Housing market trending toward recovery

‘Glimmers of hope’ in ’09 continue in ’10

By: Christa Buchanan | C&G Newspapers | Published January 5, 2011

“Tough” is an understatement when describing the local housing market since 2005.

The ripple effect that unemployment and the ensuing foreclosure crisis has left — and is expected to continue leaving — an unprecedented number of homes on the market, crippling home values and sales across the state.

Last year at this time, local Realtors said they were seeing the first “glimmers of hope” that the market may start taking a turn for the better and were “cautiously optimistic” the housing market would start to stabilize in 2010: With prices and interest rates at nearly unprecedented lows and a huge amount of housing stock from which to choose — a trend that continued in ’10 — buyer activity was up from 2008 levels.

“Twelve months ago, the market looked bleak as inventory hit the high-water mark. In 2008, there were 52,000 homes on the market (locally). In 2009, it was down to 37,000 houses. We’re not where we need to be yet — a healthy market would be closer to 18,000 homes — but we’re trending in the right direction,” said Kelly Sweeney, CEO of Coldwell Banker Weir Manuel Realtors in Birmingham, at the end of 2009.

That activity, according to local Realtors at the time, was due in part to the federal Housing and Recovery Act of 2008 first-time homebuyers tax credit, which local Realtors had lauded as a major factor in the upsurge of home sales in the under $100,000 bracket — leading Realtors to believe that the lower-priced market was bottoming out.

“First-time buyers are the strongest segment of the buyers market right now, and really, across the board, the homes that are selling are those in the lower price ranges — prices are super low; people can’t believe how low the prices are. … I’m selling a ton of houses,” said Realtor Joanna Darmanin of Century 21 Town & Country in Royal Oak in 2009.

As for the expansion of the homebuyers tax credit to include “move-up buyers,” Realtors at the time said it was still too early to tell if it would have a similar effect on mid-range home values and housing stock.

“Home prices are really stratified right now,” Sweeney explained at the time. “It’s hard to measure, but what we’re seeing intuitively is prices are still free-falling in the higher-price ranges; they’re still falling slightly in the mid-ranges; and in the lower-price range, they’re starting to stabilize.”

So, the question is, now that those tax credits have expired, where is the market at now, a year later?

“That’s a simple question, but the answer is somewhat complicated. In general, pretty much the same trends I told you about last year are continuing. … Last year, we thought the market was nearing stabilization, and this year, I’ll tell you almost all the same things: Low- to moderate-priced homes, we’re seeing a little, tiny appreciation; upper-end homes, there’s still a little contraction,” said Sweeney, noting that the median price of homes being sold is up a bit from last year.

“That doesn’t mean that prices are going up; what it means is that higher-priced homes are being sold,” he said.

The slight increase in median sales price is due in part to more buyers opting for move-in ready homes in lieu of distressed properties — partly because there are fewer foreclosures on the market and partly because many foreclosures are in such terrible condition.

Darmanin said she’s seeing more sales of move-in ready and new construction homes than in the last few years, and while first-time buyers are still the most active group of buyers, she said she’s starting to see more buyers upgrading from their existing homes — with a caveat.

“There’s still an issue with homeowners who have a house to sell and who are not in the position to sell at the price they can get now. … Because the prices are so great, we’re seeing more people trying to lease their home for a few years,” she said.

This trend of more “move-up” buyers is another sign the market may be rebounding: With a dwindling number of homes on the market, the Realtors are starting to see a reduction in the number of days a home is on the market — a good indicator that home values are starting to stabilize, as the price decreases the longer a home is on the market.

One difference from 2009 to 2010 that could be perceived as a negative is that the total number of home sales was down.

“The volume of homes sold and average sales price in November (2010) was down when compared to November of 2009, but it’s not really a fair comparison,” said Realtor Brian Powers of Keller Williams Macomb-St. Clair Market Center in Chesterfield. “Originally the first-time homebuyer tax credit that fueled a lot of the buyer demand in 2009 was set to expire at the end of November last year, so a lot of buyers were rushing to close their home purchase in that month. … If you compare this November to 2007 and 2008, when the first-time buyers tax credit was not in place, the market is stronger.”

Darmanin concurred: “It’s almost hard to compare last year to this year. The numbers (of homes sold) are down this year, but that’s because we had such a great year last year. Over the last five years, 2009 was the best. Now, things are steady; houses aren’t moving quite as fast, but we’re still busy.”

The decline in inventory of both distressed and traditional homes for sale is an indicator of the market getting stronger, the local Realtors agreed.

“In Oakland and Macomb counties, inventory is down somewhere between 20-25 percent, and that’s a very, very good trend. As we’ve been chewing through inventory of distressed home, the traditional market is doing better. In Oakland County, 19 percent more non-distressed properties were sold in 2010 over 2009. Conversely, 10 percent fewer bank-owned properties were sold. Overall, we saw a net gain of 3 percent sold,” said Sweeney, who expects the market to slowly recover over the next few years. “If inventory continues to go down, which it will, and buyer demand goes up, which it is, prices will start to go up soon — possibly in 2011 or 2012.”

That is, said Powers, if the “shadow inventory” — the foreclosed homes that the banks haven’t yet released — continues to be released slowly.

“If the local market is saturated with foreclosure listings, it will negatively affect home prices for everyone,” said Powers, adding that he’d be happy if the market in 2011 continues to play out the same as 2010.

Another positive indicator the local housing market — and Michigan’s economy, in general — is rebounding, Sweeney said, is that Michigan used to be ranked nationally in the top three of states with the most distressed properties; Michigan now ranks 12.

Last year, Sweeney noted that the unemployment issue needs to be resolved before the market can turn fully around.

Powers and Darmanin agree that employment and consumer confidence are key to the market making a full recovery.

“If people are gainfully employed and fairly confident the economy is headed for recovery, they are more apt to purchase a home, whether it’s a first time buyer or a ‘move-up buyer’ looking to move into a different neighborhood or buy a bigger home,” Powers noted.

With unemployment starting to creep down and the local auto industry reporting expansions and higher earnings this year, Sweeney said he’s optimistic that good things are starting to happen in Michigan, and a turnaround is conceivable within the next few years.

Darmanin and Powers agree that while things are looking up, it will still take awhile for a complete turnaround to come to fruition.

“Statistically, we have bottomed out. The question remains, is this a temporary bottom or an absolute bottom? I think when the local market is in recovery we will look back at the second half of 2010 as the period of time when the real estate market bottomed out. But I think recovery is a ways down the road. … I think we are still 12-18 months away from seeing sustainable growth in local housing values,” Powers said.

More information about buying or selling a home in the current market can be found by contacting a local Realtor: Century 21 Town & Country, Royal Oak, can be reached at (248) 642-8100; Keller Williams Macomb-St. Clair, Chesterfield, at (586) 949-0200; and Coldwell Banker Weir Manuel, Birmingham, at (248) 644-6300.