzer, who runs the survey, said the second recession may be at hand. “The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing,” he said.

  • Tyler

    …or maybe our bubble is just slower to pop?

  • How exactly do low home prices = economic basket case? Wasn’t the basket case thinking part of the equation in play when homes were grossly overvalued?

    If corn prices crater, does that make the state an economic basket case?

  • Tim

    One thing I’ve started wondering about is people who lost their homes to foreclosure in the early days of the crisis or just before (say, 2006) and at what point they will be able to buy homes again, assuming they would want to.

    I don’t remember the details, but IIRC, a foreclosure stays on your credit report for 5-7 years. So for a while there, these people would most likely not have been able to buy homes. But now it’s coming to the point where these foreclosures will start falling off reports, and these former homeowners will once again be able to buy houses — and this time, at much, much better prices.

    So I guess it’s possible that for some people, being foreclosed on in the early days may end up having an unexpected benefit (not that foreclosure is an easy thing by any means) thanks to the housing market still being terrible over a long period of time.

  • Bob Collins

    //If corn prices crater, does that make the state an economic basket case?

    No. But it might make farm country an economic basket case.

    I get where you’re coming from and maybe another economic model would be superior, but we’ve got the one we’ve got and unicorns and rainbows won’t change it.

  • Bob Collins

    //..or maybe our bubble is just slower to pop?

    No, it’s definitely a double dip. Things had bottomed out — or appeared to — in April 2009 after 9 months of declining values.

    Values had recovered to a high in July 2010, that had gotten back to December ’08 levels. Now we’re back to where we were in May 09. We’re now just 4.2% away from 2000 levels.

  • Oh good. Next year’s assessment should come with a bottle of whisky.

  • kennedy

    I heard a statistic this morning that (nationwide) 1 in 5 home owners are currently under water on their mortgage. Further market decline could raise that number, increasing foreclosures, depressing home values even more.

    Not really a big deal, though, if you have enough equity and time to ride out the storm. You only gain/lose money when you sell the house (or lose it to foreclosure).

  • Bob Collins

    Or to put it another way: If you bought a home in the last six months, you’re already underwater.

  • John

    How are rentals faring?

  • Bob Collins

    You mean rents or the value of rental properties? Seems to me I read something a few months ago that it’s a great time to be an owner of rental housing.

  • andy

    I think rentals are taking advantage of a situation, at least here in the outer suburbs of Chicago. Rent is really expensive, therefore we are planning to buy a house next spring – hopefully my timing is good since the projections are that housing (around here at least) will decline for yet another year – and bottom out next spring. Sadly, I’ve been hearing the same prediction for years…..

  • JackU

    On the topic of “being underwater”. At any point in time that’s only an issue if you are looking to sell. If I have a mortgage that I can afford and don’t have any intention of selling the house in the near term then owing more on it than it is worth is not necessarily a problem. Being underwater doesn’t mean you’re headed for foreclosure. As for the people who bought in the last six months I suspect they weren’t buying to “flip” a house. If they were they had bad advice.

  • Joe

    Two factors may have contributed to this:

    1. Minneapolis had a tremendously cold, early and snowy winter this year. i suspect that a lot of us wanted to move out, and very few wanted to move in.

    2. At the same time, in December, Hennepin County residents, including those of us in Minneapolis, received news about very significant estimated property tax increases for 2011.

    What a shocker: with a death grip winter, and even worse property tax news, the supply of home sellers outstripped buyers. While winter seems to be loosening its grip, the property tax picture has not improved.

  • bsimon

    “When it comes to home values, Minneapolis has apparently surpassed even Detroit as the nation’s economic basket case.”

    Geez, Bob, got hyperbole?

    and this one:

    “Or to put it another way: If you bought a home in the last six months, you’re already underwater.”

    Perhaps true if you put less than 5% down, which is tougher to do with the tougher mortgage standards. Even then, if someone is planning to sell within the next year or two, they were stupid to buy a house this year.

  • Bob Collins

    //Geez, Bob, got hyperbole?

    If you’ll go back and look, you’ll see that back when Detroit had the distinction now held by Minneapolis, I also referred to it as a housing value basket case.

    I don’t recall you objecting to that.

    It is what it is. But at least Minneapolis has a better baseball team.

  • bsimon

    Bob C writes

    “We’re now just 4.2% away from 2000 levels.”

    Actually, that shouldn’t be a surprise, because for all but the super-wealthy, wages & salary are stuck at 2000 levels. 2000 was early in the bubble, when home prices started accelerating faster than incomes. It is actually a good sign that housing prices are returning to affordable levels – relative to income – than they were in most of the last decade. I suspect most of us would have preferred that gap to be made up by income growth rather than a drop in housing prices, but as was also said: we’re stuck with the economy we have…

  • bsimon

    “when Detroit had the distinction now held by Minneapolis, I also referred to it as a housing value basket case.

    I don’t recall you objecting to that.”

    My point which certainly could have been expressed better, is that taking a one month snapshot of housing valuations is a ridiculous measure by which to make a claim that any one city is an ‘economic basket case’. That is what I’m referring to with the allegation of hyperbole. That a subsequent chart shows that Minneapolis did actually not surpass detroit in one year housing drops supports my point. I suspect that if we expanded the timeframe further, we would see that Detroit housing values have fallen much much further than local prices have. In conclusion, if we pass Detroit for total aggregate drop in housing values, we can be described as having taken over the ‘basket case’ label. Until that happens, its all hyperbole.

  • Bob Collins

    //In conclusion, if we pass Detroit for total aggregate drop in housing values, we can be described as having taken over the ‘basket case’ label. Until that happens, its all hyperbole.

    Obviously, I provided the chart for the housing value drop over the last year. So you’re saying we’re not a “basket case” as long as we’re only .5% behind Detroit in year-over-year valuation?

    It’s true that if you go back to the start of the economic meltdown, Detroit’s home values are down 26%, Minneapolis is down almost 20% — both are below Phoenix and Vegas.

    And in 6 of the last 7 months, the rate of decline in Minneapolis has outpaced Detroit. The apparent recovery in home prices in Minneapolis explains the remaining difference between the rate of decline year-over-year, and there’s obviously some comfort in that except when you consider Blitzer’s warning that we may now be in a double-dip recession, only this time the recession is hitting Minneapolis harder than Detroit.

    It’s also been 7 months since Minneapolis had a better performance on values than the 20-city index. And Minneapolis has fared worse in 13 of the last 16 months. Since the economic meltdown, the 20-city average has dropped about 12%, Minneapolis has dropped 20%.

    Is Minneapolis Detroit? No, is Minneapolis fixing to be Detroit w.r.t. the erosion of home values. Absolutely.

    The spreadsheet is at the Case Shiller site if you’d like to play with the numbers. If you can find a combination that isn’t grim, please do.

  • kennedy

    // It is what it is. But at least Minneapolis has a better baseball team.

    The Tigers beat the Twins 4-3 in their only Grapefruit League matchup this spring. The Twins do have a newer home, though. The most recent data for high tier (expensive) real estate in Minneapolis shows it nearly the same as the beginning of the baseball season last year…

    …so the Twins are not underwater on their new home (yet).

  • David Beimers

    Bob says:

    “Is Minneapolis Detroit? No, is Minneapolis fixing to be Detroit w.r.t. the erosion of home values. Absolutely.

    The spreadsheet is at the Case Shiller site if you’d like to play with the numbers. If you can find a combination that isn’t grim, please do.”

    How about this? The median home price (3rd Q – 2010) in Mpls was $182,000. In Detroit, it was $59,000. Yes, the median home value was $123,000 MORE in Mpls than in Detroit.

    Is Mpls still in a housing slump? Sure. Is it comparable to Detroit? Not even close. It would take 20 years of steady declines to reach home values comparable to Detroit.

    I moved from the rust belt in 2008. The housing slump had been active there for several years. It didn’t hit MN until AFTER I had purchased my home in MN. MN was one of the last places to see the housing market decline. It makes sense then that it is taking a little longer to stabilize. BTW, Case Shiller predicts Detroit home values will fall 3 times that of Mpls home values during the current year.

  • Bob Collins

    The actual price of a home from city to city isn’t part of CS because the value/resale of the home isn’t between cities except for those people selling in Detroit and buying in Mpls. In other words, the survey is all about what you paid for a home and what you sold that same home for.

    But put me down for being in the group who thinks Minneapolis is a more desirable city than Detroit. Of course, I didn’t buy a home there. Buying in Woodbury in 1993 is one of the few elements involving money that I timed correctly.

  • Peter T

    The federal government propped up housing prices during the last fall to help the banks with their large mortgage portfolios. The banks seem to be in better shape nopw, at least to judge from their dividends, so it is time to remove the props and let the market continue to fall where it should have gone in 2009.

  • Moreland

    We moved to the western suburbs of Minneapolis (from another state) in 2009. Homes are overpriced compared to salaries (okay, our salary) IMHO. When I look at property taxes paid on existing homes, I shudder. We’ll continue to rent. Plus, some guy in a truck comes and plows our driveway before we have to get out in the morning. And some guy mows the yard. And guy comes and fixes things when they break. And we still make the same rent payment every month. What a bargain!

  • Chad

    Don’t confuse ability to make a market jump with the ability to make it fly.

    The initial “bottom” was artificial, courtesy of all sorts of injections of liquidity into the mortgage market, home buyer tax credits, etc… That just gives a one-time jolt to the markets but not sustainable. With the recent FDIC plans to tighten lending standards (likely) and the possibility of reining in the mortgage interest deduction (unlikely IMHO) the winds are blowing down, not up for the next few years.

  • Bob Collins

    //The initial “bottom” was artificial, courtesy of all sorts of injections of liquidity into the mortgage market, home buyer tax credits, etc..

    My guess is the problem has to do primarily with the unusually high foreclosures in the Twin Cities. Until that backlog is somehow cleared up, I don’t see how anything changes.

    And, of course, the original TARP plan was intended to clean those up. That lasted about two weeks before the program was changed to just giving a lot of money to the banks, and hope they would turn around and ease credit. For the most part, they didn’t.

  • Steve

    The stats mentioned here are the result of a mini-bubble created by the tax credit which ended mid year 2010, and resulted in the “hangover” of fall and winter 2010.

    The same thing happened with the car business during the cash for clunkers fiasco.

    The feds just stimulated the real estate market!

    Now, we are seeing real buyers coming to the market, who have realized that; if the have a good job, and if the are going to stay in their community for a while, they may be Buyers.

    And, locking in a 30 year loan at 4.75%, may be a good idea.

    Q: If you wait til spring of 2012, expecting the value of home to go down another 7%; but the interest rates rise 25% (6.0%) during that titime; what does that do to the “affordability” of the home you want to buy?

  • Denise

    I’ve been in the market to buy in the Saint Paul area since 2005. Solidly middle class. So back in 2005 I had saved what I thought was a good 20% down payment, then went to look at townhomes and couldn’t believe the bubble prices. Six years later there are still homes listing at $200 per square foot and/or 4 times’ my annual salary. We had a huge bubble here beginning in 2000 and it ain’t deflating very quickly. What’s left out there are the dregs because the investors and speculators are buying up the affordable middle class homes–you know, the ones that are priced at a prudent 2-1/2 times’ annual salary–and flipping them. In other words, if the median price is $182,500 and the median salary is $50,000, you’re still way over the prudent debt-to-income ratio. And forget it if you have a car payment. Six years and I’m still waiting for prices to come down to earth where a real, live middle class single person can buy a home. Meanwhile I’m still saving. Used to be that $25,000 DP would get you a nice little home. Now $50,000 DP buys you a foreclosed, stripped-down POS. Not willing to flush my hard-earned DP money down the toilet quite yet. . . . Prices still need to come down 30% here.

  • bsimon

    Sorry to not reply sooner, work & kids have combined forces to keep me busy.

    bob wrote

    “It’s also been 7 months since Minneapolis had a better performance on values than the 20-city index. And Minneapolis has fared worse in 13 of the last 16 months. Since the economic meltdown, the 20-city average has dropped about 12%, Minneapolis has dropped 20%.

    Is Minneapolis Detroit? No, is Minneapolis fixing to be Detroit w.r.t. the erosion of home values. Absolutely.”

    I think that supports my allegation of hyperbole. Claiming an economic basket case on a one month change – or even a one year change – is excessive and inaccurate.

    A quick google search for case-shiller, 5 minutes ago, led with this result:

    http://www.freep.com/article/20110330/BUSINESS04/103300401/1051/CBS-reports-Pistons-sale-could-happen-mid-April/In-metro-Detroit-home-prices-lowest-since-94-owners-feel-sting?odyssey=nav|head

    “The last time home prices in metro Detroit were this low, it was the summer of 1994 … Home prices in metro Detroit have dropped an average of 48% from their December 2005 peak. They’re down 34% from 2000.”

    Has Minneapolis taken over Detroit as an economic basket case? Not based on home prices.