October Market Update

Each month our Broker, Dan Elsea, does a video update about the current real estate market in the southeastern Michigan area. This is his update for October. Enjoy!

http://www.youtube.com/watch?v=fe3Y9s6D5rc&feature=youtu.be

May seems to be off to a slow start…

I know that this is only an anecdotal observation, but May seems to be off to a very slow start this year, so far as home sales go. That could well be attributed to the terrible (and at times cold) rainy weather that we’ve had. It certainly hasn’t been all that good for open houses so far this month.

For six of the nine markets that I track this year I have multiyear data, which at least lets me look back at a fairly gross level at year-to-year comparisons.

We are half way through May, 2011 and this is how those markets compare to May 2010, in terms of sales:

Milford –

Homes sold far in May 2011 – 3

Homes sold in all of May in 2010 – 18

Highland –

Homes sold far in May 2011 – 9

Homes sold in all of May in 2010 – 19

Commerce –

Homes sold far in May 2011 – 20

Homes sold in all of May in 2010 – 46

White Lake –

Homes sold far in May 2011 – 13

Homes sold in all of May in 2010 – 36

Lyon/South Lyon –

Homes sold far in May 2011 – 4

Homes sold in all of May in 2010 – 28

Brighton –

Homes sold far in May 2011 – 12

Homes sold in all of May in 2010 – 18

The numbers would seem to indicate that Commerce and Highland are on about the same track as last year with Brighton actually ahead of the pace of 2010. My home market of Milford, along with Lyon/South Lyon and White Lake are lagging the 2010 pace for home ales in May right now.

Some of this might be attributed to the lower inventory levels this year and the temporary slowdown in foreclosure sales as the industry tries to sort out the MERS mess in our state. MERS is the holding company created by the banks to provide a holding company (some would say dumping ground) for their bad loans. MERS was the entity that foreclosed on many people and now the Michigan Appeals Court has ruled that it did not have standing to initiate those foreclosures, so it nullified them. Chaos has ensued has lenders and buyer alike scramble to figure out if the foreclosures that MERS was involved with will have to be redone. The Appeals Court decision is being appealed.

So whether it’s the weather or confusion over foreclosures, something seems to be holding back the market a bit here in the start of what should be our best selling season.

A Confusing Market

Perhaps A Confused Market would have been a better headline. Each week new and often contradicting data and opinions about the state of the real estate market is released by various groups that surround the market. While existing-home sales rose again in January and are outpacing year-ago levels, we are still seeing a drop in home prices across much the country.

Existing-home sales increased 2.7 percent in January and are 5.3 percent above January of 2010.

Regionally, the West saw the largest existing-home sales increase. In the West they rose 7.9 percent and are 7.0 percent above January 2010. The Midwest and South also saw monthly rises -- up 1.8 and 3.6 percent respectively. The Northeastern region is down 4.6 from December and down 1.2 from year ago levels.

The most recent reports from the Case-Shiller Index have brought on a slew of comments from the experts. The Case-Shiller quarterly index showed prices fell 3.9 percent in the fourth quarter and 4.1 percent for all of 2010.

So, what is happening in the local real estate market? Well the best answerr is to check things out on one of my Web sites—www.themilfordteam.com or www.movetomilford.com. I’m tracking nine local markets this year— Milford (of course), Commerce, Highland, West Bloomfield, White Lake, Lyon/South Lyon, Green Oak, Brighton and Hartland.

I track what has sold each week in those markets and keep running year-to-date totals, too. I record all of the houses that have sold above $20,000 in those markets, as well as what they were listed for at the time. Then I calculate the percentage of the sold price vs. listed price.

I also record the latest SEV value for the home and calculate the sold price vs. SEV ratio. In theory SEV should equate to 1/2 of market price. In practice sold prices are running 1.4 to 1.7 times the SEV. That is a measure of how far behind the assessors are, compared to the actual market values. Finally, I record the Sq Footage of the sold homes and the listed and sold price per square foot. Those are running well below $100/Sq Ft in every market.

Here are a few representative averages for those markets, so far in 2011:

Market .......................Ave. SEV ..............................Ave. Sold
......................................Multiplier .............................$/Sq Ft
Milford ..........................1.4472 .....................................$80
Commerce ....................1.6822 .....................................$89
Highland .......................1.4829 .....................................$69
White Lake ..................1.5828 .....................................$74
West Bloomfield ..........1.5703 .....................................$73
Lyon/South Lyon .......1.7964 .....................................$85
Green Oak ...................1.6138 .....................................$78
Brighton .......................1.5595 .....................................$87
Hartland ......................1.6450 .....................................$79

How is this data and the derived numbers of value to you or someone you may know? If you are thinking of selling, this will give you a good feel for the market in your area (if you are in one of the ones that I track). You should not believe that somehow your home has been magically spared the collective pain of this market. It has not. These numbers can help you avoid wasting time by listing your home too high.

If you, or someone you know is looking to buy a home in one of these markets, you can get a good feel for what homes may really be worth, no matter what the current listed price is. Almost all sellers start out priced too high when they place their homes on the market. Equipped with this data you can make a stronger case for making a more realistic bid and back it up with facts.

In either case, call me and I’ll help you get the pricing right.

Moving the finish line again...

I read a story today in one of our local papers (the only one that delivers 7 days a week anymore) that the folks in the state equalization boards who are charged with trying to keep property assessments in line with the prevailing market values now see 2013 as the turn around year for the current property value slide. Wow. Move the finish line again.

I recall that in 2008 I opined in my local real estate blog that it would be 2011 before we saw the bottom of the value decline and started a turn around. At the time that seemed like a long time to wait and a long time for things to continue to decline. We are already down between 35-45% from the 2005/6 highs in our market, with some hard hit areas well below 50%. The article forecast two more years of near 10% declines for property values.

Of course, these pundits could be wrong. They rely on computer models and inputs from the real estate organizations about what’s going on in the market. There is certainly contrary evidence to be found in some of the reports from real estate companies of improving sales levels in our area. There also appear to be a few new build projects getting back off the ground; however, there is also still a huge overhang of distressed properties on the market and more looming in the future.

The moratorium on foreclosures late last year gave our market what I would call a “false positive” set of data for a few months. The median home values of sales being reporting shot up as if the recession was over and many articles were written about the market having reached the bottom and starting back. In fact, if you take most of the distressed homes off the market and out of the data, of course things will look better; and, that’s what happened. When the banks resumed foreclosing and putting those homes back into the mix, we got a “double dip” effect in the data and on the sales charts. Once again the sky was falling in Michigan!

So, now we are told that instead of things turning around in 2011, we have to look out to 2013 before we see the bottom and a return to some small level of positive appreciation in our local real estate4 market. The story went on to say that the models were projected out to 2020 and that they still see values of homes to be below where they were in 2004/5 when they hit the peak locally. That does square with the advice that I’m giving would be sellers that trying to wait out the return of value is a losing and long-term strategy.

Older homeowners who need to sell or who really want to sell, in order to get on with life, need to just bite the bullet and take what is left out of the equity in their homes. Many of them own their homes outright and are clearly disappointed in the current value of their “nest egg” investment. Unfortunately the conventional wisdom that home values always go up proved to be as wrong as many other pieces of conventional wisdom that have proven to be false over time. As Dr. Phil might say – “Get over it and move on.” For many there is another finish line looming and you may not want to wait to see which one you reach first.

A new year, more mixed signals...

The local Oakland County, Michigan newspaper had a story today about foreclosures being down in the last three months of last year. Some local politicians opined that this is a trend and a sign of better times and the success of their programs, of course. Others thought that the statistics were an anomaly, which is more likely, since that encompassed a period during which banks had stopped processing foreclosures as they sorted out their processes for dealing with the paperwork.

My own statistics, about my little patch, support thre latter case. So far this year I'ms till seeing distressed home sales that are at or exceed 50% of all sales (see http://www.movetomilford.com/sold_homes.html). At the minimum distressed sales were 50% of sales in one township of the 9 that I now track and in the worst case represented 82% of all sales. Home prices also continue to fall, although at a much slower pace.

At a personal level, I'mactually quite busy with real estate deals right now. If all goes well I'll close three deals this month. The bad news is that, if you add all three up, the total of the sales will still be below $100,000. That's just the nature of the market here right now - mostly low-end, foreclosed and short-sale houses are selling. Houses above $200K are just sitting on the market, with some higher price bands now averaging over 2 years of days on market. There are few buyers out there looking for that move-up house right now.

The newspaper article mentioned above also trumpeted an increase of 7,000 jobs in Oakland county last year, which one can only hope is true, Michigan continues to have unemployment above 12% statewide and is in the top 5 nationwide. Our new Governor has made jobs his top priority and that's a good thing, if he can pull it off. Unemployment and the concerns about being laid off are the primary contributors to our real estate problems; so that needs to be addressed, before we'll pull out of this funk.

Reflection on my market...

2010 was a tough year for me in real estate. I closed about as many sides as in past years, but made much less from the efforts involved. Looking back, I only had two deals that were not either foreclosures, short sales or leases; two deals that I might classify as “normal” real estate deals. The rest were struggles with banks on short sales or with sellers and banks on short sales or just leases, which now make up almost 20% of our local market volume. Distressed sales – foreclosures and short sales – make up 60% of my little real estate patch.

I cover and report on six local markets, which are made up of six townships and the various villages and cities contained within them – Milford, Highland, Commerce, White Lake, Lyon and Brighton. That market spills over two counties – Oakland and Livingston – in which I do literally all of my real estate business. I list and sell houses outside the six markets that I track, but they are the ones that I focus upon with marketing efforts for listings and buyers.

The real estate statistics categories that I track on a weekly basis for these markets include the listed and sold prices of every home above $20,000 that sold during the year. Admittedly that is an arbitrary price cut-off; but I wanted to eliminate the leases and the sold as a tear-down homes. I calculate the percentage of sold vs. list price.

I record for each sale the State Equalized Value (SEV) listed in the public records. That is a number that is unique to Michigan and is supposed to represent ½ of the assessed value of the house (it is used for taxing purposes, although there is yet another Michigan-unique number for each property called the Taxable Value). I also calculate the sold price vs. SEV to see how close it really comes to being ½ the market value.

I record the Days-On-Market (DOM); although that is a mostly meaningless number these days what with all of the agent shenanigans going on with re-listing homes every month or so, to keep them “fresh” on the MLS. Finally, I record the Square Footage of the home and the list price cost per Sq Ft and the Sold price Cost per Sq Ft. There is enough data in these weekly reports to get a really good feel for these markets. In addition, I keep these reports by the month and have three years of data on line, month-by-month.

This year I also started a running Y-T-D report for each market; so now I’ll have yearly data on line, starting with this year. I’m trying to decide whether it makes sense to keep that annual data separated out by month next year. It probably does, so that one can see the differences in the market month by month. Below are some summary statistics from these reports.

In the Milford market, which includes Milford Township and the Village of Milford, the average sale list price was for $204K but the sales averaged $195K or 96% of asking price – not bad really and probably an indication that sellers are pricing more realistically lately. Home sale prices averaged 1.5844 times the listed SEV values. That means that the assessors are still lagging the market in terms of adjusting home values down enough to reflect the current market prices. Homes in the Milford market listed for an average of $92/Sq Ft and sold for an average of $88/Sq Ft.

Our neighbors to the north in the Highland and White Lake markets did not fare as well this year. Homes in Highland had an average list price of $156K and a sold price of $148K. Sold prices averaged 1.4072 times SEV and they sold for $75/Sq Ft vs. and asking price of $79/Sq Ft. In the White Lake market homes sold for an average of $76/Sq Ft, after being listed for an average of $80/Sq Ft.

The Commerce and Lyon markets did a bit better; however, the Brighton market was about the same as the Highland and White Lake markets. You can see all of this data at my Web site www.movetomilford.com by clicking on the “What has sold in the Milford area” choice.

I will continue to produce my weekly reports in 2011 and make more use of them as marketing tools with potential clients. They have certainly helped me make the case in listing appointments that I know and understand the local market. They also help with homeowners in price setting negotiations.

Dude, where are all of the houses?

For a long time in this current recession we have had a buyers market, which has been historically defined as having more houses on the market than there are buyers for. That generally results in house prices falling and the days on market (DOM) average creeping up. Since about the late 3rd quarter of last year a strange new trend has developed. We now have less inventory on the market than we have buyers, especially at the lower end of the market - homes priced below $200,000. Even the price bands above $200,000 have lost a lot of inventory. Yet the average DOM figure continues to climb. Take a look at the charts below.











What's happening here? In the local markets that I track - Milford, Highland, White Lake, Commerce, South Lyon and Brighton, Michigan - a few things appear to have converged to cause this unusual pattern.

1. The initial round of the first-time home buyer tax credit was very successful and took quite a bit of inventory off the market, especially at the low end. The second wave of buyers, both first-timers and current-owners, who are influenced by the extended tax-credit, was delayed by holidays and weather and are just now starting to impact the market. They are finding much less inventory to choose from. I have at least three buyers couples right now for whom I cannot find decent homes for them to look at because they need to be in the $50 - 150 price band and there's just very little there locally.

2. The big initial rounds of foreclosures that dumped so much inventory on the market in late 2008 and into 2009 are over and the banks have adjusted to the market and to new Federal programs by delaying some foreclosures and by holding some foreclosed inventory off the market.

3. The market has shifted to short sales as a better alternative to foreclosures and more and more homeowners are taking that route, which serves to delay foreclosures. Much of that inventory is hitting in the price bands above $200,000 right now. A lot of the short sale activity seems to involve people who have been laid off by the automotive industry and need to move out of state to find work.

4. The expected big second wave of ARM resets was temporarily delayed by actions taken by the state and the feds. The various moratoriums have run out, so we may see that kick in soon, if the homeowners haven't started loan modification proceeding. The new HAFA short sale guidelines will soon start impacting the market.

5. Many homeowners just let their listings expire and decided to wait out the market, some in hopes that prices would come roaring back (that ain't gonna happen) or that , at least, they wouldn't have so much competition. Hurray, you won on that bet! Now, get back in the game.

6. The expected Boomer downsizing spree has been delayed. Many Boomers find themselves "trapped" in their McMansions and are unable to seller so that they can downsize for retirement. In many cases, retirement itself has been delayed by the current economic environment. Where Boomers have been able to downsize that often contributes to the decline in low-end inventory, since they are downsizing into the same houses that a young couple might otherwise buy as a first home.

So, what we are left with locally is a market in which inventory continues to drop, Days On Market continues to stretch out and in which Median Sold Prices have stopped dropping and turn back up, as much because there are so few low end homes selling as anything, so the few higher-end houses that are selling impact the average greatly.

What does this mean for buyers and sellers?

Low-end buyers are going to have to look harder and perhaps in wider areas to find homes to look at and even mid-to high-end buyers will find much less on the market right now. For sellers, this is the moment that you've been waiting for in the market. The market is no longer saturated with excess foreclosed inventory. You'll still have to price aggressively and many will still have to take a loss on homes that have lost 30-40% of their value over the last 3 years; however, you aren't looking at lingering on the market for 12-18 months like has been the recent case.

If you're a buyer, give me a call and I'll work even harder to find you just the right house. If you've been waiting to put your house on the market, now is the time. Beat the spring rush and catch the buyers who are desperately trying to beat the April 30 deadline for the tax credit. In either case it is time to act. The real estate market is in a very unusal condition right now - it is still favorable for buyers, if you can find what you want; and it is now favorable for sellers, if you've been waiting to sell.