Long-lasting bursting flavor: Lender-mediated sales up 284.5 percent

What has a long-lasting bursting flavor that will continue well into 2009 and is leaving a bad taste in everyone’s mouth but those of spin-happy Realtors? It’s the Twin Cities housing market, still deflating after all these months. According to the Minneapolis Area Association of Realtors, short sales and foreclosures, a.k.a. lender-mediated sales, are up 284.5 percent from this time last year, leaping from 406 foreclosures and short sales in the Twin Cities  to 1,561.

A short sale is a seller-negotiated sale that allows the owner to sell the home for less than its original loan value. This often means that the owner will have to pay gift taxes on the original value of the home minus the selling price as if the owner actually pocketed the extra cash. A short sale often occurs in lieu of foreclosure, and it is the only solution for many homeowners underwater in negative equity.

Foreclosures and short sales are impacting home prices all over the Twin Cities. According to the Case-Schiller home price index released Tuesday by Standard and Poor’s, Minneapolis home prices have plummeted 15.5 percent since last April. Economists predict that with foreclosures and short sales on the rise, home prices could drop another 10 percent by 2009. 

The MAAR says it’s a "positive sign" that 27.9 percent of purchase agreements from the last six weeks were made on lender-mediated foreclosures or short sales. It shows "heavy buyer interest," according to a MAAR’s blog. Yet MAAR also notes that traditional sales are down 21 percent from last year. In other words, a not so "positive sign" that says buyers still aren’t interested in or able to pay for homes even at the current deflated prices.