Wednesday, December 26, 2007
The 2008 outlook
I've been reading various predictions for the national real estate market for 2008 and the news does not appear to be good at first glance. Housing starts for new-builds are still way down and expected to stay that way through much of the year. The re-sale homes inventory is still way up, with more expected on the market as ARMs reset (bailout or no bailout there will be plenty of ARM-driven foreclosures this year as there were last). Home values are also projected to continue the slide in 2008, with most economists predicting a landing somewhere around 20-30% less value for homes that were in the rapid appreciation "real estate bubble" zones (especially California, Florida, Nevada and Colorado). We've already lost more real estate value in Michigan than any other state (see my post of December 22 - Oh Great! We're #1 Again!).
Pretty dark stuff. So where is my little ray of sunshine, my glimmer of hope? I think as much as anything it's in the fact that we've been out ahead of these trends in Michigan all along. My gut feel is that we're at the "been there, done that" stage while the rest of the country is just getting to the bad parts. Sure we've still got quite an inventory overhang and foreclosures still make up about 6-8% of the inventory on the market; but, we've kind of plateaued and have been bouncing along the bottom for a while now. Quite a few sellers gave up and took their homes off the market and buyers have been snapping up the foreclosures quickly; so, our inventory adjustment has already kicked in a bit.
Another factor is that our sellers have had the time to adjust and absorb the bad news about property values and many have decided that "it is what it is" and they have become more realistic about their selling prices. They aren't necessarily happy, but they've decided to get on with life and take what they can get out of their houses. The sellers who are still hurting are the ones that over-mortgaged their homes or who've only owned the home for a short time (2-3 years) and now have to sell. There is little that can be done for those folks, so many have put their homes up for lease instead and put their dreams on hold.
The final supply-side factor that gives me hope for our market is that our local builders stopped building over a year ago - some two years ago. Many have exited the state and sold off the stalled projects or land that they were developing. Just in my little corner of the world (Milford, MI), of the 8-9 new-build developments that were underway a couple of years ago, all but 1-2 are stalled, so not a lot of new-build inventory is coming on line. And that's actually a good thing, right now; although, I doubt that the local builders see it that way.
On the demand side, I'm seeing more buyers out right now than I've seen in quite some time. Many are out looking for foreclosure bargains and that's OK. Some have just waited about as long as they can for the market to bottom out and are looking for good deals on move-in-ready housing. A few, who were frozen into inaction by the upheavals in the automotive industry, now feel secure enough to start looking for that "move-up" house that they've wanted for some time. And we even have a few new companies moving into Michigan with workers who will need housing. All of a sudden, I'm working with more active buyers than I've had in 2-3 years. These are all good things that give hope.
I think it will probably take the first 3-5 months of 2008 for all of the new laws that Congress has passed (and will pass early in the year) to kick in and for buyers to get used to the new credit landscape (the days of the zero down, 100% mortgage will be long gone in 2008; but remember that the FHA limit will be raised to $417,000 in 2008 (see my post of Dec 21 - Congress Slays the Dragon), which will cover the "sweet spot" in our market). So, certainly by spring, we should start seeing a comeback in Michigan. There likely will still be plenty of foreclosures and they will make the headlines; but, value shoppers will likely find that they don't need to settle for some stripped and damaged, fixer-upper foreclosure house in order to get a good deal. Good deals are out there right now for move-in-ready homes and more are on the way. And buyers are out there now, with more on the way.
So there is hope. And, where hope lives good things can happen.