Stalled and languishing the Michigan market decline continues

According to a recent report by Zillow’s Chief Economist Dr. Stan Humphries, first quarter Real Estate Market Reports, median home values, as measured by the Zillow Home Value Index, fell 3 percent during the first three months of the year. This decline was large enough to cause Zillow to push back its forecast. Previously, we anticipated a bottom in home values by the end of 2011. But with values falling by about 1 percent per month so far, it’s unlikely that will happen. We now believe a bottom will come in 2012, at the earliest.


The continued falling home values have caused more homeowners to slip into negative equity. By the end of the first quarter, 28.4 percent of single-family homeowners with mortgages were underwater, up from 27 percent in the fourth quarter of 2010. Read the entire Zillow report here.


One consequence of the underwater mortgage situation is that homeowners who otherwise would have tried to sell their homes in order to move on with life now feel trapped by the negative equity in their homes. Many have made the mistake of thinking that they could ride out this recession and that value would return quickly. Not true, with home values slated to continue to slide, waiting is actually a very bad option that is likely to make matters worse.


Right now, in my market area, we are actually suffering from a lack of available housing inventory to show potential buyers. That is particularly true in the mid-price market of $200-400,000. These have always been a sweet spot in the market. They represent “move-up” homes for most buyers, but too many buyers have been afraid of job losses and too many sellers are too far underwater to be able toe sell. So, we have a stagnant market in that price range.


Most of our market activity is taking place on the low end (mainly in distressed home sales) or at the luxury end. Much of our market has also become a cash market, with mortgage money still tight and with lots of investors roaming around looking for bargains on the distressed market. Even the low end has taken a recent hit as many inexpensive foreclosed homes were pulled from the market due to being involved in the MERS mess. In Michigan MERS-initiated foreclosure processes were declared to be void by an Appellate Court, so now we have to await a Michigan Supreme Court decision to clear things up.


So, right now, we have a disgruntled bunch of Boomers who feel trapped in their underwater McMansions and a younger middle class who are still cowering in their starter homes, afraid to take the risk of moving up to a larger home mortgage obligation. We have a market that continues to decline in value and a foreclosure mess caused by MERS that has stalled that portion of the market. And of course we have the government types running around trying to make everything harder for everyone by suggesting that we do away with the Mortgage Interest Deduction and make everyone pay 20% down in order to get a mortgage. Sounds like a scenario out of Dante’s writings doesn’t it?