A Tale of Two Suburbs

Lender-Mediated Sales Loom Large in Current Market

According to the Minneapolis Board of Realtors, "lender-mediated" properties now comprise about one-third of local market activity. The most common types of lender mediation are foreclosures and short sales (the latter require the lender to agree to take less than what it's owed).

Bad as it is, the market-wide statistic masks a huge disparity between the strongest communities and the weakest.

At one extreme, a stunning 64% of all homes currently for sale in Brooklyn Park are now lender-mediated.

By contrast, the equivalent number in Edina is just 6%.

What explains this gulf?

Short sales and foreclosures are correlated with home price: the lower the price, the higher the incidence of lender mediation (for readers of this blog outside the Twin Cities, Brooklyn Park's housing is modestly-priced, while Edina's is disproportionately upper bracket).

People buying less expensive homes were more likely to have poor credit, and end up in sub-prime mortgages featuring low -- but very temporary -- initial teaser rates. It's also a safe bet that people buying homes in Brooklyn Center put less money down than their Edina counterparts -- and therefore have less incentive to hold onto a home that's worth less than what they paid.

Finally, economic downturns simply hit the bottom rungs of the financial ladder harder than the middle and upper rungs.

For prospective home buyers, the lesson is clear: high-demand neighborhoods not only appreciate more in up markets, they hold up better in down markets.