5 posts from May 2012

District housing values: A man’s home is his … certificate of deposit?

If you’re not tired yet of reading about how much value your home has lost, here’s a new way to think about it—at least for long-time owners.

The Federal Housing Finance Agency—the regulator for Fannie Mae and Freddie Mac—tracks housing values on a quarterly basis using average price changes in repeat sales or refinancings of the same single-family properties whose mortgages have been purchased or securitized by Fannie or Freddie since 1975.

The most recent FHFA data show that statewide housing values in the first quarter of 2012 inched up in the Dakotas and Montana compared with a year earlier, and were flat in Minnesota and Wisconsin (see Chart 1; note that index values are not adjusted for inflation).

Housing index chart 1 -- 5-30-12

Of course, any statewide index comes with many caveats, the most notable of which is the old real estate saying about location, location, location—certain places have seen more dramatic price swings leading into and out of the recession. Minnesota’s four metro regions have experienced different home appreciation rates over the past two decades, but they follow the same directional path (see Chart 2, at bottom).

But on par, despite significant declines since the recession, housing values over the course of the past two decades are still quite positive, having at least doubled in every district state since 1991, with Montana’s average home value nearly tripling. In terms of annual price appreciation, 20 years is a long maturity. Over this period, compound annual home appreciation runs about 3.5 percent in Minnesota and Wisconsin, 4.4 percent in the Dakotas and 5.5 percent in Montana.

The Dakotas continue to illustrate the tortoise-and-the-hare lesson in real life; having lagged home values in neighboring states, their steady performance and lack of any notable price depreciation has allowed them to catch up and surpass many states, including Minnesota and Wisconsin.

Housing index chart 2 -- 5-30-12

Workers’ comp rates trending downward, at least through 2010

During the sluggish economy, Minnesota employers are seeking ways to reduce costs, and many are likely thankful to see workers’ compensation costs trending lower, according to data in a recent report by the Minnesota Department of Labor & Industry.

Employers are required to have workers’ compensation insurance or be self-insured against workplace accidents. The report shows that firms have been paying steadily lower costs per $100 of payroll in recent years. This mirrors a similar pattern seen nationwide, according to an annual report by the National Academy of Social Insurance (see Chart 1).

One of the reasons for lower average costs is likely the result of steadily declining rates in workplace claims, which have dropped below five for every 100 full-time equivalent workers (see Chart 2). This has helped offset a rise in the average cost of individual claims over the same period, especially for medical benefits, which increased by 15 percent (to $5,550 per claim) from 2006 to 2009 (the most recent figures available). Average indemnity benefits—direct compensation to workers for lost wages—rose 3 percent per claim over this period, to $3,530, but that figure is down $170 from 2008. (All benefits are also adjusted for wage growth over this period.)

Workers comp -- 5-24-12

Claims are down for a variety of reasons, some of them related to the current economic slowdown, while others stem from long-term shifts in the economy. For example, employers are reportedly spending more time and money on workplace training in an effort to avoid workplace accidents and injury. The economy has also shifted away from manual-labor jobs in factories and elsewhere that are more likely to induce injuries and claims. The state report noted that the economic slowdown can also affect the claim rate.

In the same way the broader economy has moved away from manual-labor jobs, the recession dealt a harsh blow to construction jobs, which have a high accident rate. Work speed is also a factor in workplace injuries, and a sluggish economy can slow production rates. Employment losses during a recession affect less-experienced workers, who tend to be more accident prone. Workers might also file fewer claims during tough economic times for fear of job security.

But the workers’ comp coin has two sides. As the state report said, laid-off workers might also have a greater incentive to make a claim out of economic hardship “because lay-off is no longer a risk.”

Rural Minnesota counties still seeing brain gain (yes, with a “g”)

Much is made of the fact that young people are leaving rural communities for jobs and education opportunities after high school. Much less is made of the fact that older households are continuing to move back to many of those same communities, according to new research by Benjamin Winchester, a research fellow at the Extension Center for Community Vitality at the University of Minnesota.

Winchester tracked five-year age cohorts from age 14 to age 65 from 2000 to 2010. He found that nonmetropolitan counties gained population in the 30-49 age range—a continuation of the trend seen in the 1990s, though the pace of growth had slowed somewhat, possibly in part to a slowdown of migration from the recession. Nonetheless, this migration pattern can be seen clearly from a snapshot of three age cohorts moving (generally speaking) from a job-search and career-building mentality to marriage and family-planning mindset (see maps below; due to technical constraints, maps with better clarity can be seen in the report itself).

County-level population change, 2000 to 2010, by age group (25-29, 30-34, 35-39)
Brain gain -- 5-17-12
Source: "Continuing the Trend: The Brain Gain of the Newcomers," University of Minnesota Extension Center for Community Vitality

The research did find that rural counties continued to lose young adults to metropolitan counties, mostly to the Twin Cities. In fact, Winchester found that migration preferences of all cohorts from 2000 to 2010 “are remarkably similar” to those found the previous decade.

One new finding was that micropolitan counties—those counties with regional populations of 10,000 to 49,000—appear to take on cohort migration traits similar to metropolitan counties. This was particularly the case in the southwestern portion of the state, where Winchester said “rural urbanity” appears to be attracting more 30-to-39-year-olds to places like Willmar and Marshall. He also pointed out that these micropolitan gains might ironically “exacerbate the narrative of rural decline,” because as these places grow, a few might reach metropolitan status, thus possibly shifting the migration ledger without any underlying change to the places people are moving to.

This research is an update of earlier research on rural brain gain, which Winchester talked about in a July 2011 interview with the fedgazette.

Cashing in on the farm might mean holding onto it

Robust agricultural prices have led to strong farm balance sheets. That lure of high profits has generated anecdotes of some eye-popping sales of farmland and whispers of a farmland boom for a couple of years running.

But that’s only the wind blowing in your ears—there is no widespread evidence of a speculative boom, says a recent report by Steven Taff and Minnesota Land Economics, an online data warehouse maintained by the Department of Applied Economics at the University of Minnesota.

The price of land has risen considerably since 2000, even after adjusting for inflation, including a strong rise from 2007 to 2010. While farm income wasn’t particularly strong during the first half of that decade, farmers saw some of their best years during and after the recession.

But the lack of unbridled speculative bidding can be seen in the fact that the number of sales has dropped by 50 percent since 2007, and the number of acres sold has fallen even more—evidence that farmers are perfectly happy to take profits from fields, rather than from land sales (see chart). That was particularly the case last year, when the number sales, total acres and median prices all declined compared with 2010.

Farm sales MLE -- 5-9-12

The MLE database goes back to 1990 and includes some 54,000 farmland sales covering 6 million acres. The data come from state Department of Revenue compilations of property transactions, which are reported annually by county auditors. The distribution of those sales, broken out by year, offers an interesting timeline of farmland sales and values in the state over this period (see video at bottom; note that land values in the video are not adjusted for inflation).

Taff points out that ag land near the Twin Cities, other large cities and high-amenity locations has “always been affected by factors other than agricultural,” including recreation, housing development and retirement. “This results in some parcels selling for far more than we might expect if we simply focused on their farm income potential.”




Home foreclosures: Getting better, but not good

Last year was the first year since the recession that the fever of home foreclosures finally broke, declining slightly across the nation and in most district states, according to data from CoreLogic, a financial, property and consumer data firm.

Home foreclosures started inching up in most places by 2006 and ramped up significantly every year through 2010. By then, foreclosures had at least tripled in every district state; in Minnesota and Wisconsin, foreclosures grew 11-fold or more. (See Chart 1; CoreLogic data do not cover South Dakota.)

Then last year foreclosures finally dipped in a more positive direction, except in Montana, where foreclosures rose another 13 percent. North Dakota has by far the lowest foreclosure rate in the district, even on a household basis, and it also saw the largest drop in foreclosures last year, at 38 percent.

Foreclosures -- 5-1-12

One notable data caveat: A February report sponsored by a consortium of Minnesota housing organizations, and published by HousingLink, found that the total number of foreclosures in the state in recent years was roughly 50 percent higher than CoreLogic’s figures, though the two sources follow a very similar trend line overall since 2005 (see Chart 2). The consortium’s report used county-level sheriff’s auction data, while CoreLogic has a proprietary data system, and sources there could not identify the reason for different annual totals.

Sue Speakman-Gomez, head of HousingLink, said she could not speak to CoreLogic’s methodology. “But I can say for certain there is no double-counting in our numbers. The counties know exactly what properties have gone through sheriff’s sale, and we have been working with them for several years. … We are confident that our numbers represent a 100 percent accurate count” of homes lost to foreclosure via sheriff’s sales.

Whatever the annual figures, many experts are predicting that foreclosures will remain elevated—and possibly even rise—this year. Banks repossessed fewer properties in 2011 compared with 2010, due in large part to the investigations surrounding so-called robo signings and bank foreclosure procedures, which delayed foreclosure processing for many homeowners behind on their mortgage payments, according to RealtyTrac, an online foreclosure clearinghouse. The firm has reported that the number of default notices nationwide rose during the second half of last year and remain elevated (figures in district states were not available, however).