John Murphy Reports

The Obama administration’s $75 billion mortgage bailout program to help some 9 million struggling homeowners is off to a slow start.  So far 55,000 people have had their loans modified according to this CNN Money report.

There certainly had to be a ramp up period for loan servicers to get their systems and people in place to be able to accommodate the crushing requests from homeowners.  But at this pace, it will take the full second term of the Obama administration to get the 9 million complete – if that.

It’s really an unbelievable time in the mortgage business right now.  The people I talk with are extremely busy working with people to refinance and with new purchases.   The people running the backend systems must be running full tilt because not only do that have all the new loan requests and refi’s, but they have to deal with all the people falling behind on their payments, foreclosure filings and now the massive under taking to try to modify some 9 million loans…many of which, by the way, will not likely be able to be modified.

It’s a bull market in the mortgage service business.

St. Louis Park, MN has seen the median price of a home drop by nearly 6% so far YTD through April 2009.  Click here for the link online from the Minneapolis Area Association of Realtors.   New listings are down 15.8% with closed sales dropping slightly more at 17.5%.

Medina, MN saw median home prices increase slightly in April 2009.   Closed sales are up 14% and listings are up 11%.  These are all good signs.  Of course it helps that the median price of a property sold in Medina is now $559,000.  In 2005-2006, the median price of a home sold in Medina used to be between $800,000 to $850,000.

Here’s the link to the report online from the Minneapolis Area Association of Realtors.

Maple Grove median home prices declined by 7.8% YTD through April 2009.   Closed transactions have remained quite healthy only showing a decline of 3.6%.   New listings are down by 17%.  This is a good sign.  When new listings are declining faster than the closed transaction rate, that is constructive for a return to a more balanced market.

Click here for the online report from the Minneapolis Area Association of Realtors.

Plymouth, MN median home prices are down by 12% with closed transactions down by 22% YTD through April 2009.

Link to the report online.

The Minneapolis Area Association of Realtors has published the latest sales data through April 2009.  With four months of data, we have a pretty good read as to what’s happening in the Twin Cities real estate market.  The trends seem pretty clear to me.

The areas that have been ravaged by foreclosures are showing dramatic improvement in sales activity.  Yes, prices continue to remain lower by 25-35% compared to a year ago, but sales are jumping 35-55%.   It’s the closed transactions that is so important.  Eventually prices will follow.  Closed sales lead the way.  Prices are a lagging indicator.  While closed sales have been getting hammered since 2005/2006, they are showing great improvement in 2009 in the lower end of the housing market.

Cities that have been devasted by the foreclosure crisis are starting to rebound:

• Brooklyn Park – sales up 56%
• Robbinsdale – sales up 38%
• Crystal – sales up 8%
• Brooklyn Center - sales up 188% (yes, that’s one hundred eighty eight percent!)
• Richfied – sales up 12%
• Minneapolis – Camden – sales up 53%  (MPLS North remains flat – sales are up only 1.9%)

Middle and upper middle class suburbs continue to see sales struggle:

• Plymouth – sales are down 22%
• Eden Prairie – sales are down 32%
• Edina - sales are down 11%
• West Bloomington – sales are down 6%
• Maple Grove – sales are down 4%
• Minnetonka – sales are UP 9%

With closed sales transactions down double digits and with more foreclosures coming to the suburbs, it’s difficult to see how home prices will improve in the near term.

What’s interesting to note is that your standard split level home in Plymouth that often sells for between $260,000 and $280,000 hasn’t really been affected much by the downturn the past four years.  It’s not until you start getting above $400-$500k where you really start to see the impact of the collapse in the housing market.

It will take time to rebuild consumers’ confidence in the mid to upper bracket markets.  That won’t happen overnight.

If you want to check out a very cool market research tool that Jeff Allen of the Minneapolis Area Association of Realtors and Aaron Dicknson of Edina Realty and fellow blogger created, check out the interactive web site for Twin Cities foreclosures and distressed sales.  Great work gentlemen!

Brooklyn Park’s closed sales transactions have jumped 56% YTD through April compared to the same period in 2008.   These kinds of sales jumps are similar to what we’re seeing in California and Florida where home prices are down 40-50% but sales activity is up 50-70%.

Median home prices in Brooklyn Park have collapsed dropping 33.5% YTD vs. 2008.   Prices used to be $191,000 in 2008.  Now they are $127,000 for the median price of a home in Brooklyn Park.

There are those who are waiting for the median to drop below $100,000.  I don’t think they’ll see it.
Brooklyn Park has bottomed.

I have thought for some time that the mid to upper bracket houses were going to continue to see significant drops in value in 2009 with a continuation in 2010.  I know several people who are holding off to sell in 2010 when they believe the market will be better.  They may be right, but they will likely be selling at a lower price.  For example, I don’t see any reason why the $750,000 home today won’t sell for between $700-$725k next year.  I can’t see it going up…not next year.

The housing market continues to show signs that it has bottomed on the lower end.   For example, Brooklyn Park has bottomed in my opinion.   Split levels that used to sell for $225,000 in 2005 are now selling for $125-$150k.  Sales are going through the roof – up 56% YTD compared to 2008.

Calculated Risk has a good synopisis of articles and blog posts regarding the price compression on the mid to upper market in housing.   I had posted this story entitled, “The Great Compression” a few months ago on price compression.

Foreclosures continue to rise and now they are coming to the suburbs.  They appear to be waning in some of the worst hit areas in the metro.

Mortgage Insider published this story about the new rules put in place May 1, 2009 by Fannie Mae and Freddie Mac.  If you want to do business with the government, you must now order your appraisals through AMC (Appraisal Management Companies).   You have to read the story from Mortgage Insider to get some of the specifics.

I am working a transaction right now that doesn’t close for another 6-7 weeks.  That said, the appraisal normally would be done by next week so we can coast in to closing.  The mortgage broker is a big, reputable firm in town.  They use another big appraisal firm in town.  I don’t know yet if they got “stuck” with this AMC nonesense, but nonetheless, we actually CAN’T get the home appraised until June 2nd…and this was after I placed several phone calls to the appraisal company, talked with the buyer’s agent and the loan officer.  The answer was, sorry, we’re busy.  The earliest we can do it is June 2nd.  Are you kidding?

The real estate market has overwhelmed appraisal companies because so much of the work is FHA.  There aren’t enough FHA appraisers.

The government doesn’t want loan officers colluding with their appraiser buddies because of course, all those loan officers were thinking of committing fraud.  The government has to stop them.  So because there were some bad characters doing loans in the past few years all of us are stuck with a mediocre experience at best when it comes to getting appraisal work done.  Will it become like going to the DMV?
I’ll have more comments on this matter is a future post.  This is a precursor to the nationalized real estate.  Stay tuned.