The Skinny

"Jingle Mail"

With home values around the country in decline, being "upside down" on one's mortgage is far more common these days.

Some estimate that 5-10% of American homeowners are in some form of negative equity, with the potential for more to fall into that category in 2008 and 2009 as home values are dragged down by the increasing market share of lender-mediated foreclosures and short sales. If you're a homeowner, owing more on your mortgage than your home can fetch on the open market puts you in a tough position—especially if you have an unexpected and extended loss of income.

So what options does an upside down homeowner have?

Option # 1: Suck it up, work through it, make the payments, wait out the tough market and enjoy your home all the while.

Option # 2: Walk away from the mortgage and all obligations, leaving your credit damaged but your lender holding the bag.

Beyond a simple sense of obligation to do "what's right," what would really keep a distressed homeowner from choosing Option # 2? The economic incentives in this scenario are structured such that walking away from a monthly cash obligation on a declining asset might actually justify the sizable dent in your credit score. So does that mean that across the country from sea to sea there are mass legions of consumers voluntarily going back to renting? That there's hundreds of thousands sending their lender the dreaded "jingle mail," so named by the sound of keys to the now-abandoned home rattling around in the packages in the lender's mailbox?

According to many, no. Filed under "Fake Trends," the Free Exchange Blog from The Economist tackles the issues surrounding this myth and directs us to some relevant web content. Click here to view the full post; it's worth the read.

In sum, people respond to far more than just economic incentives (emotional and social incentives are insidiously powerful) and, perhaps more importantly, buy houses for reasons that extend beyond their financial benefits.

In other words, owning a home is not like owning a stock. No one's particularly enamored with the idea of owning Apple stock on principle alone (unless, I suppose, you have one of these). Most own Apple stock solely because it's a good investment for their financial portfolio.

Homes are different. They're where where we live, sleep, eat, breath and drink beers on our back porches. The fact that you get to build a little wealth in your back pocket over a long period of time is a nice bonus, but it's not necessarily the main attraction.

Weekly Market Activity Report 5.12.08

In Minnesota, warmer weather typically equates to listing increases. But compared to previous years, the run-up to the 2008 summer selling season in the Twin Cities housing market has been meek. The number of new listings for the week ending May 3 was 16.6 percent behind the same time last year—the ninth consecutive week of decline relative to a year ago. Buyer activity is also slower. Over the last three months, pending sales are hovering around a 16 percent year-over-year decline.

This week's edition of the MAAR Weekly Market Activity Report features updated figures for several important metrics. As the spring season begins, the Average Days on Market Until Sale decreased to 154 while the Percent of Original List Price Received at Sale increased slightly to 91.7. The Housing Affordability Index decreased to 151, due to slight seasonal increases in sales price and interest rates. Finally, the Months Supply of Inventory increased to 10.2 months; a 5- to 6-month supply rate is considered indicative of a balanced market.

Click here to view the full Weekly Market Activity Report.

May Housing Supply Outlook

The May Housing Supply Outlook is out. As usual, here's a quick list of what to watch for, in the interest of making your time with this detailed report as efficient and productive as possible:

• The entire housing market—in both supply and demand—is seeing a downward shift in activity towards the lower price ranges, likely a result of the increasing market share of foreclosures and short sales. Compared to this time last year, the supply of homes under $150,000 is up 87.2 percent and home sales in that price range are up 49.8 percent. There is far less happening in the middle and upper price brackets.

• A much smaller share of condominiums are foreclosures or short sales than the townhouse and single-family detached markets. It's not a coincidence then that the average sales price and price per square foot of condos is actually holding relatively steady and not seeing dramatic overall value declines.

• New construction inventory is still down significantly—21.7 percent behind this time last year, to be exact. The months supply of new construction inventory is only up 2.8 percent in the last year to 11.4 months, compared to a 24.0 percent increase for the previously owned market.

The Dumbest Generation

First-time homebuyers are the lifeblood of the housing market. The fuel that keeps the fire stoked. The oil that keeps the engine running. The mayonnaise that keeps the sandwich lubricated. Insert your own rote metaphor here.

And, more often than not, first-time homebuyers are relatively young. They were probably born after 1975, young enough to have at one point believed that New Kids on the Block were awesome (though are justifiably unexcited about their recent comeback).

According to Emory University English Professor Mark Bauerlein, these people are also incredibly stupid.

His forthcoming book is called "The Dumbest Generation: How the Digital Age Stupefies Young Americans and Jeopardizes Our Future (Or, Don’t Trust Anyone Under 30)." Bauerlein's thesis, essentially, is that the internet and video games make people dumb. Young people, avid users of the internet and video games, are therefore dumb. Click here to view his website, and here to see a web slide-show explaining his rationale. I guess he's trying to appeal to the crotchety-angry-old-lady-on-her-rocking-chair-yelling-at-the-neighbor-kids demographic.

As someone born in 1981 and an avid user of the internet, I'd love to weigh in with my opinion on the topic, but I'm just too damn stupid. I can barely read the manuals that teach me how to play all of the video games I spend 18 hours a day playing, let along formulate a cohesive response to his argument.

Those of you who work with young first-time homebuyers already knew this though, right?

Seasonal price increases suggest early signs of market stabilization

Today MAAR released its monthly housing statistics press release. It said this and more:

The median price values of homes in the Twin Cities housing market are showing signs of seasonal increase. The April median sales price of $204,500 represents the second consecutive month of monthly upward price movement, on the heels of seven consecutive months of downward movement.

Despite the seasonal increase, the overall April median sales price of $204,500 is 7.9 percent behind April of last year. Lender-mediated properties, which include foreclosures and short sales, saw a decline of 9.6 percent for the same time period, while traditional, non-lender-mediated properties saw a decline of only 1.4 percent.

At the end of April there were 32,368 homes for sale, a mere 1.5 percent above this time last year, the lowest such year-over-year growth since MAAR began tracking the figures. Year-to-date, the number of new listings has fallen by 9.5 percent relative to the same time period in 2007. The number of year-to-date new listings which are not lender-mediated is decreasing at an even quicker pace—down by 24.0 percent from the same time period last year.

The number of signed purchase agreements (pending sales) in April was 4,208, down only 6.6 percent from last April. Since 2006, these year-over-year declines have typically been between 12 and 20 percent.

MAAR Research Report: "Foreclosures and Short Sales in the Twin Cities Housing Market"

Foreclosures and short sales have become topics of great interest over the past year. Providing data and statistics on the exact impact of these growing phenomena upon the regional housing market has, so far, proved challenging, with little yet produced on exactly how (and how much) these unfortunate events are affecting the buying and selling decisions of Twin Cities real estate consumers.

We're proud to announce the release of “Foreclosures and Short Sales in the Twin Cities Housing Market,” a special new research report that attempts to answer some of the more pressing questions surrounding lender-mediated properties. Inside you’ll find an analysis of current inventory, new listings, closed sales, sales prices, and the impact that the growth of lender-mediated properties is having on each trend.

The data was gathered and analyzed by MAAR staff in collaboration with Aaron Dickinson, REALTOR® member with Edina Realty, and utilizes a new data approach based upon information from the NorthstarMLS system.

To share comments or questions on this new report, please contact Jeff Allen, MAAR Research Manager, at jeffa@mplsrealtor.com or Aaron Dickinson at aarondickinson@edinarealty.com.

The Power of Price

Realtors know as well as anyone that humans are instinctively wired to be swayed by the bottom line and to scour for deals. Take two properties that are identical in every respect: location, square footage, condition, etc. Offer one for $250,000 and the other for $249,900 and guess which one sells first.

Obviously, real estate doesn't often offer properties which are identical in every respect, which is why the housing market isn't like Wal-Mart. Houses aren't uniform commodities and lowest price doesn't always win out. Consumers are willing to pay more for quality.

With all that in mind, here's a pretty sweet video from local band Tapes N' Tapes which illustrates the power of price. Stay tuned to the end of the clip for the full effect.

Weekly Market Activity Report 5.5.08

Ring the bell, sound the alarms, shout from the mountaintops: the number of homes for sale in the Twin Cities region as of today is less than the number for sale at this point last year, a new benchmark which marks an encouraging sign that the market is in an early stage of recovery.

This is the first time since MAAR began tracking inventory figures that we have been able to show a year-over-year decline in listing supply. There are currently 32,448 residential properties for sale, a decline of 134 units from this time in 2007. With sellers still holding back on putting their homes on the market (new listings are down 11.4 percent from last year over the last three months), this downward year-over-year trend in inventory should continue into the summer.

This week's edition of the MAAR Weekly Market Activity Report features a new figure for our Supply-Demand Ratio of 7.53, which means there are approximately 7.53 homes on the market for each buyer in May— up 12.9 percent from May 2007 when the figure was 6.67.

Flawed Home Price Data

There's been a lot of talk—quite understandably so—about the picture being painted by national and local data on housing prices in recent months. For potential home sellers, the numbers haven't been pretty.

Numbers from the National Association of Realtors showed a March median sales price decline of 7.7 percent from a year ago. The Standard and Poor's Case-Schiller Index shows a 12.7 percent drop in their composite of the nation's twenty largest metropolitan areas. In our own market, we're showing a 9.7 percent decline in median sales price when comparing March 2008 to March 2007.

But there's an inherent trouble in accepting broad, metro-wide median sales price numbers as some sort of gospel truth about general home price appreciation. Housing markets are not homogeneous. Within each metro area there's a cornucopia of different property varieties. Location, price range, construction status, condition and—yes—foreclosure status all affect housing values on a case-by-case basis. So these median price numbers have to be approached with a critical eye.

This caution is especially crucial in a time like today, when our national housing market is in the midst of a fairly unique point in its history. Foreclosures and short sales—often priced at extreme discounts to spur sales—are comprising a much larger portion of our markets than they have in previous years, rendering the traditional methods employed by NAR, Case-Schiller and ourselves a bit skewed.

Even NAR and Case-Schiller are now publicly acknowledging these flaws. Click here for a MarketWatch piece on the subject.

Hmmm...if only we had a way to separate foreclosures and short sales from non-bank-mediated properties in the data. Then we could really get a feel for current market conditions.

A subtle hint: keep an eye on us in the next week.

Hat-tip to Pat Paulson for pointing out the MarketWatch article to us.