To view the full pdf version of the Southeast Michigan Housing Report for Qtr. II/ July 2017 please click Qtr2-2017SEMichiganReport
The summer of 2016 has followed the same trends as the winter and spring, with inventories remaining tight across all markets under $500,000, particularly in the $100,000-$250,000 segments. Sales are up in most markets above $100,000, as are new listings entering the market, which might start to give some relief to buyers frustrated with their home search. About one third of homes sold were on the market for 10 days or less, while the majority of homes (50%) remained for 30 days or less. Thus, it is clear that properties priced well, and in the best condition, are still selling in days or weeks, as opposed to months. For the under $250,000 price points about 50% are selling for equal to or above asking price. For the $250,000-$500,000 markets, about 30% are selling at or above asking price, and for the over $500,000 homes, it’s about 25%. The vast majority of those sales at or above asking price are occurring within the first 30 days across all price ranges.
While overall 2nd Quarter market activity was up slightly in most markets and down slightly in a few, values as measured in “Price per Square Foot” ($/SF) were up in all Southeast Michigan markets, (several by 30%) compared to the 2nd Quarter of 2015.
The number of Oakland County homes sold in June 2016 was up 14% over May 2016 and was about the same as last June. June values (as indicated by closed $/SF) were 24% higher than they were a year ago.
In comparing the 2nd Quarter of 2016 to the 2nd Quarter of 2015, units were up slightly and values were up 22%. There are less than 2 months of available inventory in all price ranges under $400,000. Going up in price, the $400k-$600k market has 3 months of inventory, the $600k-$1M market has 6 months, and the over $1M market has 11 months. In the 2nd Quarter of 2016 $/SF in the over $1M market increased 39%, from $234/SF to $342/SF over the same period last year.
In June 2016 Macomb sales were up 5% over May 2016 but down 8% from a year ago. This June’s values were up 6% over last month’s and 12% over June 2015.
During the 2nd Quarter of 2016 units were about the same as last year but values were up by about 10% in most price ranges, and 3% in the over $500k range. Overall, Macomb homes have been taking a little longer to sell with “Days on Market” (market time) increasing by 11% to 68 days, compared to 62 days for the 2nd Quarter of 2015.
Many consumers are questioning, “Where are we in our housing recovery? At the middle? End? Or are we even heading towards another bubble?” Let’s take the “bubble” question first. The potential bubble is rooted in the strength of the overall economy and housing leverage (mortgage balances getting ahead of home values). The indicators we watch for in terms of core economic factors can be evaluated based on the following questions: “Are jobs and household income growing?” For Michigan,
“Are auto sales still strong?” “Is consumer confidence and spending still strong?” “Are there international or other factors that could slow the general economy?” The answers to all of those questions are “yes” at the moment, save the international or “other” factors, which present as a wild card for the US, and the rest of the world as well (the silver lining in Brexit is even lower interest rates).
Michigan is still one of the top states in terms of economic activity and there are few current economic factors that could cause a housing slowdown for the next 12-18 months (just international issues and the Presidential election). The chart from Comerica shows that Michigan economic activity continues to move in the right direction.
So that leaves the questions: “Where are we in the overall housing recovery?” and “What does the current housing leverage look like?” Mortgage delinquencies continue to fall and have returned to pre-recession levels and mortgage underwriting remains tough, so homeowners are not getting themselves in trouble with mortgages or home equity loans they can’t manage. Housing has out-performed the rest of the economy for much of the recovery but it is logical that once the pent-up activity that was held back during the recession has been released, housing activity will settle back to match the rest of the economy, which has experienced slow but steady growth. We expected to start to see that slowing trend in 2016, but so far the strong spring market has shown us that there is still some pent-up activity yet to be released. The upper-end price ranges have begun to settle back down, but the rest of the markets are still strong.
The Housing Affordability Index is a good tool to judge what stage we are at in the recovery. An Index number of 100 shows that the median family can afford the median home. An index of 80, like much of California, means the median family could not afford to purchase their own home. In Michigan our Affordability Index has traditionally be around 130, so Michiganders could comfortably afford their home with some room to spare. With the recession the index jumped to over 200, which is why, once consumers gained confidence, with a combination of low prices and interest rates, the housing market exploded. The index for Michigan is still over 180, which shows there is excess buying power for buyers and therefore, still some room left in our recovery. When the index moves closer to the historical numbers of 130-140, then housing will settle back to a balanced market.
It is not likely that either rates will rise to 5.5% or values jump by 10% in the next 12-18 months, so there is still some pent up demand to be released, but we are getting to the backside of the recovery.
So enjoy one more spring/summer rush! Buyers be patient but ready to jump (overbidding is still not overpaying in most markets). For Sellers, particularly in the upper-end, be ready to adjust to slower buyer activity as listing inventories out-pace buyer growth.
March finished with a nice flourish of activity with pending sales (new contracts written in March) up across all price points compared to last March. The pace of new listings entering the market was still slower than last year for properties under $250,000, putting continued pressure on already scarce For Sale inventories. Thus, buyers will need to be diligent and patient, while being ready to move quickly when the right home pops up. The over $250,000 markets saw a rise in inventories, reflecting that the higher the price point, the higher the jump in inventory. In most cases, although sales activity increased over the first quarter of 2015, listing inventories rose even faster, making the market feel slower to the average seller in the upper price ranges, even with more sales occurring.
The supply of For Sale inventories also affected first quarter appreciation rates. In the under $250,000 price range, where the inventories are the tightest, values per square foot have moved up as inventories have fallen since the beginning of the year. For $250,000-$500,000 markets, inventories have begun to rise, but so have values, showing a more balanced (supply and demand) market. In the over $500,000 markets, with inventories rising, values have slowed and have even shown a negative trend for the first quarter compared to 2015. We don’t think this shows a collapse in upper price range homes, since there are actually more buyers than this time last year. So demand is good but the jump in inventories has created more competition for those buyers, pushing down prices until that new inventory is absorbed.
It is also interesting to note how Michigan fares compared to the rest of the nation in terms of home value appreciation. Although not at the top of the list, Michigan is certainly among the strongest in terms of expected home value increases over the next 12 months.
The first quarter trends still show strong buyer demand across all price points, some of that weather related, but still a good start to the year. Inventories are tight, with a strong seller’s market under $250,000, a sellers-neutral market in the $250,000-$500,000 price point and moving towards a buyer’s market for the over $500,000 price range. But as importantly, any home, regardless of price, that remains on the market over 6 months is sitting in a buyer’s market until the sellers change their price or condition to gain a more competitive position in the market.
We are often asked how far values have come back from the peak point of 2005/6 in Southeast Michigan. Using Case-Shiller data we can estimate about how far we have moved over the past 10 years. Case-Shiller shows we are back to early 2001 values, but since they tend to run 6-8 months behind in their date, we are really closer to late 2001-early 2002, which puts us back to about 85% of peak values. There are many markets that are back to peak and some lagging behind, but on average, 85% is a good number to use. It is also interesting to note that we are now back in line with the long-term value trends (the orange dotted line) if values had followed their long-term trend, instead of the roller-coaster ride we all took.
It looks like it might be shaping up to be an interesting spring market. Although the trend of rising inventories is still taking hold, a combination of good weather and continued buyer interest at all price ranges, has kept For Sale inventories lower than we had expected which is good news for sellers. What won’t be clear until April or May is whether the increased sales activity for the last 4 months is borrowed business from the spring or a true increase in buyer demand.
Under $250,000 inventories are falling and buyer activity is rising, causing a continued scramble to find a home to purchase. Although inventories are rising in the over $250,000 price categories, new contracts are rising faster than new listings, which is keeping the expected inventory jump this winter much less than anticipated.
For the economy in general, economists seem to be pessimistically optimistic. Economic activity is moving forward but at a slow enough pace that it is vulnerable to sudden change in any world activity. With stock prices lower, upper-end markets should slow as well and with stronger home equities, many more sellers will be able to sell, creating more inventory, and potentially slowing appreciation rates, if supply exceeds demand. All that said, it is also as likely that buyer demand still has some kick left in it, as first time home buyers and as many “boomerang buyers”, those who lost their homes during the Great Recession or faced a mortgage modification, jump back into the market. So we will simply have to wait and see how the spring market unfolds. It does appear the real estate bulls vastly outnumber the bears in relation to the spring market and 2016 in general. So, with inventories low and demand still strong, those Sellers who may be waiting until spring to put their homes on the market should consider entering the market now.
To get a feel for how far values have recovered relative to peak values back in 2005/6, here is a chart showing Michigan in comparison to the rest of the country. It shows Michigan back to 92% of peak values, which when adding in the pay-down of mortgages during the past 10 years, puts most Michigan homeowners with more equity than that at the peak.
So far it looks like an early spring for both the weather and for real estate activity, so for both buyers and sellers, don’t be afraid to jump in now, the water might be still a bit chilly but it is heating up fast!
Simplicity and technology – Smaller, well-designed spaces that are efficient with open floorplans are popular. Add in smart home technology and you have instant appeal to Millennial buyers. This includes home automation such as lighting, whole house audio systems, state-of-the-art electronics and wiring components, security features and “smart” thermostat controls. “C by GE,” a smart LED bulb, uses Bluetooth to communicate with your smartphone so you can personalize settings throughout the day. Designed to sync with the body’s circadian rhythm, you’re able to change from energizing white light during the day to a relaxing orange glow in the evening.
Clean aesthetics – Luxury vinyl flooring and tiles larger than 12×12 are an emerging trend. Wall tile will also be larger. The aesthetics are clean and appealing and the larger tiles, with less grout, are easier to clean. Matte finishes will slowly replace stainless steel in the next few years. Matte finishes are sleeker, hide fingerprints, smudges and dirt, and are also easier to clean.
Enhanced health with clean designs – Think about fabrics that don’t hold dust, durable Quartz stone countertops with antibacterial properties and mudrooms with lockers where everyone stores their things.
Lower pile carpet and rugs – Shag and plush is out; emerging are patterned carpets and cut and loop. They contrast with the cleaner elements.
Luxury home amenities – Inside spaces transition seamlessly to outside spaces and include high-end amenities such as fireplaces and outdoor showers.
Millennials and GenXers will make up a large segment of the buying population and the first three items are very important to them. Just some ideas from us to you.