Real Estate News

Great news that comes at just the right time: Detroit is officially “America’s Most Affordable Housing Market.”

Coldwell Banker Real Estate, our parent company, released its Home Listing Report, a snapshot survey of U.S. four-bedroom, two-bathroom home listings and, with an average home listing price of approximately $68,000, Detroit came out on top!

This is another incentive for companies to move to Michigan. Along with the excellent economic options our state offers to them, including lower labor costs, their employees will be able to find affordable, attractive housing opportunities.
Michigan – and the Detroit area – have so much to offer. World-class professional sports teams, all-season sports, fishing, hunting, skiing, boating – you name it. We have a world famous art museum, top-rated universities and colleges, Broadway tours, entertainment like Second City, and international dining cuisine. If that’s not enough, we offer riverfront and lakefront living on the Detroit River, inland lakes and the Great Lakes. And, we’re only steps away from Canada. In short, this is a great place to live and work!

There’s no doubt that we’re not following the rest of the country in any downward trend. Detroit and Michigan are having a true renaissance.

Watch for more negative headlines written about the housing market over the next several months. They may create apprehension and in some cases outright fear. The good news is these headlines will not reflect what is actually taking place in the Michigan real estate market. While I would like to suggest that we should simply ignore the negative press, we can’t do that. As trusted advisors we have a duty to put this in perspective for our clients.

PROBABLE HEADLINE:
Sales Plummeting. Housing Market Crashing

THE FACTS: The National Association of Realtors’ Pending Sales Report is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed.

The national pending sales reports covering September, October and November will be UGLY. The reason is that the houses going into contract in those months this year will be compared to the same months last year. In 2009, sales were skyrocketing as we headed toward the original termination of the Homebuyers’ Tax Credit on November 30. It will appear as though this year’s sales fell off a cliff in comparison. The headlines will be brutal.

Actually, the tax credit just pulled sales forward. Last fall and winter, pending sales nationally dropped dramatically after November 30. Over the next six months, approximately the same number of homes will go into contract as did last year during this period. They will just be spread more evenly over the six months.

The National Association of Realtors’ Existing Home Sales Report is based on home closings. The extended tax credit expired on April 30 this year. Like last year, the tax credit pulled demand forward, this time from the summer months. That left a vacuum of homes going into contract during this past summer. That vacuum will create a lack of closed sales throughout the next few months.

Actual sales will be approximately the same as last year. However, because the tax credit moved sales into different time periods, both the pending sales reports and the existing sales reports will appear very weak over the next few months.

The headlines will be reporting doom and gloom. In reality, the market will be no worse than last year. In fact, in Michigan we are experiencing a continuation of positive home sales despite the expiration of the tax credits.

Comerica Bank’s Chief Economist, Dana Johnson, said in a report issued Wednesday afternoon that the Michigan housing sector is poised for recovery.

“Houses are already cheap to finance, and prices are low relative to income. The missing ingredient, however, is confidence,” Johnson wrote.

“Once people in Michigan become more convinced that their jobs are secure and that house prices have stabilized, demand will begin to build and homebuilding will start contributing to a more broadly based recovery.”

The report said that the prime reason for a recovery in Michigan is that the state’s housing market didn’t go through nearly the overheating that markets elsewhere went through, and consequently didn’t have nearly so drastic a fall.

From 2000 to 2005, house prices in Michigan rose 17 percent, compared to the national average of 48 percent.

Since January 2009, residential building permits in Michigan have been pulled at a rate of about 8,000 annually, down from the 2000 to 2005 average of about 50,000.

Along with the decline in nonresidential building activity, construction payrolls have contracted by 97,000, or about 45 percent, since their peak in 2000.

“The Michigan housing sector has shown some sings of stabilizing this year, but it is not contributing meaningfully to an upturn thus far,” said the report. “Most heartening is the pattern of residential building permits. Total Michigan permits from January through July are running 36 percent above the first seven months of 2009, while permits for the national are up only 7 percent.”

Another positive sign is that foreclosure activity in the state began its first steady decline in the fourth quarter last year since it began to rise steadily in the first quarter of 2000.

In the second quarter this year, the percent of foreclosures begun fell to 1.4 percent of mortgages outstanding, down .3 percentage points since the peak of 1.7 percent in the third quarter last year.

To read the entire report visit: Comerica Housing Market Brief
source: Tom Henderson, Crain’s Detroit Business

The state of the current real estate market can only be described as conflicted. Exuberant purchasers are taking advantage of the best buyer’s market ever as the shattered dreams of those in foreclosure provide a sober backdrop.

Many employed in real estate and related service businesses are re-evaluating their life and career plans as savings for many have dwindled along with declining incomes.

Yet, at the same time we are experiencing a steady stream of new practitioners entering our business. They are filled with enthusiasm about the opportunity provided by a market that has bottomed out and will only get better.

Interest rates are at all time lows and lenders are seeking borrowers. At the same time it is harder than ever to get mortgage loans approved based on tougher credit standards and current appraisal practices.

So is the glass half full or half empty? It all depends on one’s perspective. A positive attitude will enable anyone to move past the turmoil and become comfortable with the “new normal”.

Bloomberg Businessweek reports that David Stiff, chief economist at Fiserv, says the bottom is near. Home prices in the U.S. have declined 29.5 percent over the past four years, according to the Fiserv Case-Shiller Indexes. Stiff says prices should form a trough early next year, when median prices will be down an estimated 32.9 percent from the 2006 peak.

Since reaching a peak in 2006, home prices in the Metro-Detroit market have fallen 60.5 percent, according to the Fiserv Case-Shiller Indexes. As homes have become more affordable—the median home price in Detroit is lower than median family income—demand is expected to pick up. Prices are forecast to jump 33.1 percent over the next four years. Some Realtors believe the growing prevalence of short sales over foreclosures will help drive up the median price in the Detroit metro area.

Never buy a house while prices are falling.
Most people would agree that it makes no sense to purchase any item if you know that prices are falling. Housing would seem to fit into that overall rule. However, there are a couple of other considerations one should think about before deciding against purchasing a home in today’s market.

The value of a home is determined by much more than the financial aspects of homeownership. The added comfort, security and sense of community in owning a home should also be considered along with real estate’s role as an investment tool.

To answer the reason given today, I will only look at the home from a straight financial angle however. How can I defend the purchase of an item that will continue to lessen in price?

COST vs. PRICE
When we purchase any big-ticket item, we should always look at cost not just price. Unless you will be buying all cash, you must take into consideration the expense of financing your purchase. It is that expense combined with the price that will determine the cost of the item. Obviously, when talking about a real estate purchase, the expense of financing is the mortgage interest rate.
Let’s take a look at how interest rates impact the monthly cost of a home.

If prices go down but interest rates rise, it could mean an actual increase in monthly cost.  Prices would need to come down 10% to make up for a one percent increase in mortgage rates. You could decide to wait on your purchase based solely on price. However, if you think that interest rates could increase in the near future, it probably makes more sense to purchase now.

Michigan’s real estate market continues to surprise the naysayers who expect national real estate markets to recover slowly or even continue to drop. Unlike the rest of the country, Michigan is unique in showing signs of resurgence.

This is not completely surprising in view of the fact that Michigan’s economy and real estate markets have varied from the national experience for the past five years. Our markets were already in decline in 2005, 2006 and 2007 when much of the rest of the country continued to experience robust sales and increasing prices. By the time the national real estate recession occurred, sometimes characterized as the “sub-prime crisis”, Michigan’s residential real estate values had already dropped by 35 percent.
The rest of the nation is currently facing a second wave of foreclosures stemming from exuberant purchases and refinancing which occurred three to five years ago.
Michigan did not participate in that exuberance, due to a market already in decline, which is helping us pull out of this real estate recession sooner than the rest of the country.

Many brokers across the country are reporting lackluster sales activity since the home buyer tax credits expired two months ago. Most local brokers and agents in SE Michigan are reporting just the opposite.

It is important to remember that all real estate is local and national media headlines don’t always apply.