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Friday, September 28, 2007

We're living in interesting times...

The ancient Chinese saying – “May you live in interesting times” – sounds innocuous, but it is actually a curse, since interesting times are meant to indicate troubled times. We certainly have been and continue to live in interesting real estate times in Michigan. Just yesterday I heard that the premier local foreclosure law firm in this area is hiring and looking to almost double their staff. This ostensibly is to handle the expected case load of the upcoming tsunami of foreclosures that will be kicked of later this year by ARM resets.

Make no mistake about it; we are not yet to the bottom of the curve that we are currently on, with declining home values and the resulting home losses. The ARM resets just add to the problems of a declining state economy, job losses and companies and jobs exiting the state. We have occasional news of new companies entering the state and new jobs being created, but the net is still negative and will be for some time. We will come out on the other side and reach a new steady state; perhaps, even with home values starting to increase again. We just don’t know how long that’s gong to take. Some economists are now saying that 2009 looks to be about the tie that we should see a turn-around.

So, am I having some sort of a bi-polar meltdown here? One day I say that I see a light at the end of the tunnel (actually just three days ago – September 25 post) and now predicting no turn-around until 2009. Not really. The light that I spoke of was an increase in home selling activity – more buyers out recently and more deals being done. That’s true. But if you look at the sales themselves one will see that the sales are mostly on distressed homes – foreclosures, corporate relos and desperate homeowners dumping homes at a loss just to get out.

Even the “normal sales”, if there are any that would have been called normal a few years back, are being made at prices or with seller concessions that are heavily influenced by the distressed market. I track these things weekly and most homes are selling fore between 90-95% of asking prices, with a significant number each week below 90%. In “the good ole days” the prices would have been between 95-97% of asking price. Houses are selling in our area for about 1.75 times the SEV (State Equalized Value – a Michigan term created by a tax law that supposedly equates to 1/2 of the assessed value of he home and helps regulate how fast our property taxes can rise) these days; whereas, just two years ago the average would have been about 2.25 times SEV (see my post of August 26th for more on SEV).

So we are still in a depressed housing values market, still in a buyers market and still in a slow market; but, hey, things are picking up. Maybe it’s pent up demand, as I saw in one article recently or maybe its just the feeding frenzy of people smelling a bargain (see my post of August 28th). Whatever it is, people are out buying again and that’s a good thing – at least for me. Most of the requests I get now are for bank repo houses, so maybe we’ll sell off that inventory fairly fast and get that pricing pressure out of the system. I certainly hope so for the sake of my sellers.

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