Short sales, foreclosures drive down median home prices

Numbers out Monday show improvements on some fronts and trouble spots on others as the Twin Cities housing market recovery progresses in fits and starts.

The data also give a clearer understanding of what's happening in sales of distressed properties, which tend to drag down overall home prices.

The Twin Cities median home price ticked down about 3 percent in September to $170,000. On the upside, if one can put it that way, the median price had its smallest year-over-year drop in nearly a year and a half. It fell 11 percent compared to September of last year. The numbers are compiled by Twin Cities realtor associations.

"I mean, please, good numbers. I'd like good numbers at one point," said Augsburg College economist Jeanne.

Boeh said the September home sales numbers are also uninspiring. Pending sales, which reflect signed purchase agreements, were up about 24 percent compared to last September.

But pending sales can fall apart for all sorts of reasons, and the latest numbers suggest many did. Even though pending sales were up, the number of completed sales was flat between September 2008 and last month.

Boeh said that's partly due to the pace at which banks respond to offers on properties like short sales. Those are deals where a seller prices a home for less that what's still owed on the mortgage.

"Part of it is that short sales used to take lenders a little over a month to get back to you," Boeh said. "Now it's taking them about 2.5 months to get back to you, and often those sales are going away."

The hassles of buying a short sale show up in the sales figures.

Homes offered as short sales outnumber foreclosures by 2 to 1. But since short sales are a lot harder to buy, they change hands at about one-third the rate of foreclosures.

"It was 90 days exactly from when we put the bid in to when the bank said, 'Yup, you can have it,'" said Shawn Rask.

Rask and his wife will be closing next month on a short sale in Woodbury. Rask said the two-bedroom, 1,500 square-foot townhouse he and his wife purchased was worth waiting for.

"It's right where we were hoping to find something, and we're getting a lot more than we were hoping for in that price range," he said. "So we are absolutely satisfied and happy and excited for it."

While short sales and foreclosures can offer house hunters good deals, they're not good for the overall health of the market.

They play a big role in depressing home prices, and last month, they represented a declining but still significant 39 percent of sales.