|Ann Arbor Area Real Estate
||"Where Buyers and Sellers Meet"
Insights from The Real Estate Doctor
After an extended review and analysis of the data from 2004 to 2017, I must conclude that the patient (real estate in southeast Michigan) had indeed fallen on hard times, beginning in 2005, but recently appears to have fully recovered.
Data from 2004 to 2010 in Washtenaw County appears to suggest that while the real-estate bubble had not fully burst it had sustained significant "seepage" and flattened over a period of several years. Rather than a continuing pattern of marked appreciation, to which the community had become accustomed, we observed declines in 2006, 2007, 2008, and 2009. Data from 2010 through 2016 indicated we have been in a steady climb to full recovery.
An analysis of year-to-date data comparing 2004 to 2005 indicated trouble brewing on the horizon. Median residential sale prices increased from $225,500 to only $226,000, and average sale prices increased by less than 1 and 1/2 percent, from $262,822 to $266,633. The number of residential listings, on the other hand, increased more than 20%, from 9,100 to 11,139 during that same time period, presenting buyers with a luxury of purchasing options. Only 33% of the listings that sold in 2005 managed to reach list price, and actual residential sales declined from 3,876 in 2004 to 3,710 in 2005, further suggesting that 2005 was truly a "buyers' market."
An analysis of sales during 2006 gave further indication that final recovery would still be some time in the future. The median sale price fell to $219,000, the average sale price came down to $258,934, and the number of sales declined by 10%. Meanwhile the number of residential listings increased to 11,987. This excess in inventory left many sellers at a loss in the struggle to compete for the declining number of buyers. As a result, only 26% managed to sell at list price.
Data from 2007, clearly affected locally by the closing of Pfizer and nationally by the crisis in the subprime mortgage market, reinforced the trends observed in 2005 and 2006. A comparison of figures from 2004 and 2007 showsed the following: Total listings of houses increased from 9,100 to 11,131 indicating a 22% increase in inventory. Meanwhile, total sales decreased from 3,876 to 3,062, a decline of 21%. As a consequence of this excess inventory of houses for sale, the median sale price slipped from $229,000 to $215,000 for a decline of 6%, and the average sale price decreased from $266,582 to $250,286 for a decline of 6%.
Data from 2008 provided slight encouragement. While new residential listings declined approximately 23%, sales increased slightly, offering some hope that the burden of excess inventory was lifting somewhat. On the negative side, however, both median sale prices and average sale prices declined approximately 16%. These declines resulted in part from the hunt for bargain-priced properties, as buyers pursued the increasing numbers of "short sales" and foreclosures. This, in turn, was balanced by a slight increase in the numbers of homes that sold at list price, indicating that the new pricing structures more closely reflected actual market conditions.
Data from 2009 continued to reflect the strong downward pressure on pricing occasioned by the increased percentage of short sales and foreclosures in the Ann Arbor area. This pressure was accompanied by more stringent guidelines being applied by appraisers and lenders. As a result, median residential sale prices for 2009 declined sharply from $180,000 in 2008 to $150,000 in 2009 a decline of approximately 25%. Average residential sale prices for the same period declined from $211,342 to $182,287, a decline of over 15%. The number of residential sales for the period also declined but at a slower rate, with 3,082 sales reported in 2008 and 3,027 reported in 2009. Reduced pricing, on the other hand, resulted in more homes being sold with a shorter market time (from an average of 80 days in 2008 to 72 days in 2009). In addition, the number of new residential listings declined from 8,529 in 2008 to 6,758 in 2009, bringing sales and inventory into a better ratio.
Data from 2010 helped to establish a slightly optimistic trend. New residential listings declined further from 6,758 in 2009 to 6,380 in 2010 while residential sales increased from 3,027 in 2009 to 3,117 in 2010, thereby further bringing sales and inventory into a more favorable ratio. While median sales prices remained at $150,000 for both years, the average sale price increased slightly from $182,287 in 2009 to $184,217 in 2010. Days on market increased slightly as well, from 72 days in 2009 to 75 days in 2010.
Data from 2011 showed a slight uplift in both median residential sale prices (from $150,000 in 2010 to $159,000 in 2011) and average residential sale prices (from $184,217 in 2010 to $194,338 in 2011). Median sale prices of condominiums, on the other hand, remained unchanged at $112,000, suggesting that we still had quite a distance to go to recoup all the losses from the prior 5 years.
The data from 2012, was somewhat encouraging, showing a sustained increase in sale prices when compared to 2011. Median sale prices of residential homes during this period rose from $159,000 to $174,000 while average sale prices of residential homes rose from $194,338 to $210,616. Median sale prices of condos rose from $112,000 to $122,300 for the same period. A decline in the number of residential New Listings for the same period (from 5,296 to 4,940) appears to have supported this trend towards higher sale prices.
Data from the first six months of 2013 versus the first six months of 2012 showed an even stronger recovery under way as median sale prices rose from $168,100 to $206,000 and average residential sale prices rose from$202,135 to $244,818. Condo prices showed a similar marked rise in prices, moving from $123,000 to $149,690.
Data from the first six months of 2014 showed further increases with average sale prices during the month of July rising from $263,978 in 2013 to $286,692 in July 2014. (During July 2014, 25% of homes sold above listing price, while 19% sold at list price.) By July 2015 the average residential sale price had risen to $298,572, 4.1% increase over the 2014 high. There are, however, seasonal adjustments that temper seller optimism somewhat. For example, the average residential sale price for the entire year in 2015 registered at $271, 815.
Additional data from 2015 showed slignt improvement. While the time on market was 47 days in both 2014 and 2015, the median residential sale price increased slightly, from $224,900 to $230,000. The number of new residential listings also increased, from 5160 to 5306. Overall, demand remained strong.
It is evident that by 2016 the real-estate "patient" had reached full recovery. Anecdotal evidence showed that there were increasing mutiple-offer situations developing as buyer demand sustained the upward trend. Meanwhile, interest rates remained exceptionally low (between three and four percent), and there were several positive developments locally that suggested there would be significant increases in job growth.
A brief contrast in data from 2007 to 2016 is in order. In 2007 the average residential sale price was $250,286 (falling to $211,342 in 2008 because of the many short sales and foreclosures). In 2016 it had risen to $285,108 (up from $271,815 in 2015).
This upward trend has continued into the first half of 2017. Could we be headed for another real-estate "bubble"? Increased tensions on the international scene and uncertainties on the national front suggest a bubble could be forthcoming. However, the appetite for buying real estate appears unabated, and the truly dark clouds have yet to appear.
The Here and Now
It’s tempting to think of “Pie in the Sky By and By,” even when it comes to real estate. The investor imagines a substantial increase in wealth as his investments mature. The first-time homebuyer imagines a steady increase in value through uninterrupted appreciation. And the seller anticipates better times coming while suffering through a sales drought.
But then reality breaks in. The investor finds that real-estate investing has its pitfalls and pratfalls and that the silver lining on the cloud was a mirage. The first-time homebuyer is discouraged to find that occasionally depreciation can wipe out five years of appreciation in a single year. And the seller who felt that the next year would bring a bonanza of offers on his house discovers that a depressed economic outlook can have more staying power than his original optimism.
So, what to do? No one has an infallible crystal ball. However, there are professionals able to guide individuals through troubled times. Asking a trusted professional for objective data is a good first step. Reviewing that data carefully should provide direction for additional steps. For sellers, that may mean setting aside unrealistic expectations and pricing their home where the market is rather than where they want it to be. For buyers, that may mean recognizing the ongoing benefits of home ownership irrespective of future value. For investors, it means keeping long-term trends in mind.
No matter what your situation, while it’s tempting to think far into the future, you will want to make sure that your next step is well grounded!
Can you imagine a speaker about to address an audience and then having the hiccups? With such a beginning, it will be difficult for the audience to focus on what the speaker has to say!
Now imagine your house "on stage" as the speaker. Upon first impression, your house should appear flawless to its "audience" (your buyer). No peeling paint or decaying wood. No debris in the yard. And no clutter once the buyer enters the house. (Even the closets and cupboards should be orderly and neat.)
Remember: your house is "on stage," and the "audience" is looking forward to a quality presentation. Any initial distraction will alter the buyer's focus and create concern in the buyer's mind, thus diminishing the prospect of a ready sale! Capture and hold the audience's attention with your very best first impression.
Buying Your First Home
A person learning how to swim doesn't usually dive headfirst into the pool before learning something about the depth of the water and what safety procedures are in place. Purchasing your first home should be approached cautiously as well. In fact, there are a number of standard steps that you should take into account.
First of all, recognize that "money is power." To achieve maximum leverage in negotiating the price on the home you select, contact a lender to obtain a "pre-approval letter." (This is much stronger than a pre-qualification letter and includes a review of your credit record.) This, in effect, assures the seller that you will have the cash to buy the property when the closing time arrives.
Second, plan to spend a good deal of time with a real estate agent that you trust to become familiar with the types of homes then on the market. It's not uncommon to see in excess of 15 homes before you get the "feel" of the market. It's important that you are able to make mature judgments about when a good buy is presented to you. The agent should be able to support such judgments by providing you with statistics of comparable homes that sold recently.
Once these two matters are addressed, you will be able to proceed with the buying process by making an offer on the home you feel best meets your housing needs. If the market is fast and many homes are selling at list price, you may have to move quickly yourself to compete with other buyers.
If the market is slow, you will have the luxury of negotiating at a more leisurely pace by offering less than list price.
Be sure that your agent includes a number of contingencies in your offer to purchase, including having an attorney review such matters as the title work and any other part of the transaction you feel unsure about. Remember also to make the contract subject to such things as a contractor's inspection, radon test, termite inspection, etc. (Country properties will also need to have Health Department approval of well and septic.)
Your agent should be able to offer you the names of several qualified contractors who specialize in helping buyers learn what problems a house may have. It's best to interview these contractors to ensure that the one you select will be able to protect your interests in the purchase. (A favorite uncle may have some building experience but may not be familiar with all the systems that need review.)
After you've made an application for your mortgage, your agent will be able to follow up for you. This may include meeting with the bank appraiser and checking that the lender is processing your application in a timely manner.
Before you remove the financing contingency, be sure you have written notification from the lender that your loan has been approved.
After all contingencies have been removed, your agent will set up a closing time. The day before the closing, your agent should review closing paperwork with you so that you will not have any unpleasant "surprises" at the closing! The closing often occurs at the office of the title company that issues the title commitment and is likely to take an hour. Your agent should accompany you to the closing although an officer of the title company will take responsibility for making sure all the paperwork is properly handled.
Having a good agent by your side in this complex process makes it much easier (and much safer) to dive into the pool!
Chasing the Rainbow
We're told there's a "pot of gold" at the end of the rainbow, and we're sometimes tempted to chase after it.
However, no matter how fast we move, the rainbow keeps its distance and eventually vanishes. And the proverbial pot of gold often remains elusive and one step beyond our reach. So after a while we learn to adjust our pace and our expectations.
Buying and selling real estate similarly involves being "in step" and at times adjusting to the market place. In selling, for example, a realistic initial price allows the seller to meet the broadest range of prospective buyers and achieve a quicker sale. By contrast, the seller who holds out too long at too high a price may face a series of downward steps in an effort to capture a vanishing market.
Being "out of step" can be detrimental to buyers as well. Many first-time buyers will take too long to recognize true value and will let genuine opportunities pass them by. A good first step to ensure a realistic sense of value involves going on a "tour of homes" with a trusted agent. With that background experience, buyers stand a better chance of obtaining their personal "pot of gold."
"Enjoy the rainbow but don't get left standing in the rain."
Bargain Interest Rates
For buyers in Michigan who have been sitting on the sidelines waiting for the best time to purchase their first home, that time has definitely arrived!
The prospect of even a modest increase in rates should serve as a catalyst for hesitant buyers. Although housing prices declined during 2006, 2007, 2008, and 2009 due to the recent recession, home prices have now returned to pre-recession levels and are steadily climbing. This is especially noticeable in data from Southeast Michigan.
Additional positive news coming over the economic horizon is likely to have an impact on today's bargain interest rates. Buyers who wait too long are likely to miss out not only on low interest rates but also on the increased value in well-priced housing.
One Size Fits All
Some people make the claim that "One size fits all."
When it comes to shoes, we know it's not true! We've all scrunched our toes at one time or another trying to convince ourselves that the shoes that caught our eyes will somehow adapt to fit our feet, but then reality nudges us, and we put the shoes back on the shelf and go back to shopping.
When it comes to purchasing real estate, there's obviously much more flexibility, but even here we need to make sure the house fits our finances, family size, and personal style. Not everyone can afford a McMansion, and not everyone can scrunch to fit into a 20 foot by 24 foot log cabin, but most of us can comfortably adapt to the broad spectrum of housing options between these extremes.
When it comes to selecting agents, it's even more important to get the right "fit." Although some of us may appear to need a bit of encouragement to write the offer in purchasing our first home (I did!), we don't usually feel comfortable being hustled to buy out of our price range.
Fortunately, the "hustler" is a diminishing breed, and most Realtors are respectful of their clients' needs and preferences. It does pay, however, to make sure the"fit" is a good one before you hit the pavement on that hunt for the ideal home.
Negotiation: Avoiding the Breaking Point
Most people, whether selling real estate or buying real estate, believe they have a strong bargaining point.
Sellers may argue that their property is in a prime location. They may be especially pleased with aesthetic components in their home: a new kitchen, new baths, beautiful hardwood flooring, a professionally finished lower level, custom window treatments, a lovely sunroom, etc.
Buyers, on the other hand, may be able to offer a pre-approval from a lender, a flexible closing schedule, and even a willingness to close early and to rent back to the sellers for an extended time period if the seller should desire this feature.
With this much going for the parties who are committed to the sale or purchase of a given piece of real estate, what could go wrong? The seller has listed the property for sale, and the buyer has entered the market place anticipating the purchase of a property.
Although both parties expect that there will be some negotiation to reach an acceptable sales contract, there are risks involved. The sellers may be too heavily invested emotionally in their home and unable to recognize that aesthetics are subjective and that "Beauty is in the eye of the beholder." Purchasers may be too preoccupied with the concept that the seller has shown his hand and is committed to selling and the idea that "Cash is king."
The key to an acceptable transaction is becoming aware of these blind spots so as to avoid an irreversible "breaking point." The broker's task is to honor the bargaining points of both buyer and seller while illuminating the blind spots, thereby avoiding the breaking point.
Runners who train for a track meet are not likely to enter the race burdened with needless weight. In fact, they will try to remove any potential obstacles before getting into the starting blocks. Homeowners interested in selling their homes, on the other hand, may overlook a number of impediments to success in this endeavor.
A home owner recently asked me: "What would it take to make my house salable?" I lightly replied: "Your house is salable right now!" "No, really," she said. "Suppose I wanted to get a good price for it. What would I have to do?"
Calling to mind the many experiences I'd had selling homes in over 35 years as a real estate broker, I walked carefully through her home and made the following observations. Some of the bedrooms had old shag carpeting; several rooms were cluttered; one of the upstairs bathrooms had out-of-date wallpaper and appeared to have a plumbing problem; the kitchen cabinetry was somewhat dated but appeared passable because of newer countertops; and there were slight wear patterns in some of the stairway carpeting.
On the positive side, the house was located in a desirable neighborhood, had new vinyl-clad thermopane windows, a new roof, and new gutters and downspouts.
"OK," I said. "You've got to reduce the clutter in several rooms and remove the wallpaper from the upstairs bathroom. If you have hardwood floors under the shag carpet, I recommend removing the carpet. Those changes can be made without an outlay of cash. The plumbing should obviously be repaired as well. Your house should then sell within a reasonable time at a reasonable price because you will have removed the obvious impediments or stumbling blocks to the sale of your home."
Any propery can be sold. However, a property with obvious impediments will not only take longer to sell but will usually sell at a lower price!