St. Paul Real Estate

Case-Shiller = Fun!

by G. Sax

I read this blog's comments. Most are interesting and expand upon the conversation. In yesterday's post about porches, there was a comment from a reader named "Bubble_Up" about local housing prices.

The comment didn't have anything to do with porches, but it was cool to see something about Case-Shiller. We have an informed community here, which is good for those of us who like to contribute to the conversation.

So I thought I'd shelve my quirky, neighborhoody banter this week in favor of a chat about the S&P/Case-Shiller Index, the de facto national housing report that reporters flock to.

I'm not interested in debunking Case-Shiller, which some real estatees try to do, including the National Association of REALTORS®. Case-Shiller isn't the real estate devil. It provides a decent snapshot of the American housing market.

The indices were developed by economists Karl Case and Robert Shiller. The 20 largest metro areas are measured using a repeat sales pricing technique to create data pairs; data is collected on single-family home re-sales. The report is produced by Fiserv Lending Services, and many of the indices are managed by Standard & Poor's. (click here to view them)

The Twin Cities took a media beating because of Case-Shiller yesterday. Bubble_Up brought this to our attention with a quote from the St. Paul Pioneer Press: "The report found that home prices in the [Twin Cities] metro area plunged 6.1 percent between February and March, falling back to a level not seen locally since September 2000, according to Case-Shiller." (read full article)

I work in real estate PR, so I took a bunch of calls on Case-Shiller yesterday. The report got the basics right...prices are down here, there and everywhere.

But the increase in Twin Cities foreclosure and short sales activity over the last year wasn't really noted in the first wave of media reports. As the day wore on, we were given a chance to explain our "record decline." More than half of all home sales in the Twin Cities in the first quarter of 2009 involved banks. In April, banks were still in on 46 percent of sales activity, often at deep discounts in already-low price ranges. This drags regional median prices down.

We're backtracking on price, but you're not likely to get a traditional home sale (one with a real person behind the sale and not a bank) at 2000 or even 2002 prices. We're still in tricky waters, for sure, but the situation is more complicated and more localized than Case-Shiller covers.

Foreclosures are selling rapidly and inventory is shrinking. Next year at this time, Case-Shiller may be reporting that we've had record month-over-month increases. And we may be explaining that the increases are statistical anomalies.

In closing, I'm a big fan of porches. I look forward to many summer nights on my front porch listening to Twins games on the radio, waving at neighbors, and watching the sunset wash the Cathedral in shiny orange pinks. All in screened-in luxury!

It really is too good to be true

I have written a few posts on this subject. There are homes listed on our MLS for $1.00 and people think that they can actually be purchased for a dollar. It doesn't work that way. Most are up for auction and the minimum bid is set at a number much greater than a dollar. The reason the home is listed for $1.00 is because our MLS requires that all listings have a price.

There are some foreclosures listed for 10K. Yes these are really listed for 10K and there isn't an auction.  Wow! being able to buy a home for 10K, how cool is that.  I guess it is way cool if the buyer has at least another 100K to make the necessary repairs or enough money to demolish it and build a new home on the lot.  In some cases the property doesn't need 100K worth of work, in those cases often someone else makes an offer on the home for much more than 10k and ends up getting it.  The buyer who only has 10K to spend is left out of these deals. 

In recent weeks there have been numerous instances of multiple offers on the lowest priced home. I have heard rumors that there were 40 offers on one home. The banks lower the prices and the games begin. My phone rings off the hook with buyers wanting to buy 50K homes. If the plan is to find a place to live and to buy it for 50K don't plan on it. Housing prices have gone down in the twin cities but it still takes more than 50K to buy a home. With rare exception it will take at least 100K by the time it closes and the buyer gets the keys. Cash buyers have a big advantage in this market. Many of the very lowest priced homes are difficult to finance because of the repairs they need.Some repairs are truly needed and in other cases they are needed because of the way the city of St. Paul treats vacant buildings. Either way they need work.

If it looks too good to be true it probably is but I know you will call and ask anyway.

Have you noticed?

The number of registered vacant buildings in St. Paul is now 1990.  It is an alarming number but it is lower than it has been.  Last September I wrote about 2031 opportunities because that is how many buildings were on the list. It makes me wonder if there are fewer vacant homes in St. Paul or if fewer of them are registered or if the city just lost track.  Maybe for now I will just assume that the number of registered vacant buildings is going down. I am also noticing that some of the vacant homes are being repaired. That is something that I love to see. We talk about "green building" fixing up an old house is like recycling.

One Less Vacant House in St. Paul

447 Smith Avenue, St. Paul, MN.  It was a registered category 2 vacant property.  Category 2 properties need repairs.

The Other Side of the River

by G. Sax

I was going to promote the 2009 Minneapolis & St. Paul Home Tour this week, but something even more timely came up that nudged the MSP tour to the epilogue. I'll give the tour some love at the end of my regular weekly Wednesday rant here at the SPREB. Spreb? I don't know if I like that. Sounds like a sound I would make if I were coughing with water in my mouth. Note to self: Acronyming the St. Paul Real Estate Blog is a bad idea.

Yesterday I was hanging out with the mayor of Minneapolis, R.T. Rybak, in an empty house with an assortment of wild-eyed strangers. Well, we weren't exactly hanging out. It was an arranged press conference, and Rybak and several other Minneapolis mucky-mucks—including Minneapolis City Council President Barbara Johnson, Minneapolis City Council Member Don Samuels, and others—unleashed a PR flurry about Minneapolis Advantage, a city-funded home mortgage loan program that provides $10,000 forgivable loans for 200 homeowners eager to live in designated program neighborhoods hardest hit by foreclosure.

Applicants must occupy the loan-encouraged Minneapolis home for at least five years in order to get the $10K clean-slated. The bulk of the eligible neighborhoods are in North Minneapolis and near-South Minneapolis. If you're serious about setting roots in a neighborhood that could use your passion, this isn't a bad gig. Combine this money and the $8,000 federal tax credit for first-time home buyers, and you've got yourself a real nice start toward homeownership in Minneapolis.

So, of course, being a St. Pauli Boy, I was curious...does St. Paul have such a program? It's not quite a free $10,000 (neither is the Minneapolis offering), but St. Paul's CityLiving Home Programs have special assistance loans available for qualified home buyers to buy and for homeowners to make improvements. Now, I admit, I haven't dug journalistically deep into the CityLiving programs, but they seem sweet enough to make some links to: City Living | City Living A

There was a lot of rah-rah at the Minneapolis press conference, complete with invocation of the American Dream and a special thanks for REALTORS®, "our salespeople on the streets." Some of it bordered on soupy (as in sales), but when Advantage loan recipients and long-time North Side residents started speaking at the podium alongside the mayor, awesomeness ensued.

Takeaway: A positive response to the Twin Cities foreclosure problem and urban cavities is underway. It takes a village (or two).

Gossip: The mayor said he put his house on the market today.

Epilogue: The free, self-guided Minneapolis & St. Paul Home Tour, which will feature 60 open, interesting homes in lively, interesting city neighborhoods—39 in Minneapolis and 21 in Saint Paul—opens Saturday, April 25, 10:00 a.m.–5:00 p.m., and Sunday, April 26, 1:00 p.m.–5:00 p.m. regardless of weather conditions. Cost: Free. More Info: www.MSPHomeTour.com.

How does the foreclosure next door affect the value of your home?

In the last couple of months home owners have been asking what kind of an effect the foreclosures are having on their property values.

Most property values have gone down from last year.  Homes owned by banks have lost the most value. It is kind of like buying a brand new watch. I know not many people wear watches but I do.  If I bought my watch in the morning and paid,  $200 dollars for it at a jewelry store but wanted to sell it in the afternoon on Craig's list or on ebay, it would be very hard to get $200 dollars for it. I might be able to get $125, even if I never opened the box.

The shoppers on both sites don't want to pay full retail and are looking for a bargain. I could take it back to the store and get my money back and the retailer could sell it again for $200.

It is the same with homes.  As soon as they become a foreclosure they are worth less money.  No one will pay market value for them . . they just won't. I have seen it happen over and over again. The bank owned homes sell for less than homes sold by the traditional seller. Buyers won't buy them until the prices hit bottom.

All homes are affected by the foreclosure market.  In some cases there are homes in new developments that are almost identical but one home is a foreclosure and the other is not. If the bank lowers the price for a quick sale it will have an impact.  The traditional owner will have a harder time selling.  The bank has to lower the price because buyers won't pay as much for a foreclosure.

When people look for homes they go shopping and comparing prices is part of that process. They will notice the low priced foreclosures and it seems to make them unwilling to pay top dollar for any home. Today's buyers are bargain hunters.

When a Realtor or an appraiser looks at the market value of a home we look for three comparable homes that are nearby and have sold in the last year.  We generally don't use any homes that were bank owned as comparable homes because that will not give us an accurate market value. Homes that are not bank owned sell for more.  

If the home next door is a foreclosure, and it sells for almost nothing that doesn't mean that the value of your home dropped like a rock.

In the neighborhoods that have been hardest hit by the foreclosures the prices seem to have hit bottom and average sale prices are now higher than average list prices. 

Vacant homes do have an impact on the value of the homes nearby. While buyers are interested in purchasing bank owned homes they don't seem to interested in having one next door.

Banks Bite

You may have read this before on my blog but banks can't sell real estate.  They are getting better but they still have far to go.

During the winter months homes have to be winterized.  That means that water is drained from the pipes and the water heater and that the water is turned off. If the buyer want to have a home inspection the water needs to be turned on for the inspection.  Some of the banks are requiring the buyer to pay any expense associated with turning the water on so that the home can be inspected.

Personally I would not take the responsibility for turning on the water in a home that I did not own, especially one that has been vacant for months or years.  If I owned a home with the water turned off I would not be comfortable with the idea of someone else turning it on, or having it turned on.

The banks have created one more hurtle and one more expense in the home buying process.

I am also noticing that the banks are dropping their prices like crazy. this is a good thing but what you don't know is that even if you make a full priced offer you might not get to buy the house.  I am seeing a lot of cases where they have a low "teaser" price.  They collect offers on the property and wait for the highest offer. Buyers are so disappointed when they think they can actually buy that $80,000 home but they find out it already has three offers on it.

People who could not afford to buy a home before are out looking for bargains which is a good thing but they need to know that it is rough out there and if the price seems to good to be true it usually is. It is important not to get emotionally attached to the outcome when making an offer on a foreclosure.

I think the short sales and foreclosures should be treated just like the auction properties. Properties up for auction are listed for $1.00 on the MLS.  If the bank wants to hold out for the highest bid they should list the homes for $1.00 and let the bidding begin.  Buyers need to know that a full priced offer isn't what it takes to buy some of these homes. 

Foreclosure isn't just for adults

The Tale of Three Town Houses

I was trying to price a townhouse that I will be listing soon.  I found three identical units currently on the market.  They are all corner units, they were built the same year and the interior decor was almost identical right down to the color of the paint in the dining rooms.

One of the units is a short sale, it is listed for $199,000, another is a foreclosure it is listed for $133,000 the third is a private party selling their home without bank intervention and it is listed for $164,000.  I did some more checking and the average sale price for the townhouses over the last year has been about 159,000.  About one third of the units that were listed last year sold.

If you need to sell and their is an identical unit on the market for much less than you plan on listing yours for it will mess things up.  Some say there are two housing markets and maybe in a way there are because on average the distressed properties are selling for much less than properties that are not in foreclosure but many are also in rough shape.  Foreclosures that are in good shape do have an impact on the value of neighboring homes especially when the townhouses are identical.

Once a property is bank owned it does lose value. People will not pay as much for foreclosures as they will for the same property that is not in foreclosure.
The example I use in this post is a huge range for identical homes. Buyers should do some careful shopping if they want to buy the unit that is priced at $133,000. Sellers need to take a good look at he competing houses before deciding on a price.  The townhouse that is listed at $199,000 is over priced and unlikely to sell no matter how badly the seller needs the money.

Short sales and other lies

I find that I have to explain the difference between a short sale and a foreclosure rather often.  In the MLS the homes that are on the market and are short sales will have words like "subject to bank approval" in the public comments.  These homes are not bank owned.

What is a short sale? It is when the bank agrees to accept less money than what is owed on the home.  The sellers still own the home and get the money by selling it.  The offer is subject to bank approval. The home owner also has to approve the offer.

What is a foreclosure?  It is a bank owned home.  The owners did not pay their mortgage, and the bank went through the foreclosure process and now owns the home. Home owners associations can also foreclose on condos and so can the county if the taxes are not paid.

When a seller lists a home they agree to a certain price for it and put it on the MLS.  In the case of short sales the seller has agreed to a certain price and put the home on the market.  When an offer comes it is subject to bank approval. The "loss mitigation" department at the bank has to get a price opinion on the property and then who ever is in charge of the file has to get approval before the offer can be accepted. That means that the price you see on the MLS may not be what the bank will accept. We don't know what the bank will accept.

The person who has the file usually has a few hundred other files on his or her desk, and it is just a file. Buyers can wait 30 to 90 days for any kind of an answer.  I wrote an offer on a short sale a few months ago. I was told that it would all go very quickly. I figured she had never listed a short sale before or that she was lying. It took eight weeks to get an answer and the answer was no.  During that eight week period the bank received other offers but I was told there were no other offers each time I asked. Another couple got the home for the same price that my buyers offered.

Sometimes with the short sales the home is listed for one price but the bank has not agreed on that price. Sometimes they list it for a low price and collect offers over a period of months.  Usually the buyers give up long before they have that yes or no answer, and sometimes the home is foreclosed on while we are all waiting for the answer.

With foreclosures buying them isn't always easy but it isn't as hard as buying a short sale. A foreclosed home is already owned by the bank. With the short sales only about half of them ever get to the closing. Some end up in foreclosure long before they close even though they have offers on them.

With the short sales I would rather not even show the properties to buyers, in fact in most cases I say no.  That might not seem unfair to the sellers but most of my buyers can't wait 90 days for an answer and they end up withdrawing their offer and we go house hunting again.

I have represented sellers on short sales too and I won't do it again.  There are short sale experts around and I am happy to give them the business.  They have teams of people and usually have one person who does nothing but negotiate with the bank. It is a full time job.

Foreclosures are different.  The homes are already owned by the bank.  I have sold a few of them this year. Each transaction has been far more work than buying a home from an individual seller but they have all worked out.

A couple of years ago I wrote about how banks can't sell real estate. They are selling some of it now, they own so much if it I guess they had to sell it.. . but they are still not very good at it.They are big companies and they don't really care about each property not like the last owner did.

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