Twin Cities housing prices: It's still getting worse

Posted at 10:32 AM on April 27, 2010 by Bob Collins (8 Comments)
Filed under: Economy

The "housing recovery" is a dud. The latest report on the average resale price of homes in the Minneapolis area shows Minneapolis suffered one of the biggest drops in February, compared to other cities measured in the Case-Shiller index. Only Portland surpassed Minneapolis for one-month flops.

It had been a given that housing prices had bottomed out or were close to it, but this is the fifth straight month of falling prices (these are seasonally un adjusted. Minneapolis resale prices dropped 2.2% in the month, compared to January.

City	Change from January
San Diego	0.6%
Las Vegas	-0.4%
New York	-0.4%
Miami	-0.5%
Washington	-0.5%
Los Angeles	-0.7%
San Francisco	-0.7%
Denver	-0.8%
Boston	-1.0%
Charlotte	-1.0%
Seattle	-1.1%
Tampa	-1.2%
Atlanta	-1.3%
Phoenix	-1.5%
Detroit	-1.8%
Dallas	-1.8%
Chicago	-2.0%
Cleveland	-2.1%
Minneapolis	-2.2%
Portland	-2.4%

The seasonally-adjusted numbers aren't much prettier. Minneapolis prices dropped almost 1 %. The recent drop in prices puts the average resale price back to what it was here in January 2009.

You can download the data and play with it.

"These data point to a risk that home prices could decline further before experiencing any sustained gains," said David Blitzer, chairman of the Index Committee at S&P, told the Wall St. Journal. "This simply confirms that the pace of decline is less severe than a year ago. It is too early to say that the housing market is recovering."

At some point, "it's not getting worse as fast as it was" isn't going to be considered good news. We might be there.

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Comments (8)

My realtor just checked in with me this morning. Having not bought during the big spin up on purpose, we started looking a couple of years ago when prices were spiraling down. We decided to stop looking about a year and a half ago and just get a bigger apartment (which we love), because I stopped feeling the urgency and realized that the "good time to buy" was probably going to last for years.

She was all about how we've moved past the bottom, that we'll be back to a normal market within five years, and 2020 will be another peak. What I'm wondering is this:

A) Is the cycle going to turn again so fast? I mean, we're still 11 million jobs short and how many trillions of dollars in equity down in this country.

B) Even if we did, is that a good thing? Expensive housing is good for those who bought early and want to build wealth, but cheap housing is good for...well, everybody who needs somewhere to live, which is everybody.

Posted by TJ | April 27, 2010 10:59 AM

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The days of buying a house as a short term "investment" seem to be gone, at least for now. However, there is another side. I find myself after 25 years of house payments with a paid off house. That makes for dang cheap housing. I would have undoubtedly done better over the last 25 years investing my money somewhere else, but now I have a huge financial benefit that will last me the rest of my life. What's that worth? It depends how long my wife and I live, but it's worth plenty over about the next 25-30 years. It's what will allow me to truly afford to retire. It's the part of the "Does it still make sense to buy" analysis that often gets ignored.

Posted by John | April 27, 2010 11:34 AM

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I approached things roughly the same as you, John. When everyone was pulling equity out of their home a few years ago, I was putting more in.

I refinanced at the lower interest rates, but rather than take the cash out, I cut term off the mortgage (about five years). There was some calculations to be done to see if losing deductions would make it more expensive in the long run (no, but it doesn't save you a lot of money either), but I REALLY wanted to have the house paid off by the time I retire.

That'll be another 7-9 years (House is paid off in 7), though I wonder whether my perceived savings will end up being offset by increases in prop tax etc.

Posted by Bob Collins | April 27, 2010 11:53 AM

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I would like to have something like the Prop 13 in CA. That bill hurt a lot of people, drastic cuts to school property tax income for example, but making a few smart changes I think we could have really good property tax system. Value of the home stays at the price when sold is a key provision. One change is to say if person takes out a new, larger, mortgage the value of home would adjust to the new mortgage amount (realized value). Or major improvments (additions to sq feet).

from http://www.californiataxdata.com/pdf/Prop13.pdf

Proposition 13 Tax Reform
Under Proposition 13 tax reform, property tax value was rolled back and frozen at the
1976 assessed value level. Property tax increases on any given property were limited
to no more than 2% per year as long as the property was not sold. Once sold, the
property was reassessed at 1% of the sale price, and the 2% yearly cap became
applicable to future years. This allowed property owners to finally be able to estimate
the amount of future property taxes, and determine the maximum amount taxes could
increase as long as he or she owned the property.

Posted by BJ | April 27, 2010 12:18 PM

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Maybe I'm mis-reading the data, but it looks like we are still up from 12 months back...which means at some point home prices have gone up.

if they went up, before, and they are going down slightly now, it seems to me like maybe this is what we would call "leveling off" so long as they keep going up (even slowly) over the long run, I'll be happy.

My house is an investment so long as I can re-coup the cost when I'm done with it. $1000 in a mortgage payment a month vs. $1000 a month in rent... one of them I can get something back for, the other is just money thrown out the window... breaking even might not be a great return on investment, but it sure beats loosing it all.

Posted by jon | April 27, 2010 2:53 PM

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jon -

The weird thing about that to me is that most of that $1000 is interest that you don't get back and don't get as equity. You build equity much, much more slowly than you pay interest.

To me, paying $800 on rent and putting $200 in savings, retirement or an investment makes just as much sense (and potentially builds more wealth) than paying $950 in interest every month.

Posted by TJ | April 27, 2010 3:25 PM

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Depending on your salary, however, and whether you itemize, you can come out better with high interest. If you pay $950 in interest, you're basically taking $950 of income and getting it tax free. That works out to anywhere between $200-$300 a month in taxes you don't pay.

Posted by Bob Collins | April 27, 2010 4:12 PM

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> Twin Cities housing prices: It's still getting worse

Goodness is in the eye of the beholder: Lower prices means that houses are more affordable for young families. Considering that they will have to carry the burden of Social Security and Medicare, isn't is fair that their burden in another filed is reduced? But no, the government spends money left and right to keep house prices up, to protect banks from writing down their paper worth. That borrowed money has to be paid back by the young families, too - double whammy!

House prices have been traditionally an indicator for the health of a community, but the housing bubble in the first half of the decade was nothing healthy - cheap credit everywhere made houses more expensive for everyone. The housing bust today is only a healthy correction of that sick bubble before. Those who live already in their own house and mourn their reduced wealth should ask themselves: Could I buy my house today with my current income? If not, you have a hint that we're still in a bubble.

Posted by Peter T | April 27, 2010 4:17 PM

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