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Wednesday, July 11, 2007

Real estate landslide.

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posted by Bob at Wednesday, July 11, 2007

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Twin Cities housing slide picks up speed
As building permits tumble, some experts see a bust; others reserve judgment
BY JENNIFER BJORHUS
Pioneer Press
Article Last Updated: 07/10/2007 11:18:08 PM CDT


New numbers out Tuesday confirm suspicions: The Twin Cities housing slump has slid into, well, a bust.

City officials issued just 592 building permits in June, a number nearly 50 percent off the recent monthly permit peak of 1,104 in June 2005, according to the Builders Association of the Twin Cities.

And while homeowners probably pay far more attention to house prices, many economists prefer permits or housing starts, saying they are a more solid yardstick of market activity.

There are no hard definitions here. But steep declines of 30 percent or more off peak activity have "housing recession" written all over them, they say.

"Anything over 20 percent is pretty big," said Patrick Newport, an economist at the consulting firm Global Insight in Lexington, Mass.

Nationally, in the past three housing cycles, starts declined an average of 63 percent from their peak to trough, said Karl Case, a housing economist at Wellesley College. In the current cycle, which he said peaked in the first quarter of 2006, starts are about 33 percent off that.

"It can and could go further," Case said.

Home prices offer another, if less reliable, bust-o-meter.

Andrew Leventis, senior economist at the Office of Federal Housing Enterprise Oversight, said a bust can be considered a 15 percent drop in nominal home prices over five years - a rather arbitrary threshold the Federal Deposit Insurance Corp. put forth in 2005.

Whether such prices measures are useful is "an open question," Leventis said.
By the FDIC measure, neither the Twin Cities nor the country is in bust territory ... yet.

Using the Office of Federal Housing Enterprise Oversight's home price index, neither Minnesota nor the nation has declined.

The alternative SP/Case Shiller home price index, a favored measure that tracks repeat home sale prices, shows declines, albeit not dramatic. Nationally, the Case Shiller is down about 2 percent. The Twin Cities is at 164.73, down 3.7 percent from its September 2006 peak.

That's nearly identical to the drop in the median sale price released each month by local Realtor associations. For May, the latest available figures, the 13-county metro area's median selling price was $227,495, down 3.9 percent from the local price peak in June 2006.

But don't base anything on median price alone, economists caution.

Newport, at Global Insight, said that's because large-scale drops in home prices are so unusual, a sustained price drop of any size indicates a housing market is seriously depressed. The drops in both activity as measured by building permits and price in the Twin Cities "are telling you a consistent story," Newport said. Bust.

Not all busts are equal. The Twin Cities are not as bad off as other metro areas. Prices in the Detroit area, hit hard by auto-related layoffs, are down 11 percent, again using the Case Shiller index.

Prices are "sticky" and highly regional, said Karl Case, co-creator of the index. "In areas where the economy has soured and employment is declining, the likelihood of a price decline is greater," Case said.

That suggests the Twin Cities will escape the worst. The area's underlying economy may not be roaring, but it's growing.

Indeed, some housing experts eschew the term bust altogether. It's just too alarmist and unfairly connotes wholesale collapse, said George Karvel, a real estate professor at the University of St. Thomas College of Business. Karvel prefers the term "dramatic adjustment," a process he anticipates could take four years to work itself out.

Jim Solem, former head of the Minnesota Housing Finance Agency, dismisses the entire discussion as too complicated. The state of the local housing market simply depends on whom you talk to.

"If you talk to someone trying to buy a house right now ... it ain't all bad," Solem said.

Jennifer Bjorhus can be reached at jbjorhus@pioneerpress.com or 651-228-2146.

9:51 AM  

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