The Midwestern state of South Dakota has struggled with recessionary issues like the rest of the United States. The information below will help consumers obtain the best mortgage rates by detailing the unique conditions of the South Dakota real estate market. It focuses on state versus national trends, the fastest growing and most popular cities, and South Dakota mortgage rates, mortgage types, and foreclosure laws set by the state.
Comparing South Dakota Real Estate Prices
Real estate prices are one economic indicator of South Dakota’s fiscal condition. Low prices and slow sales reveal that consumers do not have the confidence and/or the income to move into a new home. Residents who are desperate to sell their homes risk depreciating home values and higher foreclosure rates in this market. On the other hand, high prices and quick sales show that consumers expect an improvement in the real estate market and their own situations. Both of these scenarios impact South Dakota mortgage rates, as lenders adjust their risk tolerance to match the market.
The strong housing market in South Dakota has kept real estate prices fairly stable. In fact, in 2008, South Dakota was the only state to see growth in home sales. While most U.S. houses sat on the market for seven months before selling, homes in Sioux Falls, South Dakota sold in half that time. Realtors attribute the state’s stability to an increase in population, low unemployment, and diversified economies in the major cities.
South Dakota’s condition must, however, be put into context by comparing it to neighboring states and the United States average. This information can then be used to determine whether the South Dakota real estate market is in recovery.
South Dakota Compared to Its Neighbors
Of South Dakota and its neighboring states, only Nebraska has shown an increase in median home prices during the last year. Pricing in the other states dropped. Between 2009 and 2010, the median home price in South Dakota fell 2.2%. This change is better than North Dakota and Minnesota but worse than Kansas and Nebraska, as evidenced by the figures below (data supplied by zillow.com):
• South Dakota – Median list price: $166,000, Change: -2.2%
• Nebraska – Median list price: $139,900, Change: +3.7%
• Kansas – Median list price: $145,000, Change: -1.7%
• North Dakota – Median list price: $149,000, Change: -2.3%
• Minnesota – Median list price: $175,000, Change: -5.4%
South Dakota Compared to the United States As a Whole
The current median list price for a home in South Dakota is $166,000 with a 2.2% year-over-year decline rate. For the same timeframe, the United States as a whole showed the same decline rate. Even though the median home price for an American home is $195,500, the similar change in real estate prices indicates that South Dakota is experiencing the same economic conditions as the average American. South Dakota’s real estate market may differ due to residents entering or leaving the state, employment opportunities rising or falling, or the state changing its economic policies.
Most Popular and Fastest Growing Cities
South Dakota is home to 782,000 people. While the state has several small cities, the two most populated are Sioux Falls and Rapid City.
Sioux Falls, South Dakota
Sioux Falls is both the largest city in South Dakota and the fastest growing. From 2000 to 2008 it increased in size by 22%, boosting its population to nearly 160,000 people in 2010. This transformation has occurred because, in the midst of South Dakota’s agrarian economy, Sioux Falls has managed to distinguish itself as a hub for the state’s finance, healthcare, and retail sectors. Money magazine has also repeatedly voted Sioux Falls as one of the best places to live in the United States, which contributed to the population influx. Home prices in Sioux Falls have ranged from a high of $169,000 at the end of 2008 to a current low of $153,900. The 6.7% drop in home prices from 2009 to 2010 is higher than the 2.2% drop in South Dakota overall and may be a sign that the overheated real estate market is correcting itself.
Rapid City, South Dakota
The second largest city in South Dakota is Rapid City. At 66,000 residents, it is less than half the size of Sioux Falls. Home prices have kept pace with the state and national averages, with the median single-family home or condo price being $166,000. Rapid City hosts a major medical center serving a five-state region, Ellsworth Air Force Base, the Army National Guard, the National Park Service, the U.S. Forest Service, and the Indian Health Service. Since Rapid City is the “Gateway to the Black Hills,” tourism represents a major part of the economy.
Mortgage Rates and Mortgage Types
Mortgages let homebuyers purchase a new home without having the full sale price in cash. The types of mortgages offered affect the homebuyer’s contract options and the mortgage rates that will be paid. Below is a list of the common loan types available to South Dakota buyers:
• Fixed rate loans – Borrowers make equal payments to the lender, usually across 15 or 30 years. The interest rate cannot change.
• Adjustable rate mortgages (ARMs) – Borrowers begin with an interest rate that is lower than the fixed loan rate. After a specified period—generally 1, 3, or 5 years—the rate may change. The second rate is locked in until the next rate reset period.
• FHA loans – Borrowers who have less than a 20% down payment may have their qualified loan insured by the Federal Housing Administration. The cost of the mortgage insurance is added to the loan.
• Jumbo loans – Non-conforming loans that are larger than the Fannie Mae and Freddie Mac limits are jumbo loans. They typically have higher interest rates to compensate for the lender’s additional risk of non-payment.
• Second mortgages – Borrowers may apply for additional mortgages that are subordinate to the existing, original mortgage.
• Reverse mortgages – Borrowers may convert a portion of their home equity into cash. The maximum loan amount is based on the borrower’s age, the current interest rate, and the home’s appraised value. Repayment is due upon death, sale of the home, vacation of the home, and other scenarios.
• Refinance loans – Refinancing allows borrowers to pay off an existing loan, consolidate debt, or lower monthly payments by taking out a new loan.
• Home equity loans – Borrowers may draw upon a line of credit as needed. Repayment begins once the loan is drawn upon.
South Dakota Mortgage Rates
As of publication, South Dakota mortgage rates are aligning closely with the national average, varying within a maximum of six basis points. The rate for 5-year ARMs is lower than the national average, while fixed rates are higher. Lenders in South Dakota may be anticipating a rise in interest rates, which would make ARMs more profitable.
Homebuyers in South Dakota can receive lower mortgage rates by increasing the down payment amount, strengthening credit scores, and/or working with the South Dakota Housing Development Authority. The SDHDA offers fixed mortgages with below-market mortgage rates to qualified first-time homebuyers. The agency offers down payment loans of 2 – 5% through the Employer Mortgage Assistance Program and the Loan Assistance Program.
South Dakota Mortgage Types
Unlike in many states, South Dakota borrowers and lenders are able to select whether the home loan contract will be governed by a mortgage or a deed of trust. The traditional mortgage option is more common.
South Dakota is a recourse state, which means that lenders are entitled to the full payment of the loan. When the property is sold after foreclosure and it does not receive enough money to satisfy the original loan amount, the lender may pursue a deficiency judgment against the property owner for the difference.
South Dakota Foreclosure Process
South Dakota has a lower than average foreclosure rate, with only 1 in 2,152 households in foreclosure versus 1 in 775 households nationwide. The number of foreclosures can be attributed to the stable real estate market and economic conditions.
Depending on the terms of the mortgage or deed of trust, foreclosures in South Dakota must be initiated through either a judicial or non-judicial process.
Judicial Foreclosure Process
A judicial process is required when a lender has provided capital under a traditional mortgage or when the deed of trust does not state that the lender has the right to sell of the property in the event of the borrower’s default. The lender files a lawsuit, the court forecloses upon the property, which is sold at auction, and the proceeds are returned to the lender.
1. After the foreclosure complaint is filed with the court, the borrower has up to 150 days to cure the deficiency by repaying the amount due. The actual length of time depends on the speed at which the complaint is handled.
2. The lender must publish a notice of sale at least weekly for 4 consecutive weeks in a newspaper published in the county where the property is held. The notice of sale must contain the following information:
• name of the borrower
• the lender and the lender’s representative
• the date of the mortgage and when it was recorded
• the amount of the default
• a description of the property
• the time and place of sale
3. The borrower and any lien holder with an interest in the property must be given a written copy of the notice of foreclosure sale at least 21 days prior to the established sale date.
4. The property sale must take place between 9:00 am and 5:00 pm under the direction of the county sheriff or his deputy. Bidding is open to anyone, including the lender, and the highest bidder receives a certificate of sale. Any postponements must be published in the same newspaper as the notice of sale until the actual day of sale.
5. The default redemption period after the sale is one year. If the property is 40 acres or less and the mortgage includes a power of sale clause, then the borrower has 180 days to redeem the property. If the same property is abandoned, the period shortens to 60 days.
Non-Judicial Foreclosure Process
A non-judicial foreclosure process can be used when the mortgage or deed of trust includes a power of sale clause. The borrower has pre-authorized the lender or a trustee to sell the home in order to pay off a defaulted loan.
By signing a contract with this clause, the borrower agrees that the lender or a trustee may sell the property to pay off the balance of a defaulted loan. If the time, place, and terms of sale are specified in the contract, then the sale must be carried out under those requirements.