The Skinny

The Wright County Discussion

As many of you already know, the Star Tribune recently ran an in-depth three-part series on the Wright County real estate market called "From Boom to Bust." Wright County has experienced some tumultous changes in the last few years due in no small part to the real estate boom and resulting explosion of new construction activity in the growing, exurban region. With the housing market now in contraction, Wright County is—like many counties in the metro—experiencing dramatic declines in new construction and uncertainties with some high-profile residential projects.

The Strib broke up their coverage into three parts:

Part I: Minnesota's New Ghost Towns

Part II: Housing Bets Gone Bad

And Part III, with an infinitely less-catchy title: Suburbs stuck with empty houses are trying to figure out what to do now

No matter your take on the fairness or objectivity of these reports, they are worth the read, and highlight some important market currents underpinning the challenges that face communities struck hard by the shifting market. The Strib's editor even went as far as publicly praising her staff for their work on the story.

But some aren't so pleased with the coverage, perhaps justifiably so, for its laser-focus on one specific county's troubles. In light of the troubles experienced by the entire metro, this feels like an unnecessary pile-on by some. In the interest of promoting intellectual curiousity and vigorous discussion, below is an unpublished letter to the Strib editor, penned by Wright County Economic Development Partnership leader Noel LaBine (hat-tip to Laurie Karnes for sending it our way):

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Star Tribune Article off-balance

The recent articles by Star Tribune reporters Chris Seeres, Jim Buchta, and Glenn Howatt have been very biased in their presentation of the current housing situation in the area. Why they decided to target Wright County is curious. They certainly have not taken a balanced view of what has happened in the current market. Moreover, their interpretation of the facts is misleading.

They are biased because they have decided to use a fear mongering approach to explain an already distressed situation. Obviously they are not students of the use of media to be an asset towards the development of community. Words like reckless, ghost towns, and meltdowns are more useful to describe war and devastation than to describe a needed correction in the housing price bubble. Quoting people, who believe that were heading for a depression, adds further impetus to their fear-mongering.

More on the positive side includes all the businesses that are doing well in Wright County. Expansions have recently occurred for manufacturers in Annandale, Cokato, and St. Michael, and more are being planned for manufacturers in Howard Lake and Monticello. These are building expansions ranging from 7,000 s.f. to 90,000 s.f. Other expansions are occurring with several manufacturers, that I know of, that does not include building expansion, but which certainly include product and/or workforce expansions. In addition there are several large projects underway with a new jail being built in Buffalo, an addition to the hospital clinic in Monticello, and a new Fleet Farm retail center in Monticello. In addition to these, there are two new restaurants being planned for Otsego and two more new bank buildings going up there as well. Meanwhile, a new community center is being planned for St. Michael. Some other new businesses that are looking to move into or start-up in Wright County include a corrugated plastic pipe manufacturer, an environmental concrete wet-waste handling businesses that will employ up to 40 employees in two years, and a natural pet and human skin and teeth treatment and food supplement business. These are just some of the many projects that are occurring in Wright County, which has a healthy economy overall.

A more balanced view would consider some of the facts. If 1 out of 40 houses are in foreclosure, in Wright County that would be about 2.5% or 97.5% of houses are either paid for or the owners are able to make their monthly payments. Which way of presenting that information is less scary? In a balanced view aren’t both points of view valid? There is another fact mis-represented. While Otsego, Albertville and St. Michael may have had predominantly German ancestors, there are 16 communities in Wright County, and some of them have had a majority of their ancestry from either Ireland, or Finland, or Quebec, or other regions. I raise this point, because in Wright County we have balance, we believe in balance, and we try to maintain a balanced point-of-view.

While the current distressed housing industry and market is worrisome and has caused some decay in consumer confidence, this is certainly not the general profile of our economy. The housing and auto industry only makes up 7% of our gross domestic product. The other 93% of our economy is doing fine. With the declining value in the dollar, not only are U.S. and Minnesota manufacturers experiencing increased demand for their products, but for the first time in 20 years we are experiencing a positive foreign balance of trade. This market correction is not only a necessary part of a free market society, but already there are some very positive signs of the much-needed correction. Bottom line is 95% of us have good jobs and we are making are payments. Hardly the profile for the despairing economy that the Star Tribune promotes.

If the purpose of their articles were to sow dissension and fear, then they have succeeded. I have attended five events in Wright County in the last four days, and everyone has had a negative reaction to the stories. One realtor told me that a deal that she has been working on for a retail strip mall is being further scrutinized by the banker, because he has been spooked by the article. A number of people have asked me to write a response to these articles. If the Star Tribune is trying to regain some of the subscribers that they have lost, I would suggest that printing articles like these is not a good tactic.

Another criticism of their tactics is their decision to make these stories of “get-rich-quick schemes by a few” worthy of front page news. For one thing, it is not a new story. The market has already shaken out most of the bad mortgage writers. For another thing, the courts are already indicting a number of fraudulent deal makers. Putting this kind of story on the front page is just one more step toward the tribune becoming a tabloid newspaper.

Further Fed Rate Cuts?

With the national economy teetering on the brink of recession (and some would say already within one, and handily), AND legitimate inflation fears surfacing with reports like this and this, the Federal Reserve faces some tough decisions ahead. Which potential enemy do they fight first: economic contraction or price inflation?

Cutting borrowing rates further certainly helps with problem number one, but could prove problematic for problem number two.

Local mortgage blogger Alex Stenback points us to the crucial questions and some interesting web content on the subject. Click here.

Rental Properties on the Rise

There's a very interesting story from the Star Tribune today on the growth in rental properties around certain cities in the metro. In essence, a convergence of market factors is creating an environment where the flip from owner-occupied to renter-occupied is easier and, in some cases, more profitable.

With the well-documented rise in foreclosures, a dearth of qualified and motivated home buyers, and shifting tax burdens rendering an owner-occupied status less desirable than in years past, it's not a shocking development. But worth watching nonetheless.

For a look at how various cities are responding to the growth in rental properties, take a look at the full Star Tribune article from Steve Brandt. Hat tip to Jon Weber for bringing this to our attention.

The Media, The Realtor, The Tension

Call me crazy, but the tension between the media and the real estate industry is 100% fascinating.

In case you missed it, there have been approximately 984,412 articles in the Twin Cities newsmedia the past two weeks on the local housing market. One on suburban foreclosures. One on the role of the credit crunch. Another on the troubles associated with vacant homes.

Realistically, this deluge of coverage isn’t that surprising. The recent news that February’s median sales price of $195,060 was 12.5 percent behind the same month last year is certainly something that any reputable news outlet should have an interest in reporting.

But in all of my face-to-face interactions with realtors, I get the impression that industry professionals are less than thrilled about all the recent press coverage. And really, I can’t blame them for feeling that way. The common accusation is that the media “goes negative” and sensationalized at the expense of providing the simple and unvarnished truth about the market.

All the emphasis on the negative aspects of the housing market in the media undoubtedly has had a depressing effect on consumer psychology and confidence. Few could argue with that. But as we all know, “truth” is a subjective phenomenon at best; it ain’t viewed in the same light by all parties. One man’s truth is another man’s spin.

And we also need to remember that there’s a stark, strong and necessary difference between the advertising arm of a large media outlet and the journalism arm of that same organization. Just because a newspaper gladly accepts our advertising dollars does not mean they then owe us any semblance of a “payback” in their actual news content. Journalism’s proud traditions require that the news remain untainted by the revenue concerns of the organizations that provide it.

I don't have a grand thesis to impart here. Just wanted to point out that the relationship between the media, real estate professionals and the general public is very complex, with no clear heroes or villians. Everyone’s got legitimate and illegitimate beef with everyone else. Yes, press coverage tends to accentuate the negative. Yes, this is probably having a troubling effect on consumer confidence. But the numbers really haven’t been that pretty, and we’re all collectively responsible for educating consumers about the full, nuanced reality of this market.

The item that sparked this whole train of thought was a great recent Inman News Article on the industry-wide tension between the media and the real estate industry.

Click here for the article (password may be required).

Clowns to the Left of Me, Jokers to the Right

We have been neener-neenering with pointed finger at such overwrought housing markets as California, Nevada and Florida over the past year and saying, "Ha, it ain't us!" Our 2007 President, Deb Greene, made the point on national television that the country's interior markets were far more stable than the coasts, to which CNBC's Maria "The Money Honey" Bartiromo said, "Good point, and thanks for making it."

But what's this? A new year-end report from OFHEO seems to be poking a small hole in our argument. The Minneapolis/St. Paul MSA ranks #225 out of #291 MSAs on the list of appreciation rates. Really? That low? Okay, our area's annual appreciation of -1.6% is nowhere near the muck of Modesto, California's -15.5% or Punta Gorda, Florida's -13.3%, but is it so impossible to imagine us as the next Ann Arbor, Michigan (-7.9%) in the near future?

Look around the region, and you'll see that just about everyone is doing better than us. From Duluth to Dubuque, from Sheboygan to Sioux Falls, we're on the outside looking in at their relative calm. Are we reeling from some big-city issues that the likes of Ames and Appleton don't have to worry about? Not sure about that. Milwaukee's relatively stable at 1.4%. Chicago's hanging tough at 1.6%. Even Cincinnati and Columbus are evens to our odd (let's not talk about Detroit or Cleveland for now; too messy, those comparisons). 

On the flip side, the mountains and the scrub plains are doing bully business, according to the OFHEO 2007 figures. Grand Junction, Colorado enjoyed a smiley 12.0% appreciation; Ogden, Utah was a solid 10.8%; and big ups to Bismarck, North Dakota for their 10.7% increase.

Needless to say, we'll be watching 2008 like a hawk around here. We recently called 2007 "one of the most interesting years in the history of residential real estate." There is currently no reason to believe that 2008 won't be another wild ride.

The Rub

REALTOR® associations have it rough. I know, I know...hearing us whine is not exactly what you come to this blog for. But hear me out.

By some, we're expected to be cheerleaders of sorts—shouting positive platitudes from the hilltops for all to hear, even in the darkest of times. Shining light on the silver lining in every cloud, turning every frown upside down. We're supposed to be Bing Crosby in the 1940s, shuffling with a wide smile across a USO stage and imploring all to "Accentuate the Positive."

By others, we're expected to be dour and soulless number-crunchers—cold and calculating doom prophets who insist that the proverbial light at the end of the tunnel is a Mack Truck hell-bent on destruction. This kind of bleak hysteria is often called, in many circles, "telling it like it is." Ah, the irony.

The truth of the matter is that blind allegiance to either camp—positive or negative—isn't productive or honest. Lean too far towards rose-colored analysis and you'll understandably lose credibility as a trusted source of information. Sway too deep into headline-grabbing, blood-soaked doom and gloom and you'll not only alienate your members, but also create an unfair and often untrue picture of reality that needlessly damages the confidence of those participating in the market.

So what's the solution to this eternal conundrum? Well I guess we'll never have it completely figured out.

But out overarching goal in our analysis of the housing market is too always be honest and forthright. Usually, that involves finding the middle ground between optimism and pessimism; the truth always tends to lie in that unsexy but essential region.

In this spirit of honesty, consider the following pieces of news, one good and one bad:

• New York Times Article (password may be required): American Housing Debt Now Exceeds Housing Equity

MAAR Analysis: This sucks. Pretty bad. No way to sugarcoat it.

Bad debt and depreciating home values are causing headaches and heartaches for some consumers.

• FHA Release: New Loan Limits to Help Homeowners, Economy

MAAR Analysis: This rules. Pretty hard. No way to ignore it.

Raising the FHA limit makes 77.4 percent of current Twin Cities listings eligible to be purchased using secure, FHA financing. This provides a much needed option to consumers in this period of uncertainty in the credit and lending markets.

Confused by the Subprime Mess? A stick figure primer...

...then I highly recommend taking a look at this slideshow produced by the folks at The Big Picture -- a finance blog that ruminates on a wide variety of topics. Hat tip to the Inman Blog for bringing this to our attention.

Advisory: The slide show contains subject matter and language not suitable for children.