The Twin Cities real estate market ended 2009 looking a lot like the overall economy: recovering in some pockets, struggling in others.
Total sales for the year were up considerably over 2008, but the median price was down, and much of the sales activity continued to be at the low end of the market.
The year 2009 will go down in the books as momentous, as far as Brad Fisher is concerned. Fisher is the president of the Minneapolis Area Association of Realtors.
"It was the year we sold through a lot of vacant properties," Fisher said.
“I think they're a little too optimistic.”Jeanne Boeh, Augsburg College economist
The month of December didn't see much movement of those properties. Completed home sales dropped from the previous month on a seasonally adjusted basis. Fisher said the scheduled expiration of the first-time home buyer credit was likely fueling sales in previous months.
Once the credit got extended to April, the pressure was off, and December's sales numbers languished as a result. The median home price tumbled as well, dropping to $162,000, down $8,000 from November.
That was typical for the year; 2009 finished with the median home price 15 percent lower than in 2008.
But the number of home sales soared last year. Completed sales in 2009 were up nearly 17 percent compared to the year before. Fisher credits the federal subsidy for first-time homebuyers as the driver of those sales.
"It's the most units sold since 2005 and it's the strongest year over year increase since 1998 in units," Fisher said.
Still, even the positive sales numbers have a dark side. The sales involved a disproportionate number of lender-mediated properties. Those include foreclosures and short sales, where a homeowner sells a property for less than what's owed on the mortgage. Such homes tend to sell at low prices, exerting downward pressure on the median sales price.
Fisher and other local realtor associations point out that the number of lender-mediated properties on the market dropped considerably last year. And the total number of houses for sale represents about a 5-month supply, well within the range of what's considered a balanced market.
Augsburg College economist Jeanne Boeh isn't ready to start cheering.
"I think they're a little too optimistic," Boeh said.
Boeh said unemployment is expected to rise this year, adding to the number of foreclosures. That will keep feeding inventory at the low end of the housing market, and she doesn't think the current glut of high-end homes will diminish anytime soon.
Boeh said with 21 percent of American homeowners now "underwater"-- or owing more than on their mortgage than their home is worth -- few will put their homes on the market so they can then buy a bigger house.
"Not if it's underwater, you're not going to, because then you'd have to come up with cash to pay the difference," she said.
The federal government is currently offering a subsidy to "move-up" buyers to encourage such sales. That credit and the renewed first-time homebuyer subsidy expire in April.
"The million dollar question is what happens when the subsidies go away," Boeh said.
But around the time the credits expire, a new program begins, which could help clear more distressed properties from the housing market by making short sales easier.
So far, banks have been slow to sign off on short sales. But starting in April, under the Home Affordable Foreclosure Alternatives Program, participating lenders will have a 10-day window to respond to a homeowner's application for a short sale, and there will be some financial incentives to do so.
Brad Fisher of the Minneapolis Area Association of Realtors said the new program could change the picture, and keep short sales from turning into foreclosures.
"I think we'll start to see more banks work with short sellers," he said. "It's the intention, that's the hope, we haven't seen that yet."
But the effects of all these federal programs on the housing market will likely be diminished if unemployment rises.
"If unemployment were to increase, it does several things," said George Karvel, a real estate professor with the University of St. Thomas. "Obviously, those who are losing their jobs are going to have enough trouble paying for the homes they already have.
"Those who might buy homes will not. But probably more importantly, increases in unemployment frighten people, because they wonder if their jobs are going to be lost next."
And that, Karvel said, means people will be even less inclined to make a move to buy new or bigger homes.
Still, Karvel stresses that the improvement in the Twin Cities housing market last year is a positive development.