Home sales could be sign of economic turnaroundby Jessica Mador, Minnesota Public Radio
The latest snapshot of Minnesota's economy shows the state's housing market continues to decline. Home prices are down sharply as foreclosures saturate the market, but there appears to be a silver lining to the gloom and doom.
Mortgage rates are also down and the federal government is considering lowering rates even further to historically low levels. News like that has some people - who have been waiting for the market to hit bottom - ready to buy. Experts say that's just what the economy needs to begin climbing out of recession.
Minneapolis, Minn. — These days, Josh Dix is spending more and more of his free time here -- sitting in the living room with a cup of tea, pouring over the real estate listings. This one has caught his eye.
"It's just over $102,000. It has a huge yard, deck, four bedrooms, two bathrooms, a new enough furnace, the roof looked good," he says. "I mean, it's totally something you could move into."
Not long ago the house was listed for more than $200,000. The 28-year-old Dix says, even with the cosmetic work he'd want to do, the house seems like a good value.
Dix and his wife weren't even looking to buy until about a week ago. They had looked casually a few years ago but got discouraged by the high prices. Since then, they've been happily renting in Northeast Minneapolis. But they are hoping to start a family and are looking for more space.
The rock bottom home prices have lured them back into the market, this time for real.
"Now when I just started looking again, I thought maybe I would just check, maybe something was finally down around $170,000," he says, "but what I found was way cheaper. I mean, I can't believe how much the prices have gone down."
Twin Cities home prices are down almost 16 percent compared to a year ago. And with mortgage rates as low as they are, Dix says it seems foolish not to buy now.
This is just what people in the housing industry want to hear. Developer Mike Swanson from the Twin Cities Builders Association says the combination of low prices and low interest rates should entice people to buy. He says that's critical to helping the economy out of the recession.
"It's going to effect the entire economy because from appliance manufacturers to the carpenter to the heating company to Caterpillar making equipment to digging the basements, I mean, it's so far reaching," he says.
Housing has been hit hard by the meltdown and the credit crunch. According to the latest Minnesota Management and Budget report, the state's construction industry is on pace to lose about 6,600 jobs this year and another 7,000 next year.
Swanson's home building business is down about 70 percent and he's had to significantly cut staff. He'd like to rehire workers but says it will take more people getting out there and buying.
This may already be starting to happen.
Twin Cities' area home sales were up 35 percent in September over the same time last year. College of St. Scholastica economist Tony Barrett says it is a good sign the economy may soon start to recover. But he warns we haven't hit bottom yet.
"We need to remain cautious," he says. "But the fact that sales are up tells me that buyers are moving back into the market and that is going to start stabilizing prices and that is where we turn the corner."
A number of industry groups are lobbying the federal government to create incentives for people to buy houses. One plan being considered by the Treasury Department would set the 30-year fixed mortgage interest rate at 4.5 percent. It's currently at about 5.5 percent.
Barrett says he doubts that move would make a big difference in stimulating the economy because what's holding buyers back is uncertainty about the economy. He says it's actually a great time to buy a home.
"If you are a young person and you can afford the mortgage and you're sure you've got your job, buy a house. Well, that was always the way it was supposed to be. It's just somewhere in the last 10 years we thought, oh, you buy a house, live in it for two years, sell it for a captial gain and move on, you buy two houses, you rent one out, you can't lose. Well, that was the unreality. Now, the fundamentals are back and the fundamentals are saying now is a time to start looking, maybe not buy, but start looking."
It's anybody's guess how low home prices could fall, but Barrett says we're close enough to the bottom for buyers to get a great deal.
Minneapolis resident Josh Dix says the low prices and interest rates are incentive enough to convince him it's finally time to stop renting.
"It's funny because everyone is always saying, 'oh if you're renting, you're just losing money and you are wasting all your money because you're renting,' and well, everybody's housing values have dropped $50,000. We certainly didn't lose $50,000 renting. We saved a lot of money for our down payment so I think we made the right decision."
He says if buying a house will help the economy, that's great too.
- Morning Edition, 12/10/2008, 6:20 a.m.