Fern Hill Ascendant

The Market Bottoms . . in Fern Hill

The first hint of a bottom came around Thanksgiving, when this non-descript rambler in St. Louis Park's Fern Hill neighborhood came on the market for $189,900.

What happened next could only be described as a feeding frenzy: 17 offers in less than 72 hours, with the winning bid, $226,000, almost 20% over the asking price.

What were they fighting over? Most likely not the house -- a solid but rough, 1,800 FSF rambler -- but the .33 acre lot, itself assessed at $235,000 and located just six blocks west of Minneapolis' Cedar Lake.

Market Dynamics

What happened next was fairly predictable: the 16 losing bidders vowed to offer more aggressively next time.

So when a nearby home, 2641 Kipling, hit the market in February, the result was an even bigger frenzy ("Multiple Offers and $40k Over Asking Price"). The hold ultimately sold for more than 24% over asking price.

Two questions: 1) do you think the next Fern Hill foreclosure (assuming there is one) is going to attract more or less interest?; and 2) if the bottom of the neighborhood is being pushed up, does that spill over to more expensive, surrounding homes?

Answers: "more," and "yes."

Record "Housing Affordability"

Has Housing Hit Bottom?
Key Metric Says "Maybe"

Falling prices plus low interest rates equals improved housing affordability, right? Maybe. Even if it does, however, Buyers may be too gun-shy at the moment for that to matter.

According to the four local realtor associations, the Twin Cities' Housing Affordability Index ("HAI") is now at 192, the highest number since the statistic was first tracked in 1990.

What that means is the median family income in the Twin Cities is 192% of the income needed to qualify for the median priced home, using a 20% down payment and 30-year fixed mortgage.

By contrast, that number fell to as low as 120% in mid-2006. Not coincidentally, mid-2006 was very close to the peak of the housing bubble.

Watch the Numerator

So is a record-high HAI now signaling that the housing market is close to a bottom?

It depends on the wild card in the equation: Buyers' income.

In a recession, unemployment rises, and wages typically stagnate or fall. I don't compile the HAI statistics, but you'd guess that the income component of the HAI is a lagging number, and is now likely weakening along with the overall housing market.

So some consumer skepticism may be warranted.

Of course, prospective home buyers are not just backward looking, but forward-looking, too.

For now, people who are watching home prices fall and who are worried about losing their jobs clearly are listening to what their gut tells them, not their brain (and certainly not their realtor!).