Pat Paulson, Realtor, Minneapolis, Minnesota

A local non profit used the City of Minneapolis ‘First Look' program to purchase one of my foreclosure listings in June. They literally snatched it away from a couple that had made a full price offer on this home in a nice South Minneapolis neighborhood. After letting it grow for six weeks they finally cut the foot tall grass on the vacant property.

First Look is part of the Minneapolis Foreclosure Recovery Plan, the component used to "pursue aggressive property acquisition". The plan is for the city to purchase for itself and it's Coordinated Development Partners nearly one third (over nine hundred properties per year), of the foreclosures in the city. They have negotiated agreements with the major banks to have a ‘First Look' opportunity to purchase foreclosed properties before they are available to the public market.

As the foreclosure crisis unfolded city officials prepared their response. There were thousands of vacant foreclosed homes creating problems for neighborhoods. But markets can change faster than government can create and implement plans. And the lesson that markets have forever taught yet we never seem to learn is: "Markets always seek balance and thus, will correct imbalances if left alone".

As the media has continued to focus their reporting on next to meaningless price data, the important Supply/Demand Ratio (SDR) has been shrinking. And while the traditional market and median to upper price ranges have continued to be slow, the foreclosure market and lower price ranges are booming. New data fields are now used widely enough to provide reliable SDR data on foreclosures. As of July 27, 2009, the SDR for foreclosures in Minneapolis was a remarkably low 1.41 based on closed sales over the previous month. A balanced SDR is considered somewhere between 4 and 6. Assuming an average listing period of four to six months, there are currently three or more buyers for every foreclosure in the city. We don't need help selling these foreclosures!

The bright side of the foreclosure crisis is that prices have come down so low that there currently exists a window of opportunity for home buyers and investors. Many of the properties are in good condition or have the potential to be good quality homes. The City's intervention threatens to shut this window of opportunity.

Minneapolis and the non profits have a long history of positive influence in our housing markets. Other components of the foreclosure plan are beneficial and ‘First Look' can be, if used sparingly and selectively. The good people of this city wish to take advantage of today's opportunities. Here's a call to the city and the non profits to keep your hands off the good deals!

As we know, the Supply Demand Ratio (SDR), is perhaps the most important leading indicator for predicting future price movement in real estate markets. Sometimes, significant other factors such as foreclosures moving through the market or lack of quality Jumbo financing, can overshadow or diminish the SDR effect, but that's another story for another day.

Unfortunately, there is no formula to determine the exact influence the SDR will have on prices. We know that if it's too low, prices will go up; too high, they will drop; and balanced, prices will be stable. Opinions vary, but most observers consider a range of 4 to 6 months of inventory to be a balanced SDR. We also know that what constitutes balance, or high or low, and how it can affect prices, can change depending on area, price range or time.

Our Twin Cities market can be divided into many submarkets that are vastly different. There are areas with high numbers of lender mediated (foreclosure and short sales) properties, such as Brooklyn Center, representing 67.9% of its inventory. Other areas have low levels, such as Edina, with 5.4%.*

One recent trend has been the rapid change to a sellers market in the lower price ranges. An analysis of SDR's demonstrates this.

A selection of high foreclosure impacted areas, Brooklyn Center, Brooklyn Park, North Minneapolis, Powderhorn and Camden reveals the activity in the low price range market. The SDR in these areas for properties listed at $80,000 or below is an unusually low 1.35, based on Pendings and Solds with an off market date in the last month (March 28 - April 27, 2009). For properties in these areas with a list price above $150,000, the SDR is 5.81.

A selection of low foreclosure impacted areas, Edina, Eden Prairie, Minnetonka, and Plymouth, reveals similar differences based on price range. In these areas, the SDR for properties listed at $250,000 or below is just 2.55. For properties listed at $400,000 or higher the SDR sits at 9.95.

What this tells us beyond the fact that there are currently distinctly different markets is a matter of interpretation. It appears clear that the bottom of the market will be rising, but we are nowhere near any upward price pressure on the middle or upper price ranges. It also appears that the downward correction has overshot the target in the high impact areas and we'll likely see prices moving towards more balance relative to other markets in the future.

As always, money flows towards quality and value, and future movement in the markets will reflect this.

* Data from www.mplsrealtor.com, Lender Mediated Report, authored by Jeff Allen and Aaron Dickinson.