Every month, Dan Elsea, our broker at Real Estate One does an analysis of the Michigan Real Estate Market. He looks back at the previous months and ahead to the future in order to try to help agents and clients understand what is happening and how that might impact them. Below is a Shortened version of the November report. To view the entire report, including the monthly market charts that Dan always includes, click here.
Similar to August and September, October showed continued resilience, but at a slower pace of growth than the first half of the year. We are still burning off nearly six years of pent-up housing demand from 2006 to 2011. This has caused a rather quick jump in values and some recent signs of an uptick in listing inventory.
Both the release of that pent-up demand as well as the increase in inventories is a result of the following:
· There was a panic element to the decline because prices fell further than they should have based on the pure economic conditions. There has been a quick jump back to compensate for that.
· Housing affordability has been at an all time high bringing additional buyers into the housing market (thanks to a combination of lower prices and interest rates). The affordability is higher than normal for a recession, offsetting many of those who could not buy or sell because of their economic situation.
· With rising values, more and more people who could not move since 2006 but needed to (because of births, deaths, divorces, employment, etc.) are now able. Values are beginning to exceed mortgage balances causing the slow release of inventory to the market.
· Many of those who had short sales or foreclosures can buy again.
· Investors are now beginning to release their inventory with prices rising.
As the demand rolls off over the next year to 18 months, the market will settle back to a balance between buyer demand and seller supply. Helping with that will be an increase in new construction, which we think is more than a year away, since banks are still not comfortable lending for new subdivisions or model homes.
Looking ahead to 2014, we see buyer demand slowing to a more manageable pace, additional listings entering the market and appreciation in the 6-8% range. There will still be a listing shortage. In fact, absent of an economic downturn, the listing shortage will continue until lenders are willing to finance more new construction. Without additional new home inventory, the market is just churning existing inventory against an increasing level of net household formations. At some point banks will notice this imbalance of more buyers than houses and begin to lend to builders again.
There has been and will continue to be quite a bit of chatter within the real estate and lending community on the effect of the implementation of the provisions of the Dodd-Frank legislation in January 2014. The legislation was designed to prevent the predatory lending that helped exaggerate the real estate crash and it does contain some reasonable provisions to do so. As you can imagine with any new law, there are also some unintended consequences that could hurt some homebuyers’ ability to get a mortgage. You will hear things like Qualified Mortgage (QM), Ability To Repay (ATR) and the 3% Points and Fees Test. The Consumer Financial Protection Bureau (CFPB), which now oversees all mortgages as part of the Dodd Frank Bill, requires mortgage companies to implement QM, ATR and the 3% Points and Fees Test. The goal is to move towards “safer” loans, but in reality, mortgage companies have been moving towards this already.
There are predictions that with these new rules as many as 20% who could get a loan in the past, will not in the future, but we don’t feel it will actually be that high. In fact, with refinance mortgages drying up, more lenders will be focused on new purchase mortgages, which could cause them to be more aggressive, offsetting some of the Dodd-Frank impact. However, it will be important for buyers and sellers to anticipate that some transactions may take longer with a few more hoops to jump through. All lenders will operate under these new rules and most have added underwriting staff as well as adjusted approval processes to anticipate the changes. These rules go into effect with mortgage applications starting January 2014.
Real Estate One is the largest real estate company in Michigan and in the top 10 of independent brokerages in the country. Real Estate One was named one of the best places to work in Michigan among larger company, moving up to the number three spot from last year’s number 5 slot. Real Estate One had been a family owned business since 1929. Today the Real Estate One family of companies is made up of the Real Estate One, Max Broock, Johnstone & Johnstone, John Adams Mortgage, Capital Title, Insurance One, Relocation America, Rental Management One brands and other ancillary services. Real Estate One has over 65 locations in Michigan with over 1,800 agents to serve you.