Housing Softening: MPLS Leads the Way in Price Cuts. (Minnetonka: short sale, real estate market)

[west336]

Sorry I was defensive....I thought you meant to be condescending.

I think it's land value as well, as land in this country is still very very cheap for the most part.

[MN-Born-n-Raised]

Originally Posted by track2514

This is my first post and I have felt compelled to reply to MN Born and Raised because I think you putting some false information out there about the real estate market and the basic concepts of real estate. You apparently live in Andover, which is approximately 25-30 miles from the Twin Cities depending on your location and if you are commuting to Minneapolis or St. Paul. So in essence, you live in an exurb of the Twin Cities and based on all of the information I have seen these areas have suffered the most in this real estate "collapse." I put collapse in quotes because I am not sure the Twin Cities have really suffered a real estate collapse. Many areas of the country, i.e Florida, California, etc. have experienced a collapse, but not the Twin Cities. Decreasing values due to market conditions are a little different than a total collapse. My advice to potential homebuyers is to consider that every area is different and suburbs are different than cities and certain parts of the city are different than others.

For example, my wife and I have some friends that purchased a townhouse in Eden Prairie for $210,000 in 2005 and they recently had a child and hoped to sell to upgrade to a house and have more space. They contacted an agent and after a CMA, the agent mentioned they should list the property for $90,000 since the most recent comparable sale she could find was an end unit (they have a middle unit) with the same floor plan sold for $105,000. Well needless to say they decided not to sell since they still have $140,000 on the mortgage. Now here is another example to show how different things can be in the real estate market. A coworker of mine purchased a house in the Mac-Groveland neighborhood of St. Paul in April of 2008 (the peak of the "collapse") and since she secured a job in Rhode Island she recently sold this summer (June). Well she paid $280,000 for the house and after a paint job inside and out and re-finishing the hardwood floors she sold for $370,000. She was very worried about selling her house since she had an FHA mortgage and only put 3.5% down, but her worries were for not since she now has close to 20% down for her new condo in Providence. So my point is simple even in this terrible economy and supposed real estate collapse every area is different and making broad generalizations is not very wise.

With all that being said, I don't want to say that all exurbs or suburbs are experiencing more real estate trouble than the cities, but the nature of suburban of exurban areas sometimes makes it tougher to sell since you are often competing against new construction. On a final note, a swimming pool has been well documented as the worst investment for a potential seller so I am glad you did not include that in the total. There will be no quick fix for the real estate market, but certain areas will recover faster and buying a house right now for the right price is not a bad investment.

Welcome to the forum!


I agree with many of your points. Other than the fact that the bubble peak was NOT in 2008 (it was deflated somewhat by then). Also from April of 2009 to April of 2010, many town in the metro area had a nice amount of appreciation including Andover. Actually, Andover is fairly well off (income and depreciation) in comparison to other Northern communities. As to how she pulled off $90K with paint is either a statistical outlier or you missed part of the story of what really happened.

We are dealing with averages. On average houses will come down while other areas in MN very well might be flat or go up some. Since a lot of wealth dissolved (stock market, real estate values, wages), on average homes that cost more will have a tougher to sell than those that are cheaper. If homes drop in value, on average it gets tough to sell expensive homes shy of a fire sale.

Saying all of this and predicting interest rates will hold (for the earlier stated reasons) on average I'd tell my Kid's to hold for a while to see what happens with the economy and housing. The wild card COULD be deflation or even a depression. Do you have a lot of faith in our government’s ability to manage this?? How about if it is out of our hands and China's market bursts (read the link I gave in a previous thread) or the EU emplodes.

There has ALWAYS been things to worry about and hopefully we pull out of it with our shirts on. But don't you remember just one short year ago that our Prez explained why we were in a DIRE situation and heading towards a complete collapse?? Have you heard that kind of talk in before?? We are in different times.

Now, call me paranoid. But I know a whole lot of folks with money in their pocket that have a back-up plan. So I don't have a real good feeling that life will go on as it always has.

I pointed to a piece that showed a lot of shadow inventory on expensive properties. It proved that banks are not releasing the new group of strategic defaulters (bigger dollar homes). We have 4M too many homes in this country. How long do you think it is going to take for housing to take off again with those kind of excess supply numbers??

So you all can put your head in the sand like you did when the bubble was inflating (people who researched it saw it coming) or you can assume that you don't need to look a lot deeper and make your own analysis. That's all. I like to be a few moves ahead. I had three homes and I'm down to two. I'm going to buy a 3rd in AZ but sure in the H_ll not now. If I could sell my place up North I would but instead I rent it by the week and bring in $40K in rent (my lake place; not my spot in Andover).

So it's time to erase what you just heard and default back to the way it use to be.

[trackstar13]

Well MN Born and Raised, I can see your points, but I also feel that you are off the mark a little bit in regards to basic real estate principles. Interest rates are extremely low right now and just because some predictions say they may stay the same or lower, I am not sold on this idea. Historically, interest rates have been much higher and if there is any sign of improvement you better believe the banks will be pushing to get those rates up because of their recent losses. I bought last year not because of the market, but because I prefer to own and my wife and I have stable jobs. I don't mind if my house loses value since our incomes are too high to rent (without that mortgage deduction Uncle Sam would be taking much more of my money). Also, we don't plan on going anywhere in the near future so for us a house is a good plan.

The real estate bubble has reminded us that homes are long term investments and not meant to be flipped, but if you are in the right spot and buy for the right price you can still make money in this market. My co-worker that I mentioned previously turned out to make the right decision, I know everything she did with the house since my wife and I helped with the interior painting and I saw the house when she bought it. Was I surprised she beat the bubble? Yes of course, but my point is simple real estate has always been about location and that is even more important during this market.

I think if people are simply smart about their real estate decisions there is never a bad time to buy. Finally, one thing that has always fascinated me about real estate is the fact that if you buy in the right location and make the right improvements you can typically walk away with money even after receiving a mortgage interest tax deduction and tax credits. Also, if you lose money in the real estate game that can be deducted from your taxes. Owning a house is not a cheap venture and is not a quick fix, but the benefits usually outweigh the negatives. There will always be ups and downs in the real estate market, but there are only ups in the rental market (that is the cost of your rent going up).

[MN-Born-n-Raised]

Originally Posted by track2514

Well MN Born and Raised, I can see your points, but I also feel that you are off the mark a little bit in regards to basic real estate principles. Interest rates are extremely low right now and just because some predictions say they may stay the same or lower, I am not sold on this idea. Historically, interest rates have been much higher and if there is any sign of improvement you better believe the banks will be pushing to get those rates up because of their recent losses. I bought last year not because of the market, but because I prefer to own and my wife and I have stable jobs. I don't mind if my house loses value since our incomes are too high to rent (without that mortgage deduction Uncle Sam would be taking much more of my money). Also, we don't plan on going anywhere in the near future so for us a house is a good plan.

The real estate bubble has reminded us that homes are long term investments and not meant to be flipped, but if you are in the right spot and buy for the right price you can still make money in this market. My co-worker that I mentioned previously turned out to make the right decision, I know everything she did with the house since my wife and I helped with the interior painting and I saw the house when she bought it. Was I surprised she beat the bubble? Yes of course, but my point is simple real estate has always been about location and that is even more important during this market.

I think if people are simply smart about their real estate decisions there is never a bad time to buy. Finally, one thing that has always fascinated me about real estate is the fact that if you buy in the right location and make the right improvements you can typically walk away with money even after receiving a mortgage interest tax deduction and tax credits. Also, if you lose money in the real estate game that can be deducted from your taxes. Owning a house is not a cheap venture and is not a quick fix, but the benefits usually outweigh the negatives. There will always be ups and downs in the real estate market, but there are only ups in the rental market (that is the cost of your rent going up).

Hi Track2514. You are right, location is even more important in 2010. When demand is down, location is paramount. Putting it another way, only the best properties and at the right locations will sell well, Or else stiff discounts will be the exclusive motivator (your townhome example).


I agree. If things look better interest rates will probably go up. Now all you need to do is tell me how the economy is going to get better and I'm going to predict they are going to go up as well.

The people who are making policies have concluded that the economy is currently heavily tied to the housing market. And we all know if interest rates go up, housing will tank further in a very soft economy UNLESS housing heals. But we have 4M more homes than buyers. So hopefully it is obvious that it is an absolute priority for the policy makers to assure that the rates will stay low. Agreed?? IF the Sand states pull down the entire economy that will keep rates low in MN. So if indicators are pointing towards a recession (we will know more in a few months) and the housing market is already pointing towards softening again, why would you worry that the rates are going to go up??? That seems irrational. You are throwing away what you know in favor of a gut feel that they just cannot stay like this based off of history. As I said, history is meaningless in this economy right now. We are limping off of printed money or we would have completely tanked (our Presidents words in March of 2009 not mine). You will have plenty of months to react if the rates are going to turn. If the rates do go up, demand will tank unless the economy heats up. If you are spending real money ($400K) you better have that long term view or you will be trapped like a lot of upside down owners are. How smart is that??

Like I said, now all you need to tell me is how the economy is going to heat-up again when we are in a global economy (on average we ARE competing with low wages and that is why unemployment is where it is at). So short of re-inventing another bubble or wages collapsing, this is the new economy (8-12% unemployment). Am I the only one who sees this????

I do understand the basic real estate principles. I've bought, sold, improved, flipped, subdivided and rented 15ish properties from 1996 to 2005. That’s not my line of work but real estate is a passion. I've made hundreds of thousands of dollars and I pride myself to know where the fast changing market is going. I got a lot more savvy from when I bought my place in Andover in 1991.

From my regular line of work, I know several of the “players” that set policies and are paid to model what is going on. I'm not alone in my thinking. I'm speaking of the who's who.

With all that being said, most will default back to their history and assume that things will go back to the way they were because they always have. It's too painful to think of what really can happen. Hope alone is illiogcal.

While nothing is for sure (things happen in the world that interact in ways that NO ONE can predict) the writing is on the wall and the debate should only be how bad will it get. I am smart enough to know that the investment portion of real estate is the value of the land or buying it under market for a 1-3 year sale. Long term 30 year thinking in a property that gets out dated is missing 90% of the formula because too many things chance in 30 years. But we need people to buy blindly because if they were rational, they would all wait. I hope and pray that I am wrong but I suspect there is a lot more pain coming in real estate. The more you spend on a property the more you risk and the more volatile it is. Hence, ON AVERAGE it's a great time to wait and watch for all of the stated reasons.

Just my 2 cents...

[west336]

Hey, if you're feeling lucky you can use a ARM loan instead and re-fi before the teaser rates expire. Normally I'd NEVER suggest using an ARM, especially when rates are at all-time lows, but with prices low and rates somewhat stuck, it's possible to pull this kind of thing off. Risky though!

[trackstar13]

Well Born and Raised you got me on the economic indicator for a potential rate increase. I am not sure I can give you that right now, well maybe except for gas prices increasing recently. As gas prices go up this usually means the economy is doing a little better since fuel is traded on a futures market. The economy is far from good right now and I am not sure it will be turned around in the near future, but my point is banks are in business to make money and when there is a small glimmer of hope, watch out because we are going to see the large interest rate hikes designer/builder was talking about.

People who wait until the real estate market "bottoms out" may be in for a surprise because when a market is down this long there is usually a wholesale liquidation (i.e what is happening now) and then a shortage of homes. If builders continue to scale back and sellers/banks continue to give houses away at bargain prices we are going to end up with a shortage and then an artifically high real estate market since there is a lack of affordable homes. For evidence of this look at some of the cities that have had recent real estate booms. What do they all have in common? Well lets take Las Vegas for example and look at the past 20 years. In 1990 Las Vegas had a population around 250,000 and in 2010 Vegas has a population around 600,000. So in many of the areas where there has been a real estate boom there is extensive population growth. What has happened to real estate in this areas? Well for Vegas I could not find all the way back to 1990 for the median home sales price, but in 2000 the price was $130,000 and in 2007 the price was $300,000 and recently in 2010 the price is $127,000. So as we can see the bubble has influenced Las Vegas in a pretty profound way.

Well considering prices in Vegas and many other parts of the country are now at pre 2000 values I think it is safe to say you can get a good deal if you buy in the near future. Now what happens if you wait for a little while? Well lets say the economy does improve a little bit, i.e. job creation and consumer confidence. With the pre 2000 prices and an improved financial outlook houses will be moving at a furious pace and many of these people who are waiting out the real estate market will be wondering what happened. How soon do you we forget the 1990's when consumer spending on real estate and many other goods/services lifted us out of the major recession of the 1980's? Well I remember the 1990's and I remember multiple offers and high interest rates. I hope you are ready for this if you are prepared to wait for the real estate market to "bottom out."

It sounds like you are set in your real estate situation Born and Raised, but please do not give people bad advice. I have no problem with those who would like to rent, but for those waiting to buy, it is like having a child, there is never a perfect time and you can't plan it down to the day. You need to be ready to buy when the market is low and hold on to the property long enough for it to be considered a long term investment. If you want a short term investment buy stocks.

[west336]

You brought up an interesting note: Interest rates have essentially only fallen since their highs in the early 1980's (thanks to the hawkish Volckner). It seems like that may have possibly influenced housing prices quite a bit in the past 3 decades. Now as we look forward for the next 1, 2, or 3 decades, is it realistic to expect a similar turnaround that we saw in the 80's 90's and 00's? Maybe not, as interest rates really can only RISE in the next decade or so. hmmmmmmmmm.

[MN-Born-n-Raised]

Track. Gas prices go up in the summer every year.

If I didn't make it clear by now, the economy has changed FOREVER! You really need to re-think why things are different. So your 1990 recession is meaningless (to me). High unemployment will be with us for years for the earlier stated reasons. In 1990, we were not really in a global economy. In 2010, there are a lot of pressure on wages and the global economy is responsible for the huge net job loss once the bubble deflated. We would need to re-invent ourselves to get back to where we were even in 2000 (job creation wise). To handicap us further, our solution was to climb into $14T worth of debt and we are still limping.

I said several times now that it is impossible to pick the "bottom". What I said is ON AVERAGE we seem to be having a down turn in our marketplace. Not every neighborhood will go down, some will go up. But it takes a lot more digging to understand what is going on with the inventory in each pricing category and examine each neighborhood. And even if a neighborhood or state weathered the current mild storm, delayed waves can happen. You see it in the Phoenix area as we speak. Goodyear seems to have healed and going up slightly while Chandler and Gilbert are on their sharp way down (yet held much better for two years).

Re: banks. On average, they are not interested in loaning their money for homes these days. The banks as a whole don't control interest rates anyways. Just look at the percentage of government backed loans. If you get a USBank loan on a home, the overwhelming majority are backed by the government. Also the banks dumped all of their "junk" onto Freddie and Fannie. So when a person calls the bank to default, the banks may not really care because they are not the ones who will lose. So it's easy to slow or speed up foreclosures as an aggregate because the government holds most of the junk mortgage. So after looking at >$400K homes the “banks” (government backed loans) are sitting on them. The theory is they don’t want to release them for fear that market will further collapse.

Read this article. http://www.ritholtz.com/blog/2010/07/the-4-trillion-dollar-question-2/?source=patrick.net Then re-read it again.

As the owner of the blog stated, "Dhaval’s analysis looks a variety of housing data relative to household formation, housing stock, vacancy rates, and inventory is not the typical housing review. It is quite illuminating." The author took a bunch of common sense observations and put together in a strong argument. Note: He didn't talk about gas prices.

Track. I just don't think you understand what we are up against because you keep on defaulting to the history and ignoring what is different this time. My "wait" recommendation comes from the real concern that something much worse than we have experienced before might occur. I'm not saying it is probable, I'm saying it is possible. A double recession is probable. Lower housing prices ON AVERAGE are probable. High long term unemployment is highly probable. Increased government debt is also highly probable. Therefore I'd tell my Kid's to wait to buy an expensive home. For a $150K home the risk is low. If they have to pay 1% point more (which I doubt) then that is a lot better than putting down 10% on a $400K home to learn that the economy is falling apart or housing drops a lot or (worse yet) sh_t hits the fan in the form of a worldwide depression. To me it's all about mitigating risks. My crystal ball says wait in nearly every situation. Your mileage may vary.

[MN-Born-n-Raised]

Originally Posted by track2514

.... Well for Vegas I could not find all the way back to 1990 for the median home sales price, but in 2000 the price was $130,000 and in 2007 the price was $300,000 and recently in 2010 the price is $127,000. So as we can see the bubble has influenced Las Vegas in a pretty profound way.

.

If I was a 1st time buyer in Vegas I would buy now. That's because $127K is tough to go bankrupt over. By definition, you cannot lose more than $127K and you can take in a renter to make ends meet. My advice is different for the $400K home in Vegas for the stated reasons.

I would not buy in AZ (I'm looking) because I don't need another home now unless I think it is going up in value. If interest rates rise, I'll be in even better shape to pick up a deal. So again, what is the hurry (for me)?? And if all of our worst (possible) fears happen, do you think you want another home to worry about and "feed"??

[trackstar13]

Ok MN Born and Raised, just so I get this straight your advice to potential buyers is as follows:

1) Buy at $150,000 and under
2) Wait at $400,000 and higher
3) I am assuming you also want those in the $151,000-$399,000 group to wait also since you have not mentioned anything here

The blog you listed is one that I frequent currently and I like the author, but I am not sure if I agree with everything he says. Also, to your comment about the economy is changed forever. I completely disagree with this since history often repeats itself and in America we have very short memories. If the economy were changed forever and more specifically the real estate market, there would be no ARM mortgages, Home Equity Lines of Credit, downpayment assistance programs, and FHA mortgages. Well despite the real estate bubble, all of these products still exist and don't seem to be going anywhere. Yes they may be harder to get, but you only need one lender and many banks are desperate.

If we are to take your advice (see above) it would be impossible to buy a $299,000 single family house in Orono on Lake Minnetonka that is currently for sale since now is not the time to buy and something like this will be much cheaper in the future. I can't wait until houses on Lake Minnetonka are under $150,000 because thanks to your advice I will wait and buy all of them.