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.

Dan Elsea's Market Report

Each month our broker, Dan Elsea, issues a report to the company agents which give us a broader view of the market than we might see from within our specific territories. This is Dan's report for June of 2015.

The spring rush is in full bloom with the market looking very much like last spring, only slightly less hectic. All indicators in May show a strong market as prices are up (7%), new contracts written are up (15%), the number of homes for sale is up slightly (2%) and new listings entering the market are up (4%). As sellers are noticing the strength of the market, they are responding by listing their homes. The market momentum does vary by lower, medium and upper priced categories and although they differ in strength, the lower priced markets are moving faster than upper-end markets. The trends with each price range are constant, regardless of geography (we use price segments of $0-250k, $250-500k and over $500k as a general representation of the overall metro area).

About 33% of all homes sales are selling for at or above list price, down from 39% last year. Homes that are selling in 10 days or less held steady compared to last year at 35%. This May, 59% of homes sold in 30 days or less. The upper-end market (over $500,000) as expected was a bit slower with 27% of homes selling at or above list and 22% selling in 10 days or less.



We are hearing from our sales team across all markets that the upper-end price range, particularly over $1,000,000 is slowing as the inventory rises faster than demand, with prices remaining flat. Year-to-date, there have been more sales in the $1,000,000 plus category (85 vs. 74 units in Southeast Michigan) but the pace has slowed the last 60 days.


For sellers, there is no better time to put your home on the market. Buyers need a combination of patience and quick reaction to work through competing offers. While each location inth4e area that I service may be slightly different, overall this advice holds true. It's a great time to be a seller and a somewhat frustrating time to be a buyer.Sellers need to avoid the trap of getting too greedy and overpricing their home and buyers just need patience and persistence

Monthly Michigan Marekt Report

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.

Time to come up for air...

Some whales can remain submerged for long periods of time before coming up for air. The longest recorded whale dive on a single breath was just under two hours.

Many homeowners who found themselves under water on their mortgages have been holding their breath and trying to wait out the market. Some turned blue and went under in foreclosure. Others surfaced with a short sale breath. Many are still down there thinking that they must stay under longer. That may or may not be true anymore.

The real estate market has come back strong in some areas. The recovery has been spotty and in pockets. there are still area that had fallen so far that they'll take extra time to recover. Some areas truthfully may never really recover; however, there are pockets, like Milford, where the return of value has been fairly rapid and dramatic. Much of that quick run-up of prices can be attributed to the lack of inventory in the current market. That is being caused by those people who have their heads down and are still holding their breath.

The truth is that it is time to surface and take a breath, look around to see if your home is in one of the recovery pockets and maybe get on with life. If you haven't had a Realtor do a market analysis lately you may be holding your breath needlessly. That is especially true for people who did not buy or refinance at the peak of the real estate bubble market - 2005-6. If you bought in the late 1990's or even the earlier 2000's, you may be alright now. You won't know if you don't look and see.

There is no guarantee that you've recovered enough to sell, but you sure won't know if you do nothing. If you've been waiting to sell, so that you can get on with retirement or maybe look at that move up house or downsize house that you've been considering, this is step one.

Give me a call at 248-763-2497 and let's set up an appointment for me to do a FREE market analysis of your home (Southeastern Michigan residents only, please). I'll give you the straight answer to your question about your home's value on the current market and even provide some advice or tips on things that you might need to do to get it ready for sale (if that's what you want to do).

How the real estate math works...

There have been lots of positive stories about the real estate market coming back lately. They are all good news and for the most part true. One headline seemed particularly positive when it stated that “Home values up 18% locally.” That is true, too. When you read the story the author claims that home values have risen 18% from their low point about 18-24 months ago. Much of that quick rise in values the author correctly attributed to the short age of inventory. Buyers are bidding up what homes there are on the market.

Home values in this area fell between 30-40% from their 2005/6 peaks during the recession. So, many people read that headline and may think, ”18% gain,  great I’ve regained about ½ of the loss”; but, that’s not how the math works.

For the sake of simplicity, let’s say you either bought or refinanced at the peak of the market a $300,000 house. During the recession that house lost 1/3 of its value (again for simplicity’s sake); so it fell to $200,000 in value by 2010. So the owner lost $100,000 in real value during the recession. Now he reads that home values have gained by 18% during the last two years. Great! He’ better than half way back. Right? No, let’s do the math on that. That 18% gain was from the low point of $200,000 or a gain of $36,000 from the bottom. That’s only 36% of the loss that he suffered, not 50% or better.

The other factor is to understand the real, underlying appreciation; which is much less than the supply driven inflation of prices. The true appreciation is believed by most experts to be only 3-4% per year, which is back to the historical real estate appreciation curve. Once the inventory situation stabilizes, with more houses on the market, we will again see the true appreciation picture emerge. That is why most experts have also been predicting that it will take most homeowners a decade or more to recoup their losses.

During the inventory-driven run-up of apparent values we have seen problems with sales that are driven by low appraisals. That is because the appraisers are not factoring in the increase due to the tight supply as quickly as the market. They will continue to lag the market a bit and that will continue to cause problems as buyers make bids that the appraisals don’t support.

 So when you read reports that home sales values are up by some percentage, just remember that they are referring to year over year increases and that we are starting back from a fairly deep hole. Yes the values are up, and that’s a good thing if you’re a seller. For buyers, that means that you should act now because the prices are only going to go higher. The bottom of the market is behind us, but there are still great deals to be had.

MIA - First time buyers

According to a recent National Association of REALTORS® (NAR) article, in January, first-time home buyers made up 29 percent of the market, the lowest since NAR began tracking first-time buyers on a monthly basis in 2008. First-time buyers normally make up 40 percent to 45 percent of all purchasers. Where'd they go? USA Today also had a recent article that highlighted some of the factors that have first-time home buyers sitting on the sidelines, even though home prices continue to all and mortgage rates are near their all-time lows. USA Today sited: • Tougher lending standards – Not only have lenders tightened up their requirements, but they have also backed away from most of the down payment assistance programs that used to allow these buyers to get into a home. • Expired tax credits – The tax credits were the tipping point for many first time buyers, especially with programs in some states that allowed the credits to be taken up front as part of the transaction. • Competition from cash buyers – While HUD and the GSE’s have programs that give first-time owner-occupants the edge over investors for really low-cost houses that have been foreclosed, investors are waiting like a tree full of vultures to swoop in as soon as the initial 10-14 day period for O-O buyers is up. I would add to this list that it is my gut feel that most of those first-time buyers who were really ready (with money saved up to take the plunge) have already bought. There is not an endless supply of first-time buyers, especially those that have been fiscally responsible and have been saving up to buy. I might add that I’m seeing the same thing start to happen with investors, especially smaller investors. They have tapped themselves out in cheap houses and are now pulling back to regroup a bit. There are still investor pools out there buying; but many of the small-timers are fully invested at this time. I suppose that, if there is a silver lining in the statistics, it’s that mid-range and upper end buyers are making up a higher percentage of buyers overall. The mid-range buyers (our traditional move-up buyers) seem to be testing the waters more and more as they become more confident in the overall economy. They are finding some great bargains in the market, although much of what is holding them back is that they can’t find t a first-time buyer to buy their current home. The Boomers are widely reported to be sitting on their McMansions, hoping for a miraculous recovery of lost value. That’s not likely to happen and it may take a few more years before they finally give up and swallow the losses. I suspect that most can hold out for a year or two once they retire before they realize that not only are they missing their dream retirement plans, but may also be stripping their savings to pay for those houses at a rate that will put those plans permanently out of reach. Having a highly leveraged a big house just doesn’t look nearly as smart, once you go on a fixed income. The upper end of the market has not been immune to the effects of the recessions either, with some really big homes falling into foreclosure; however, there is still a reasonable market for luxury homes and condos in this area. I suspect that it is much worse in Florida and Nevada and California. Still, one can get great deals in the $750K to 1.5 Million range for homes that were $1 – 2 Million. Ahhh, if only one had that 1.5 Million to invest. So, I see the buy-side of the market in my area in sort of a settling out and settling down phase right now. Even though values are still dropping, many would-be low-end buyers are already tapped out and need to sit the market out for a bit. Midrange buyers are cautiously reentering the market and the upper end is still puttering along like it always has. I suspect that by mid-year the market mix of buyers will reflect a more traditional percentage split between first time buyers, move up buyers and high-end buyers. As for the sell side, we are already seeing a drop in the number of foreclosures taking place locally; however, short sales have kept the distressed segment of the market over 50% of sales in my area. Leases also make up a much higher percentage of transactions than would historically have been the case, as owners who want to avoid a short-sale try to hold out for a return of lost value. The mid-range market continues to see low inventory as underwater owners also hold out (probably unrealistically) for lost value to return. Lots of second homes/vacation cottages are also sitting on the market in summer resort areas. That's what I see happening in the local market in the Milford Michigan area.