Joe Doakes from Como Park writes:
I work with real estate in the Twin Cities. It’s no secret there have been a lot of foreclosures in recent years. But I’m noticing an ominous change in the nature of the foreclosures.
The economy was sliding before September 18, 2008, when Treasury Secretary Paulson said the wheels almost came off and McCain suspended his campaign to rush through the first TARP bailout, but the intensive media news afterwards and the government reaction to the problem, accelerated the decline.
Joe notes that there’ve been three waves of foreclosures:
The first wave of foreclosures starting in 2007 were limited liability companies owning rental shacks in Frogtown who saw what was coming and walked away in strategic defaults. The foreclosures dumped foreclosed homes on the market, depressing market values just as politicians and bank regulators started getting tough on loans, making it hard to move those homes off the market.
And, in Saint Paul terms, just about the time the city’s idiotic housing policies started laying the groundwork for the further gutting of the city’s housing market.
The second wave in 2008 – 2009 were 3 and 5 year ARMS taken between 2003 and 2005 taken by Asians and Hispanics in Central Corridor and the East Side using alternative loan programs (no doc, stated income, ALT-A, etc). These were subprime loans given to people who got in cheap but couldn’t refinance when their interest rates reset because property values had fallen so they walked away, also some flippers who bought Frogtown shacks in 2007 thinking they’d gotten a bargain but couldn’t make the payments when more foreclosed homes flooded the market driving down rental prices.
Not to mention the city dumping the properties it owned due to its vacant building ordinance back onto the market.
But both of those waves were mildly predictable, and old news.
Now, Joe’s got the bad news:
The third wave in 2010 to now are occurring all over Ramsey County, to borrowers on 30-year, fixed rate mortgages. These are traditional Minnesota borrowers who’ve homesteaded these properties for years, hanging on hoping for a turn-around but finally had to give up; or people who wanted to retire but can’t sell their home for enough to cover the loan so they let it go.
The first wave was froth and had the economy rebounded, that would have ended it. The second wave was fat – people who shouldn’t have had loans anyway – but the third wave is the muscle and bone of the economy. These are prudent borrowers who raised families in their homes and now have lost their life’s savings. That’s going to have a lasting impact on our economy far beyond this election.
Between the glut of city-owned properties (being handed to non-profit friends of the City Council, natch) and the continued Obama recession, Saint Paul’s housing market is screwed for years to come.