Hot market turns cold for Minnesota lakefront homes

ST. PAUL — Getting the chance to sell a lake home in northern Minnesota was once a cause for celebration among real estate agents.

“Now, it’s like, ‘Oh, no, another lakeshore listing,’ ” said Kay Bowman, a real estate agent with Century 21 Land of Lakes in Grand Rapids.

A few years ago, prices for lake homes were climbing at double-digit rates as buyers seemed convinced that all cabins in the land of 10,000 lakes soon would be gone. Sellers at the time also could count on demand from buyers who tapped equity from primary residences in the Twin Cities or elsewhere to finance a purchase up north.

But nowadays, selling a lake home is no day at the beach. Vacation home prices have fallen, buyers are waiting for bargains, and bank foreclosures — once unheard of on certain lakes — dot the shorelines, providing low-price competition for other sellers.

One of every 10 vacation homes purchased nationally in 2009 was in foreclosure, the highest such rate in five years, according to the National Association of Realtors. Real estate agents say there’s a similar trend in Minnesota, although they point out that foreclosures aren’t the only reason for slow sales at the lake.

“It’s consumer confidence — sales are down for almost all big nonessential purchases,” said Mike Peller, president of the Duluth Area Association of Realtors.

“We are down approximately 40 percent in values since 2007,” said Marc Kuhnley, an agent in the Brainerd Lakes area with Edina Realty.

“Of course, that 40 percent isn’t off a true value — it’s off of a false value that was driven by the market.”

Change in confidence

Nationally, the 10 percent of vacation homes in foreclosure or trustee sales last year is up from just 1 percent in 2005, according to the national Realtors group.

Foreclosure and short-sale listings in the Twin Cities metro area had a much bigger impact on the housing market during 2009. The homes accounted for 43 percent of the region’s home sales, according to the Minneapolis Area Association of Realtors.

As a group, second-home buyers tend to be a stronger set of borrowers, said Tim Swierczek, a mortgage broker in Maplewood and president of the Minnesota Mortgage Association. If nothing else, he said, vacation homebuyers must show lenders they can afford the extra house payment.

Five years ago, people buying lake homes had plenty of equity in their first home to draw on, Swierczek pointed out. Plus, buyers were more confident about their own financial health, as well as that of the housing market.

That’s all changed.

Realtor groups don’t break out sale statistics for all waterfront properties in Minnesota, nor do housing experts count foreclosures just at the lake. But statewide figures for all home sales and foreclosures provide some context for the comments from real estate agents.

The statewide median sale price for a home in Minnesota during April was $155,000, an increase of 9 percent compared with 2009, according to the state Realtors association. That improved median price, however, remained far shy of sale prices in 2008, not to mention the boom years of 2004 to 2007.

The median is the point at which half of all homes sell for more and half for less. Back when the real estate market was hot, Minnesota’s statewide median price consistently hovered around $200,000.

Foreclosure wave hits Northland counties

A report this spring from Minneapolis-based HousingLink suggests bank foreclosures were making appearances lakeside. Several counties in cabin country were among those with the biggest jump in bank foreclosures between the first quarters of 2009 and 2010.

For example, Lake County, including Two Harbors, saw a 650 percent jump in bank foreclosures in the first quarter, according to HousingLink.

The rate of increase is much more dramatic than the actual numbers, since the county’s foreclosure count jumped from just 2 to 15. Still, county officials say vacation homes now are among the mix of bank foreclosures in an area that had just two properties repossessed by banks during all of 2000.

Year-to-date in 2010, Lake County has conducted 30 foreclosure sales.

Farther up the shore in Cook County, Kim Wolff of Timber Wolff Realty in Lutsen said distressed sellers remain relatively uncommon, particularly among individual cabin owners. But it’s a different story for some developers who, as a group, “are taking the biggest hit these days,” Wolff said.

This month, for example, she listed two inland vacation properties as potential short sales. The properties had been model homes for a development that has fallen on hard times.

Buyers’ market

In the Brainerd Lakes area, banks are involved in about two of every five sales of waterfront property, whether by way of foreclosure or a short sale, estimated Marc Kuhnley, the Edina Realty agent. The listings have helped push prices downward — particularly at the spendy end of the market.

A lake home in the Brainerd Lakes area originally listed for nearly $1.7 million sold after two years on the market for $999,000, Kuhnley said. Another home originally listed for nearly $1.8 million is now down to about $1.3 million after three years on the market.

“Currently, there are 80 lake properties over $1 million on the market up here,” Kuhnley said. Homes in that price bracket are selling at a rate of about six per year, he added, so it could take a long time to burn through the supply.

“We are seeing a lot more bank-owned properties in the Brainerd Lakes area market, which is predominantly lakeshore homes that are second residences,” said Terry Pederson, an agent with Re/Max Lakes Area Realty in Crosslake. “If you’re a buyer, it couldn’t be a better time.”

There are signs that at least some buyers are responding, said Bruce Pogatchnik of Northview Bank in Finlayson.

Six to nine months ago, buyers were making offers that were substantially

below list prices with sort of a take-it-or-leave-it attitude, Pogatchnik said. Now, buyers’ offers are much closer to the listing price.

“Either things are firming up or the people who were on the sidelines think the market has cycled through the bottom,” said Pogatchnik, whose bank provides financing for recreational property purchases.

He added that while foreclosures of vacation homes haven’t been much of an issue for his bank, more bare lake lots have come back than is typical.

Slow to sell

Foreclosures on nice lake homes in the Grand Rapids area used to be unheard of, said real estate agent Kay Bowman. That has changed in the past year or two, as homeowners struggling to keep up with payments on their first homes have had to let go of their vacation properties.

A current listing on Sand Lake in Itasca County is a case in point. With 1,900 square feet of space, the two-bedroom house has 150 feet of sandy lakeshore, a fireplace, vaulted ceiling, patio and a two-car garage.

The previous owner tried to orchestrate a short sale — in which lenders agree to a sale for less than the amount owed on the house — but couldn’t find a buyer in the high 200s, Bowman said. After the bank took the property in a foreclosure, Bowman got the listing in February and promptly priced it at $259,000.

She’s since cut the price three times — to $219,900 — but has had only one showing.

Foreclosures can hurt any housing market, but Bowman maintains they are just a small part of the story in her area.

“People aren’t coming up here to buy,” she said. “So, you have this great volume of homes that we didn’t used to see.”

There have been some signs of life in the Grand Rapids market this spring, but the trend over recent years has been decidedly downward, said Charlotte McDermott of Coldwell Banker Northwoods Realty. The average sale price for waterfront properties in the area was down 11 percent between 2008 and 2009, according to local Realtors statistics.

Nearby sellers get the point.

“It is very slow,” said Thomas Bloomquist, an Itasca County resident who is trying to sell a four-bedroom home with 200 feet of shoreline along a small lake in rural Grand Rapids. This year marks the third consecutive spring that Bloomquist’s home has been on the market, with a current list price of $279,000.

Bloomquist works as a foreclosure prevention counselor with a nonprofit group in Duluth, so he knows that federal efforts to prevent foreclosures are focused only on primary residences.

It’s understandable, he added, since a second home or cabin is “not a real need; it’s a want.”

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