Market report for December

The market report for December may be viewed as sort of a market report for the year, or at least as the report that shows the trends going into 2016. Dan Elsea reports on the Southeastern Michigan  market in this video report.

View the report and then give me a call to discuss what it means for your home, if you are planning to sell or how it will impact your new hone search if you are a buyer.

Market Report for November

Every month Dan Elsea, our broker, looks back over the month's activities to see if there are trends or significant changes or surprises. This is his report for November, 2015.

There was a surprising jump in new purchase contracts written across all price categories over last November, providing some additional optimism going into the winter months. The jump may have been a combination of continued good economic news, the release of remaining pent- up demand, and mild weather. Overall, we are still in a Seller's market, but we do expect For Sale inventories to rise next year, causing most markets to achieve more balance between supply and demand.

What is driving buyer demand?

A) Mortgage credit continues to ease, particularly for first time home buyers.

B) Interest rates remain extremely low.

C) Household incomes are rising slowly, but still rising.

D) Employment is rising as well.

E) For Sale inventories are rising, drawing out buyers with more choices.

For sellers, prices are still rising, although at a slower pace, creating equity to help release those move-up sellers who have been held hostage to their past declines in equity.

We have been seeing the upper-end markets, generally over $400,000, slowing as the growth in For Sale inventories outpaces the growth in sales. However, how slow depends on how long each home has been on the market. For homes on the market under 30 days, there appears to be strong buyer interest, similar to that in the more active, lower price ranges, but as the time on the market grows, the buyer interest narrows considerably.

The following chart illustrates that trend by showing the average number of active listings for every buyer (sale) in November.

For homes that sold in 10 days or less (about 30% of all sales), the number of listings per buyer is about equal, regardless of price range. As the time on market increases, there is a dramatic jump in the number of listings for each sale, specifically in the over $500,000 market, showing why some upper-end buyers are seeing an active market, equal to other price points, and others are feeling like activity is shutting down. In all price ranges, the optimal buyer interest will occur in the first 30 days, when 50% of all sales take place. After 30 days, buyer interest drops considerably unless there is a change in either price or property condition.

The majority of transactions occur in the $250,000-and-under market, where buyer activity is the strongest as move-up activity is created, which means that while we are seeing some signs of a normalizing market, it is still very active, pushing demand up in the higher-priced markets, particularly going into the winter months.

A real “estate” opportunity…

There are all sorts of properties that use the word “estate” in their descriptions, including many mobile home parks in the area. There are subdivisions that advertise “estate-size lots”, which usually means a plot of 2-5 acres in the middle of a barren field that used to be a farm. The newly rich build big houses on those lots for all to see, because they have a need to show off their wealth and to be seen.

Then there exists what I would truly call estates. Most of the time, you may not even be able to see the house or perhaps just catch a glimpse of it. They may have high stone or brick walls around them and impressive entrances with big iron gates. They usually have long winding drives, many times in wooded areas that afford the privacy that moneyed people who are secure with their wealth and position in life crave. Of course they are still spectacular homes, but they are not so much on public display as they are built for the enjoyment of the owners and a few invited guests.

Such will be the case for the estate that will be built on the 12.6 acres at the end of Indian Hills Drive in Milford, Michigan. The area was named Indian Hills by early settlers and likely was frequented by the Chippewa Indians that lived in the Milford area.  The Chippewa Nation (also called Ojibwe) were part of an Algonquian body, including the Ottawa and Potawatomi Indians. During the late 1700s and early 1800s, all three nations resided in Michigan. Back then, the band of Saginaw Chippewa tribe ruled most of Michigan’s Lower Peninsula including the Milford area.

To begin with, this is a spectacular property. It is perhaps the most pristine and dramatic build site left in Oakland County and perhaps all of Michigan. Hilly and with ravines that drop off 50’ or more this property was formed by the recession of the great glaciers that once covered this area. From the entrance on Indian Hills Drive, off W. Commerce Rd., the property rises perhaps 100-200 feet along the ¼ mile path that will be the driveway.  It ends at the highest point of the property on a hilltop that overlooks Indian Lake, which is about 50-60 feet down the slope of the hill. The property has 332’ of frontage on the Indian Lake. Indian Lake is a small all-sports lake that is most suitable for swimming or fishing and provides a great view from the hill top.

All around the build location, and for the full length of the drive, the property is heavily wooded with trees that have been there for centuries. The right buyer and builder will leave as many of those trees as possible. It would be a shame to clear this land down to a barren plot as many would-be estate builders seem to prefer. The trees and the wildlife that lives in them are a major part of what will make this a true estate. It awaits the right buyer and the right builder with a grand vision of what it could become.

I’m working currently with Hemphill Builders and have listed  their proposal to build a 5,000 Sq. Ft. 4-bedroom, four and a half bath French Country Home on this spectacular site.  There were two obvious ways that one could go with a site like this – either go modern with a Frank Lloyd Wright inspired house that would blend in with nature or go classic with a French or English style country home. I think the natural stone facade of the proposed French Country style home will fit very nicely in the wooded setting. The listed price of

$1,700,000 for the build job is just a starting point and does include the lot, which is listed separately for $300,000. The right person will probably end up in the mid-$2 Million range, perhaps much more if they decide to do a privacy wall around the estate or to pave the ¼ mile driveway and put in a grand entrance gate. This has the potential to become one of those properties that is given a name, because of the unique and spectacular nature of the setting.

It’s interesting to speculate about who might build here and what they might end up doing. People coming to this area from places like California can’t believe how inexpensive real estate is here. Out there, one might pay $1.7 Million for a three-bedroom ranch house of 2,500 Sq Ft. in a subdivision. So an executive moving from there might think this is a bargain. The same is true of many international buyers. We do not have quite the draw of the coasts for international buyers; however, we do have a quaint little Village nearby with great restaurants and shops and the promise of great anonymity, should they choose to live quietly by themselves.  

For those who are past the need to show off their wealth and just wish to have a wonderful and private estate, this is a rare opportunity. Hemphill Builders has built many homes in the area from 3,000 to over 10,000 Sq. Ft. They use the finest materials and employ the best craftsmen to insure the finest finishes inside and out. They can put all of the amenities that you can imagine into the home, but it would still not be a true estate if it were placed out in the middle of a barren field in a subdivision full of “estates”.  IF you’re ready to build a true estate, then check out this property and Hemphill builders. It doesn’t get any better than this. 

Is it a clog or a systemic change?

One of the news feeds that I get every day comes from Realtor.com, the web site for the National Association of Realtors®.  One of the featured stories to day was about the assertion that Baby Boomers have clogged up the real estate pipeline by not acting as expected and selling their homes when they retire. The Realtor.com story was based upon a story that originally appeared on Dec 2 in the Washington Post.

The fact is that the whole real estate market has not been acting as expected after the recent Great recession. Apparently, whoever wrote the original Washington Post article decided that it is the fault of the Baby Boomers for not selling their homes and downsizing when they retired as expected ( or at least not in the numbers that were expected). A change in behavior anywhere in the real estate pipeline impacts things, but the Baby Boomers make up such a large portion of the total real estate market that a change in their behavior has an amplified impact.

What was predicted was the mass migration of the Baby Boomers from their McMansions into smaller retirement homes. That has not happened in the numbers that were forecast and that has led to few homes in their current homes’ price range being available and that has exacerbated and already

tight used housing supply. The result has been a rapid run up in home prices in the mid to upper price ranges. That has stalled out the move-up buyers who were projected to buy those Baby Boomer McMansions. The lack of movement from the middle tier has meant that many first time buyers or those moving up from starter homes had fewer homes to choose from, so they stayed put, too. You can see how this all feeds on itself.

While I agree that the whole Boomers not moving thing has had a clogging effect; I also believe that the economy has not yet recovered sufficiently from the recent recession and that the basic economic reset that the recession caused is also playing a key role.  The middle class has been largely gutted of its working middle class component – the factory worker making good money and getting lots of overtime pay to spend on housing.  The unions have been neutralized to a great extent and the remaining factory workers as a class earn less now than they did before the recent recession. That home buying power is gone and that is having an impact. The younger generations have been forced into multi-tier wage scenarios that limit their buying power and many have accepted that they will be living a different, less affluent lifestyle and that includes housing. We live in an era when it is quite probable that the next generation will not have it better than the last. The Baby Boomers may have been the last great affluent generation.

In addition to all of this, the retiring Baby Boomer generation didn’t necessarily plan well or save well for retirement. Many of them are the last group that will get defined retirement benefits; but, more of them that have been reported were in the groups that saw their retirements converted into 401K plans and other contribution-based plans. Many did not contribute enough. Now many are struggling with retirement and in no mood to sell off their biggest asset. Many still have hefty mortgages and some are still in negative equity positions, due to the great recession and their penchant for using their homes like piggy banks.  

The other issue for many Boomers who might be able to sell is the fact that the tight housing market has left them with nowhere to go. Not every retiree wants to go to Florida or Arizona to live. Most would rather be close to family. The issue them becomes finding a place to downsize into if they sell the McMansion. That is where their expectations and desires run afoul of the available housing stock of smaller sized homes. Almost all builders have been chasing the Boomers desire for bigger and bigger McMansions, with more and more amenities aimed at the owners. That means that when they go look at smaller houses, many of them are older and older homes weren’t built with the amenities of the big McMansions.

The problem is especially bad for the Boomers who are chasing the dream of moving to “small town

America”. I know because I live and sell homes in one of those idyllic small towns – Milford, Michigan. I get requests all the time from retirees who want to move to Milford, but who have unrealistic expectations about what they can buy in our little Village. They all say that they want a single floor home with a gourmet kitchen and a big master suite with big on-suite bath. Guess what? They didn’t build houses like that in the late- 1800’s and early Twentieth Century when most of our housing stock was built. Sure we have a few modern homes and some modern condos, but for the most part, if you want what you had in your McMansion you have to get out of the Village and into a newer sub, most of which put you out too far to walk downtown, which was the driving force to get here in the first place. So, compromise is the order of the day; or giving up the dream of living in Mayberry. The lack of housing to meet those expectations has been a major clog for us locally.

Are Boomers then the major clog in the system? They certainly contribute to the problem, but perhaps the current slowdown is more systemic and reflective of the change that America is undergoing economically and socially. There also seem to be movements afoot to re-urbanize, as cities like Detroit recover and start building new urban housing. There is a strong pull away from the

bigger is better mentality and a rebirth of values that have less to do with ostentatious displays of wealth and are more focused on family and relationships. Collecting stuff is out and collecting relationships is in. Shortly having a better life will have less to do with the size of your house and more to do with the size of your heart and those that you share it with. Real estate is about things, but life has become more about people and that will impact everything. Progress has too often been measured by constantly  moving up or moving on, the future will be more defined by being content with where you are and what you have and those with who you share both.  So there’s no real clog, just the beginning of a new reality.

Can “U” help you?

In Michigan and many other states the sale of a property provides an opportunity for the tax man to

get in on the action with what is called a Transfer Tax. The tax is levied on most sales and is split between the state and the counties. It is made up of two deceptively named components – the State Revenue Stamp and the State Tax Stamp.  It’s sort of like a sales tax on the transaction and in Michigan amounts to a total of $8.60 per $1,000 of value of the sale. In Michigan it is customary that the Transfer Taxes are paid by the seller of the property; however, if the property is bank owned the banks lately have been requiring the buyer to pay those taxes.

There are also exceptions in the law that established these taxes (when are there ever not exceptions?), one of which was recently “clarified” by Michigan lawmakers. Exemption “U” provides that the seller is exempt from the Transfer Taxes if the SEV value of the property at the time of the sale is lower than the SEV value when the seller bought the property, i.e. it is still underwater, with negative equity, from the recent Great Recession.

While many areas in Michigan have recovered nicely the value that was lost in the Great Recession, not all area have shared equally in the comeback.  Many properties (mostly residential homes) that were purchased at the peak of the “real estate bubble” that led to the Great Recession are still way below those values. In most cases the SEV values of those homes rose along with the bubble prices (although not as fast due to restrictions on how fast SEV’s could be raised by local assessors) and reached heights that are well above where we are today. Many severely depressed areas, like Detroit and some surrounding, older suburbs saw value drops exceeding 50% during the Great Recession, after having seen run-ups in value that just didn’t make sense in retrospect.

So, now people who bought during the peak years are trying to sell and are usually taking a loss. In addition, the SEV values were brought down relatively rapidly to reflect the market values losses of

the recession. Most of those people now qualify for the Exception “U” relief from paying Transfer Taxes on the sale of their homes. Many who sold within the last 4 years and actually paid those taxes may also be due a refund of the taxes that they paid. The recent Legislative action clarified when and how properties qualified for the exemption from those taxes under Exception “U”.  There is a good article explaining how you can determine if you are eligible for a refund of those taxes at the Alger Law Office web site –

http://www.agerlawoffice.com/real-estate/2015/09/29/are-you-entitled-to-a-state-real-estate-transfer-tax-srett-refund-updated/

If you seem to be eligible, you can download the form to request the refund here –

https://www.michigan.gov/documents/2796f7_2601_7.pdf

So, the bottom line is that you may still take a loss on a property that was just way overpriced during the heat of the real estate bubble; but, you don’t have to add insult to injury by being taxed by the state on that transaction. And if you did sell within the last four years, you may be able to get a refund. So “U” can help you. 

I hope this post helped you, too.