The question is: when will speculators start playing in the market for Minnesota residential real estate. It is a question for which good arguments can be made on either side of the issue. There certainly are bargains available. That does not mean, however, that the market as it stands now is one in which can expect to quickly flip properties. Yes, it is true that there was a 12 percent decrease in the number of home foreclosures last year, but the market has been in decline since 2005 and it is too soon to say the bottom has been reached and it is up from here.
There was an 1800 unit reduction in 2009 of the number of homes disposed of at sheriffs auctions. This may be a sign of good times ahead, or it may be that after five years of declines, the chaff has been removed and now even formerly solid mortgages are in dire straights. There is, on the other hand, reason to think the Minnesota foreclosures numbers may resume an upward trend as 2010 plays out. Pessimism rests in the states stubbornly high unemployment rate. Officials expect the rate will remain in 9 percent range throughout 2010 with at most a . 5 percent drop. And prospects for 2011 are about the same.
Without a significant increase in job opportunities in the state, homeowners that became unemployed in 2009 quite possibly will exhaust their unemployment benefits and go into mortgage default this year. The bleak employment forecast has continued long enough that the downward spiral may continue to play havoc for lenders and homeowners alike.
The mortgage restructuring efforts had the goal of lowering monthly payments for homeowners to no more than 30 percent of household income. While this was successful where there was an income, it was frequently only a temporary stop gap. Homeowners who had gotten behind in their payments due to losing their jobs and then failed to find new work before running out of unemployment benefits found themselves unable to afford even the restructured payment scheme.
As regards the changes to the Minnesota foreclosure process enacted in the summer of 2009, the ability of homeowners to get 5 month postponement of a forced sale also helped lower the 2009 foreclosure numbers. The ultimate success of this change remains in doubt, however. This is because the data is not yet in on how many homeowners have successfully used the postponement period to resolve their employment and income issues. The legislation only took effect in August and the first round of postponements are only now ending.
It is to be noted that foreclosure amendments also increased the lenders responsibility to protect abandoned properties from trespass, vandalism and the elements. The clause that permits lenders to add their expenses to the outstanding amount owing on the mortgage is widely ridiculed. Given that lenders are typically required to force those who abandon their homes into personal bankruptcy, adding their additional costs to a debt that will likely pay out pennies on the dollar is not much comfort.
In fact, these additional financial liabilities may be enough to keep much needed investment money out of the Minnesota real estate market entirely.
The newly revised foreclosure process is defended by supporters who point to the 12 percent reduction in the 2009 foreclosures. But we will have to adopt a wait and see stance on the matter. Things will become clearer as the year progresses and the data on the relative success homeowners make of their 5 months starts to come in. The nightmare scenario will be if the extra time fails to assist those who need decent paying full time work.
Analysts are agreed that recovery for residential real estate in Minnesota real estate will not take place until there is a substantial improvement in the unemployment picture. When and if that occurs is anyone’s guess. There are certainly deals to be had at Minnesota foreclosures auctions. But it is clear that the house flipping days of the past have yet to appear on the horizon.
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