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Additional research supports ‘State of Homeownership’ in Minnesota

Posted on: Monday, August 25th, 2014  //  under Homeownership Gap, Pre-Purchase Counseling, Reports, Foreclosure, Foreclosure Recovery, Macalaster College, Zach Avre, Homebuyer Education, Homebuyer Services

UnevenRecoveryIn June, the Center released our “State of Homeownership” report, sharing information on the importance of homeownership, the latest data on the uneven housing recovery and expressing our hopes for smart, sustainable homeownership in Minnesota.

Recent research from the geography program at Macalester College shares similar findings on the aftermath of the crisis, showing an unequal recovery among neighborhoods hit hardest by foreclosure.

The project, “A Dream Foreclosed: The Uneven Geography of the Foreclosure Crisis in the Twin Cities,” by student Zach Avre, looks at the Twin Cities housing market leading up to the mortgage crisis and the impact of the resulting rise in foreclosures, particularly on historically marginalized communities.

Avre’s research found “Communities with high concentrations of people of color and low-income residents witnessed the greatest levels of housing value appreciation leading up to the housing crash. However, low-income communities of color and renters across the metro region experienced disproportionately higher rates of foreclosure and housing value depreciation than more affluent, white homeowners in the aftermath of the crash.”

Even today, the Center writes in its report, “Foreclosures continue to weigh heavily on the neighborhoods predominantly of color like Near North and Phillips in Minneapolis, and the Payne-Phalen and Thomas-Dale in St. Paul. In each of these neighborhoods, nearly half of all homes sold in 2013 had been foreclosed upon. Median home sale prices are also low – as low as $81,000 in Near North. Home values have improved in recent years, but 2013 sales prices must still increase by anywhere from 74 percent (Payne-Phalen) to 110 percent (Phillips) to reach peak home values recorded in 2006.”

In conducting his case studies of these areas, Avre uses urban housing submarket theory – in short, the idea that home values tend to appreciate most quickly at the edges of suburban development, and most slowly in the city core. “Yet,” he writes, “not only did a housing bubble develop within North Minneapolis before 2006, but the tracts in the central city also witnessed the most substantial declines in home values following the crash.”

Delinquency rates – a sign of foreclosures to come – are also high in predominately minority and low-income neighborhoods, ranging from 5 to 8 percent of all mortgaged homes. Affluent, mostly white neighborhoods reviewed are seeing the opposite trend. In Southwest Minneapolis, average home sale prices reached $306,000 and distressed homes made up only 9 percent of sales in 2013. There, just 8 percent of homes are underwater and home values have exceeded 2006 peak prices.

TodaysBuyersAreCautiousThough Avre states homeownership has traditionally been a goal in the working class and lower middle class submarkets, today’s homebuyers of all incomes are more cautious. In fact, more than 3 in 4 Americans believe the housing crisis isn’t over, according to a 2013 survey sponsored by the MacArthur Foundation.

This caution is playing out in Minnesota, where more first-time homebuyers are taking steps to make thoughtful and informed purchases. Overall, homebuyer education is expected to play a greater role in the home buying process in the years to come as lenders, consumer advocates and local governments recognize that education is a significant deterrent to foreclosure. One 2013 analysis by Freddie Mac even found mortgage delinquency dropped by nearly one-third when first-time homebuyers participated in education or counseling.

If you are purchasing your first home – or working with clients that are in the buying process – make sure you avail yourself of one of the best deterrents to future foreclosure… additional information about homebuyer education in Minnesota is available, here.