Cheap house. Elbow room. Slower pace.

By Jim Buchta, Star Tribune


Published: February 6, 2005 in the Star Tribune
DISPARITY0206

Several weeks ago, Todd and Lori Gilb nailed a for-sale sign to a tree in front of their tidy rambler in Walnut Grove, a storybook town 160 miles southwest of the Twin Cities on the banks of Plum Creek. They're hoping to sell the three-bedroom house for $70,000, just $11,000 more than they paid for it a decade ago, so they can get a house with a bigger yard for Todd's excavation equipment.

Kim Cox and Cynthia Whiteakre also played the trade-up game last summer. Their 520-square-foot house in south Minneapolis sold for $174,000 within hours of hitting the market. They walked away with a $23,000 gain in one year. They combined the proceeds from that sale with the gain from another house sale to buy a hobby farm in Wisconsin, a truck and some horses and chickens.

Housing samplerStaffStartribune.comWhile the Twin Cities and other Minnesota metro areas have been enjoying one of the biggest real estate booms, most rural areas have missed out. Take away lakeshore and recreational property, and prices have been stagnant or barely keeping pace with inflation in many outstate areas.

Even if the outsize annual gains in the state's big metro areas came to a halt, the gulf between real estate haves and have-nots would remain wide.

"It's just a dual economy that doesn't seem fair but is reality," said Warren Hanson, president of the Greater Minnesota Housing Fund, which has been trying to stimulate outstate development with financial and technical support.

In southwestern Minnesota, the median sale price in Rock County dropped from $69,000 to $65,100 from 1999 to 2003; in Pipestone County the median price dropped from $44,500 to $41,500.

In northwestern Minnesota, the median price dropped from $62,000 to $47,100 in Lake of the Woods County, and from $49,375 to $43,450 in Koochiching County.

In Hennepin County, meanwhile, the median price rose from $135,000 to $175,600 over those four years. Ramsey County had an even steeper increase, from $119,900 to $163,500.

"I think the whole economic situation in this area is starting to take its toll," said Vern Fryklund, a sales agent for Century 21 JF Realty and an independent appraiser in Hibbing, which has been hit particularly hard by an unstable mining industry. "Lakeshore values are holding, and they always will, but residential and rural properties -- that's where the problems will be."

Fryklund, who is also the secretary of the Range Association of Realtors, said that in Hibbing the average sale price barely moved from 2003 to 2004, rising from $70,992 to $72,878.

Upward pressure

Real estate prices are driven by supply and demand, so in communities that have had population growth, there has been steady upward pressure on home prices.

The Duluth metro area posted a 13.26 percent gain in home prices in the third quarter; St. Cloud had 8.95 percent and the Rochester area posted a 5.95 percent increase, according to data from the Office of Federal Housing Enterprise Oversight, which tracks repeat transactions.

Population growth doesn't tell the whole story, though.

In smaller towns, the health of the local economy can be more important than the gain or loss of a few thousand people.

In Marshall, a diverse local economy that includes Southwest State University, the headquarters of frozen foods giant Schwan's, a Wal-Mart Supercenter and a soon-to-reopen turkey processing plant have helped create strong housing demand and a building boom. The median sale price for homes is near $140,000, up 8 percent from 2003 to 2004.

"We've had ... problems with people from the [Twin] Cities who come here and think they're going to get a whole lot of house for their money," said Pam Severson, broker/owner with Coldwell Banker in Marshall. "They're just sticker-shocked because our prices are somewhat comparable to the Cities."

Sixty miles away from Marshall on the windswept prairie of southwestern Minnesota, Worthington is almost the same size at 12,000 residents. Its fortunes used to be tied to the successes and failures of area farmers, but the new corporate farms don't necessarily buy their combines at the implement dealer downtown, and the town's largest employer is now a food processing plant that relies mostly on low-wage labor.

A growing number of strip-mall chains are putting pressure on downtown retailers, and the population is becoming more diverse than ever as immigrants move in looking for an affordable place to begin their search for the American Dream.

The median sale price for homes in Worthington is $63,000, nearly half the statewide average. Throughout surrounding Nobles County the median home price rose 41.5 percent from 1990 to 2000, again about half the statewide pace.

"We just don't get the appreciation the [Twin Cities] metro gets, and it's all based upon the economy," said Brad Chapulis, the city's community development director. "It goes back to the median wage."

Wages in Worthington aren't keeping pace with the rising costs of goods and services and that limits how much money people can spend on housing, Chapulis said. According to the 2000 census, the median family income in Worthington was $44,643, nearly 20 percent lower than in nearby Marshall.

Chapulis said property values aren't falling, but many homeowners can't trade up or properly maintain their houses because they lack the equity.

"It's a vicious circle," Chapulis said. "Housing is going to be the economic driver of our community. We have companies that are looking for expansion and without increasing the numbers and improving the housing stock those economic opportunities might fall by the wayside."

Falling home prices also can lead to a more desperate situation, said Ben Westchester, coordinator of data analysis and research at the Minnesota Center for Small Towns in Morris, Minn.

"At some point you've got to wonder how long is the town going to survive," Westchester said. "There are plenty of ghost towns around Minnesota and we can learn some lessons from them."

Communities must reverse outmigration, he said, and one way to start is to not expect wages and home prices in small communities to compare with those in metro areas.

"Once people start viewing the region as an asset, development tends to occur in a positive way," he said.

Longtime Worthington resident Nadine Wood agrees. She said Worthington offers a great opportunity to retirees, artists and others who aren't concerned about finding a good-paying job and value the town's relaxed, Norman Rockwell feel.

"The problem here is instability of employment;we don't have a lot of choice and opportunity in terms of employment," Wood said.

In 1991, Wood set out from Texas in search of a better life for her daughter. They stepped off the bus in Worthington and decided to stay. She paid $24,000 for a turn-of-the-century house that now has gleaming hardwood floors and a four-season porch where she operates a massage therapy business.

She's invested thousands of dollars and hours of sweat equity to make over the home, which had been "a neighborhood eyesore." But an agent told Wood the house still wouldn't fetch more than $48,000. She decided to test the market by offering it for $51,000, but after six months of running ads and posting signs, she took it off the market.

"It would probably go for $300,000 in California, and it would be grabbed," Wood said.

Not in Worthington.

She tried to sell her home again recently. The listing didn't get a single phone call.

Unaffordable move

Some buyers are moving to rural areas of Minnesota knowing full well that real estate gains there may be slow.

Others already living outstate would like to relocate to the Twin Cities but don't see how they can afford to make the move.

Maggie and Doug Kluver are among those who have decided to trade big-city appreciation for more affordable living in outstate Minnesota. Doug was in law school when the home-price boom began, and by the time they were ready to buy, prices were shattering records. The couple weren't willing to burden themselves to make a house payment, so they moved 130 miles west from a rental in Richfield to Montevideo.

"We couldn't afford a mortgage in the city -- just starting out you can't afford $1,500 a month," Maggie Kluver said.

They paid less than $40,000 for a three-bedroom house with 1,200 square feet, 2 acres and plenty of room for their two children. Their payment is about $300 a month, a bargain compared with the $1,400 a friend pays monthly for a similar-sized house in Bloomington.

The Kluvers know they're not going to earn double-digit appreciation, but it's better than renting.

"My husband looks at it as a savings account," said Maggie. "What we put in we'll get back out -- plus some."

Kelly and Russ Swanson are on the opposite side of the fence, wanting to move back to the Twin Cities, but unsure that it's possible.

The Swansons sold their house in New Brighton in 1998 and moved to a home on 3 acres in Milaca in northern Minnesota. Three years later, they decided to move back, only to learn that prices in their old neighborhood had gone into overdrive.

"We felt shut out of the market and wish we hadn't left," Kelly Swanson said.

They've had to watch as friends and relatives in the Twin Cities feathered their nests thanks to increases in home equity. The value of their old house has increased at nearly twice the rate of their current house.

"We have many friends in the Twin Cities who have traded up their equity to half-a-million-dollar homes or used the equity for cars, boats and even lake homes," Swanson said. "I often think we made a huge mistake in the timing of our decision to move."

 

Jim Buchta is at jbuchta@startribune.com.

A HOUSING SAMPLER

$174,000 in Minneapolis: A one-bedroom, one-bathroom house with 524 square feet and a one-car garage.

$143,000 in Worthington: A three-bedroom, two-bathroom house with 1,040 square feet and a two-car garage.

$110,000 in Virginia: A four-bedroom, 1½-bath house with 1,285 square feet and a two-car garage.

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