New Year’s Predictions - again

I’ve been publishing and distributing a paper-based newsletter to my SOI for the last seven years. As I prepared the Jan/Feb 2011 Edition (in better times it was a monthly newsletter) I started writing my annual real estate market prediction article and got to thinking about how many times I’ve offered the same “things will be better this year” advice (or maybe that was hope). As I rummaged through my achieves it was a little depressing to see that I’ve been writing about this terrible market for at least 5 years now. I’ve always found a way to sound upbeat and optimistic about the coming year and yet each January I’ve had to report that the year just passed was another tough year in real estate for homeowners, for sellers and for agents.

Again this year, I’ve found hope to write about in some of the data on improved home sales and an improvement in new home starts; however, I’ve also had to report that foreclosures and short sales make up more than half of our local sales and there is no end to that in sight yet, here in Michigan. I was able to put a positive spin on the fact that home values are not dropping nearly as rapidly as they have in the past; however, they are still dropping. There is also the ever popular “pent up demand” theory that various economists and real estate article writers drag out for want of any real proof that things will change. We are to imagine this pool of beet-red faced buyers who have been holding their breath for the last 3-4 years, awaiting the time to buy. Somehow they will supposedly make a collective decision that now is the time and rush to the market. It is unclear what magic sign they’ve been awaiting or when it will appear to them. Hopefully it’s the for sale sign that I put on someone’s yard.

It’s still a great time to buy a home in my market and still a challenging time to sell one, because you have to compete with pricing and appraisals that are driven by the distressed home sales. Homeowners in my area are coming to grips with the 30-40% loss in values that has occurred over the last few years. They don’t like it, but they are starting to accept that is happened and that the value is not coming back anytime soon. We’re sort of in that “life goes on” stage of acceptance of the situation that we find ourselves in today. Many underwater Baby Boomer homeowners have put off the inevitable for as long as they can and are now taking their losses to get on with retirement plans or other moves. Some are selling because they’ve exhausted their savings trying to keep up a lifestyle that they can no longer afford and now must get out before the house drags them under with it.

As for the agents in the business; many made the transition to working with banks and REO companies on distressed sales, but many did not. In the last few years the average sale price of sales that are made has dropped dramatically and a high percentage of transactions in my market are now under $100,000 per sale. The average transaction values have dropped from the mid $200K’s to the mid $100K’s locally. Leases have risen from a niche in the market to represent 20-30% of all transactions. All of that has made it difficult for many in the business to survive and many (including me) have had to seek “day jobs” to make ends meet.

So, again this year, I have published my optimistic missive of hope for the year ahead. When I looked back I found one article that I wrote about the market in 2008 in which I predicted that the real estate market would not turn around until 2011/2012 . I certainly hope I was right about that. We are currently breaking out the Champaign to celebrate that our unemployment in Michigan is down to only 12.7%. Maybe some of that euphoria will spill over into the real estate market. One can only hope, and hope, and hope…