Busy, busy, busy; but what does it all mean?

I've been really busy lately. Mainly busy showing houses, mostly foreclosed houses, or houses for lease to lots of clients. And I've listed a few, too. I've got a couple of sales working, one signed and moving towards closing and one in the heavy duty negotiations stage. And I've got lots of prospects for whom I'm doing searches and to whom I'm sending weekly lists of listings. So, I'm relatively busy lately. But is that a reflection of a change in the market or just a normal seasonal adjustment in real estate activity?

I have to say that I believe that the recent increase in activity has some of both elements in it. As I watch the statistics in the little five township market that I track on a weekly basis, I've certainly seen the activity in owner-occupied homes pick up since May. From January through April the sale of foreclosed homes made up 70% of the sold market in that area. In May that dropped to 61% and in June is now at 60% and may go lower before the month is out. And I've seen homes in the $300 to 500K range selling for the first time in months in that market. Good signs that more than just increased seasonal activity is taking place. The normal, move-up buyers are creeping back into the market.

We still have lots and lots of fear, uncertainty and doubt (FUD) in the local market, due mainly to the automotive bankruptcies and the ripple affect that is reverberating through the supplier base now. That is going to take most of the rest of this year to play out. However, the lower end of the market is starting to tighten up, with most of the really cheap foreclosed house swept up by investors or first-time buyers. It's hard to find many houses worth looking at in the $40-80K range anymore, at least out this far; and those that are still out there are in fairly sad shape. So the focus is turning to the $100-200K range, within which you can find foreclosed homes that 2-3 years ago were $250-350K - nice houses, many in fairly good condition.

And there are good deals on leases to be found everywhere, too; as people who can't sell for what the market will bear try to get out from under most or all of their monthly nut. The ironic twist is that most of the people who are looking to lease right now are doing so because they just lost a house to foreclosure and need to rebuild their credit before buying again. So I'm showing lots of lease houses. On most lease deals the agents involved split one months rent, which they then must split with their brokers and pay other fees. On most leases that means a "payday" of a couple of hundred dollars, but, hey, it's something and may pay one bill.

So, I'm busy, busy, bust. I'm working harder than ever, making less than ever, but having as much fun as ever. The people part of the job - meeting and working for some great clients - is what keeps me going in the business. If I was in it just for the money, I'd go get a job for Walmart or Home Depot. As for the meaning of it all in the larger context of the overall market, I certainly think (maybe hope is more accurate) that the pickup in activity is a precursor to a larger and more permanent market turnaround. I'll keep watching and let you know for sure in a couple of months.

5-County Market Trend Summary

Dan Elsea, our Brokerage President released this report last week that shows an encouraging trend in home sales - we may be bottoming out.

By focusing on sales above $40,000 we have filtered out a significant share of the investor and rental transactions, leaving the vast majority of owner occupied sales to set a trend. The Western Wayne county numbers do not include the City of Detroit. Because most of the current sales in the city are under $40,000, we were not able to create an accurate investor filter for that market.

The trend line for each county shows where the sales are headed. In all counties, except Western Wayne, you can see the current trend shows a pretty clear bottoming out of the market, and in the case of Oakland County, a possible upward trend in the sales pace. Although these numbers are not as optimistic as the total sales numbers, they do confirm what we have been seeing in the last 90 days, that we are in a bottoming out phase in terms of sales units for owner occupied homes/condo’s.

The second graph, outlining median home values is more of a mixed bag, with Washtenaw, Oakland and Western Wayne showing a downward trend at the same pace and Livingston and Macomb showing a slowing in their price decline pace. In all cases values continue to decline but the rate is not increasing. Combine that with a reduction in housing inventory and you have lined up all the core real estate conditions for a neutral to improving market over the next 24 months. There is quite a bit of excess housing inventory yet to absorb in all price ranges before we will see these numbers translate into price appreciation.


Does this mean we are at the true bottom or are we in for another level of correction based on the current economic conditions? We are too early in the Wall Street reactions to make a prediction of any merit. We do know however that the result will certainly not increase our growth rate; it will either be neutral or a further downward trend.

With that in mind our advice for Sellers remains the same, price aggressively; do not expect the market to rise to your price. Our current price decline pace of about 1% per month will either remain constant for the next 12 months or accelerate, either way; a 10% price reduction today is the smartest hedge you can have against the uncertainty of the future markets. It is important to remember that the 10% number is based on a reduction from current market values. Many homes are currently listed anywhere from 5% to 25% above the current values, so for many the price decline needed is quite steep.

For Buyer’s there may be a tendency to hold back to see if prices fall even more, but again, the news is will either be neutral or possibly worse for buyers. Right now for the majority of Buyers mortgage money is surprisingly plentiful with the availability of FHA programs. If the financial crisis does worsen it will likely mean less mortgage money available, not more and higher rates, not lower. There is always the personal financial uncertainly that effects a home buyer’s decision regardless of the great deals in the market, however those who are comfortable with their financially position (understanding that your stocks will return their value over time) this is that once in a life time opportunity to buy.

This report confirms what I've been seeing and tracking in my much smaller patch of the market in Milford, Highland, Commerce White Lake and West Bloomfield. I've also noticed that foreclosed homes, as a percentage of the weekly sales, have been dropping slowly back down and the number of "regular" home sales has been creeping up, even those over $300K.. In some areas that I track, the sale price to SEV price has also been stabilizing and starting back up a bit. That's all good news. We have a long ways to go to get back anywhere near where we were on price/values a couple of years ago; but maybe that's a good thing, since where we were then was into highly inflated prices. We seem to be landing about where we should have been, so far as price/value goes, had there not been the big run-up in prices from 1999 to 2004/5.

Now if we can just get the stock market and the financial markets to stabilize...