Hope everyone had a great 4th and we all need to remember those that made and make it possible !
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 below 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.
Please click here to view a market summary by county and price range for a more detailed look at each market.
Good afternoon to all,
Hope everyone is also having a great day !
It was a bit surprising to see 2015 end with a flourish of new sales contracts. We think the jump in sales activity was as much a result of mild weather as increasing buyer activity. It would not be surprising to see that November and December sales were "borrowed" from the first quarter of 2016. Web site activity and property showings remain at similar levels as last year, which indicate we still have strong buyer interest, equal to the beginning of 2015, but not a wild market that the last 60 days might suggest. Looking back, 2015 was the year we began to move towards a more balanced market, with inventories finally rising across all market segments, faster in the upper-end but still rising in the lower price ranges as well. This past year saw value increases across all price categories, with the strongest gains in the under $250,000 segments. As shown by the Case Shiller Composite Report, the pace of increasing home values slowed as available homes for sale increased. These national numbers mirror what we have seen throughout Michigan as well. So even with demand remaining strong, the increasing inventories will cause a cooling off of home value increases.
This year should show similar value gains but on the lower end of the ranges we saw in 2015. The overall tends for 2016 should follow what we saw in 2015, with rising inventories, continued strong buyer demand, but probably not keeping pace with the current increase in inventories.
There is still some pent up housing demand yet to be released, probably over multiple years as opposed to all at once. Values are getting close to peak 2005 levels with 90% of Michigan home owners now with equity in their homes, a big jump over the bottom of the recession.
The recession delayed many moves, as shown by the chart below, leading up to the recession the average time between moves was 6 years and it moved to 9 during the recession. Time between moves will over time move back closer to the 7 year range, with the difference being pent-up seller demand to be released over the next few years.
The recent regulatory changes known as TRID have not had a big impact so far on getting homes sold and closed. It looks like the new regulations have extended closing dates by about a week or less. Nonetheless, we still recommend at least 45 days from mortgage application to closing day.
All the current indicators show that housing should remain strong throughout 2016. Interest rates, although expected to rise, will remain low, mortgage lending is easing, employment and wages continue to show positive (although slow) upward trends and there is still pent-up demand from the recession left to be released. All good news. Will the current stock market correction change that? So far it appears the stock market is making the same adjustment we saw in housing in 2015, a correction to an overheated market. The old joke about the stock market is that its declines have predicted 9 of the last 5 recessions. Certainly a fall in household net worth, whether it is from a drop in stock values or home equites, will have an impact on housing but so far it appears, with possibly the exception of the upper-end markets, the impact will not be major on housing. The momentum of the overall economy, growth of millennial home ownership and remaining pent up housing demand should carry housing through any stock market related slump.
Overall we are going into 2016 will a steady tailwind (or maybe a tail-breeze) which should keep housing moving forward at a steady pace.
Please contact me with any of your real estate needs. I am happy to assist you.
Here are some helpful tips to help you cope with this wintry weather at home, in your car or when caring for your pets:
AROUND YOUR HOME
Stay indoors if possible. If you must go outdoors, officials urge you dress warmly and wear loose-fitting, layered, lightweight clothing. Wear a scarf over your mouth to protect your lungs.
Hope everyone had a GREAT Holiday Season and a VERY HEALTHY and HAPPY New Year ! !
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.