March Case-Shiller house price numbers: Minneapolis has biggest month-over-month drop in U.S. (updated)

Actually, that’s understating things a bit: The 6.1 percent decline in local housing prices was the biggest monthly drop recorded anywhere in the 21-year history of the Standard & Poor’s Case-Shiller index [WSJ story] [WSJ table] [Case-Shiller release/PDF].  Detroit (-4.9 percent) and New York City (-2.5 percent) also registered record drops for those markets.

That brings the local real estate market’s year-over-year loss in value to 23.3 percent, the sixth-largest drop in Case-Shiller’s 20-city index after Phoenix (-36 percent), Las Vegas (-31.2 percent), San Francisco (30.1 percent), Miami (-28.7 percent), and Detroit (-25.7 percent). Aside from Detroit, a special case by dint of the full-on employment depression there, all the others are in California or the Sun Belt, hothouses of real estate speculation.

I phoned David Blitzer, the chairman of Standard & Poor’s index committee, to ask if he had any notion why the Minneapolis/St. Paul metro took such a huge single-month hit.”Not specifically, no,” he said. “We were struck by the number as well, so we went back and did some additional checking of the numbers. And they are correct.

“My sense–and this is more on a national basis, but it affects a lot of places–is that there are two things. One is that foreclosures have increased quite substantially since early this year. And with foreclosures, there’s increased sales pressure, increased selling, a lot of activity–but at lower prices.

“The other thing that seems to be happening is that we see much more damage from the recession as opposed to strictly subprime mortgages. I’ve looked at national delinquency rates for subprime mortgages, Alt-A mortgages, and prime mortgages. While the subprime delinquency rate is much higher, the prime mortgage delinquency rate is rising–and if anything, may have risen faster in the last couple of months than the subprime rate. What that suggests is that there are a lot of people who didn’t live in the Sunbelt, where most of the subprime mortage [trouble] is concentrated, and took out mortgages that were reasonable mortgages. But unfortunately, with the recession there’s been a lot of job loss and a lot of economic and financial difficulty. That leads to some forced sales and some increases in foreclosure.

“That may be what we’re seeing. In terms of Minneapolis, we discussed these things internally yesterday at some length, and nobody came up with a sense of [why]–was there a major industry or a major employer in Minneapolis that’s been hard hit, something like that? We didn’t come up with any explanations that anyone could give any credence to. In Detroit, I know what the story is. It’s the auto industry. In Minneapolis it’s not clear.”

“I wish I could give you a single theory, or an idea. But unfortunately I can’t.”

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Comments (2)

  1. Submitted by Richard Schulze on 05/26/2009 - 09:32 pm.

    Who wants to invest in real estate? Isn’t that like just another dot com?

  2. Submitted by benjamin priess on 05/31/2009 - 08:28 am.

    This is actually a really good thing for most people. The median, average, whatever home price here has been so out of whack for the past decade, and this underscores the extent to which real estate speculation played a major role in recent home price appreciation in the twin cities. When I moved here five years ago, before I considered purchasing a place to live, I looked at historical home price data, and my jaw dropped. I couldn’t believe how rapidly prices had increased. After living here for a few months, it was clear to me that an enormous amount of speculation was going on. It seemed like everyone was a real estate “investor”, and there were at least 40 major high rise new construction condo projects in the works in the city. I saw luxury cars with California plates everywhere in ’06 and ’07. Every other apartment building was being converted into condos. I overheard grocery clerks talking about their real estate gains. Small houses in terrible neighborhoods were selling for premium prices, and modest homes in safe neighborhoods were priced like rare luxury goods. Demand was also artificially inflated by stated income loans (another reason I was very leery of the market) and now we are seeing the effects of making too many loose loans to too many people who have too little money to cover down payment, monthly payment, insurance, taxes, utilities, and upkeep. Whatever the median price was, it will settle in for a while around a nice $150k (where it belongs). Unless lending practices return to the fast and loose method of the bubble, the bubble’s gains are pretty much history. Again, this is good. Do you want people spending all their money on interest payments to a bank in Delaware, or on local goods and services? Lower home prices favor the latter.

    Cleary it was a good time to rent.

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