2009 Market Highlights

Perhaps 2009 and 2010 might best be described as the transition from decline to recovery. Whether or not we have hit the bottom of the market might be debated, but certainly we are hovering there. It seems more likely that our recovery will look like a long “W” with more than one up cycle and more than one down in the market before we’ll be able to say we’ve recovered. 

We enjoyed a wonderful combination of near-record-low interest rates, lower prices, plus tax incentives to help create strong market activity for most of 2009. We expect to have many of those same incentives for 2010 as well, but anticipate this will have less affect on the housing market, as the tax incentive is scheduled to end in April and it’s likely that interest rates will rise toward the end of the year. Overall, we see 2010 to be a bit of a rollercoaster, up about 10% when compared to the first half of 2009 and then down the last half of the year by about 15%. The net result is expected to be about the same in terms of homes sold. 

The tax credits should continue to attract buyers, but most of the value from first time home buyers has probably already been achieved last year. We anticipate the additional $6,500 move-up credit will draw as many as 2,000 more buyers into Michigan’s marketplace in 2010. 

In general, the strength of Michigan’s housing market has been sustained by federal support programs (Treasury keeping rates low, FHA lending, Banks holding back inventory and, of course, the tax credits).  If we do hover at the bottom as we anticipate, it will be as a result of the phasing out of these support programs before the economy, in general, is strong enough to support the housing market on its own. We are seeing better economic signs: payroll reductions have stopped in most cases, businesses are re-building depleted inventories, and the general outlook is more positive.  So there is opportunity for economic growth to fill the gap.

Home values are another important question and depend largely on the rate banks bring their foreclosure inventories onto the market. The median home values in 2009 rose throughout the year, not because of home appreciation, but because, as bank-owned inventories fell, buyers purchased more expensive properties causing a rise in median home prices.  Home values in the under $100,000 markets showed some precursors to appreciation where banks used a smaller price discount with their homes than they did in 2008.

The good news is there is large pent-up demand for housing, and even just a small amount of good economic news will begin to have an impact. The rocket fuel for our housing growth in Michigan has been the two-income family, driving the move-up buyer and new construction growth over the past 15 years. As households regain confidence that both incomes are stable, they will return to the housing market.  Also, those who have lost their homes during this time are still homeowners at heart and will want to be back in the market over the next 2-4 years as their credit stabilizes.

Michigan and Metro Detroit has been a tale of two markets -- homes selling as a result of financial distress (foreclosure or short sales) and the traditional “retail” sales. Financially distressed properties sell twice as fast and, on average, for 50% less (in most cases reflecting the current condition of the home). This effect can be illustrated looking at home sales under $100,000 (where 60% of all sales and most of the distressed sales occur) where the supply of homes for sale is at four months (a stable market). This compares to an eight-month supply (representing a buyers’ market) in the over $100,000 price range.

Opportunities will come in all shapes and sizes: move-up buyer, bank-owned, short sales, lease-to-own, investor properties, and rehab properties. Choose one or two, but not all -- you will go crazy with all the market “noise” if you try to chase everything. For Sellers, the first half of 2010 will be the best time to sell, with the most buyer activity. Also keep a “bird in the hand” approach to negotiating and remember that condition is the best way to compete with bank-owned homes. For Buyers, the first half of the year will also have the best rates and tax incentives. The best deals sell fast with multiple offers so be prepared to act quickly. Short sales require patience and it is a good idea to have a back up home/plan. Remember that waiting to buy to catch a 10% value decline will be lost with only a 1% increase in interest rates.

For those without equity in their home, we are often asked about the merits of purchasing a new home and then negotiating a short sale on the old home. Although it can be done with the right credit score, the result may leave you open to both significant credit issues and a potential shortfall obligation. Sellers who have had, or are facing, a short sale should investigate their options under an FHA loan for their new home before they are behind on an existing mortgage. Strategic default is becoming an industry buzzword -- this is negotiating a short sale without an economic hardship, simply to move out of a mortgage that is too high. Again, we have seen some lenders consider a non-hardship short sale, but it is not mainstream and we caution sellers to be aware of all the ramifications.

As this market has unfolded, our sales associates have worked hard to ensure they have the tools and skills to assist our clients in any situation. Our Agents have added the National Association of Realtors “Short Sale Resource Certification”; taken additional foreclosure, leasing and short sale courses; and developed a strong Sellers Short Sale Procedure as an easy guide through the process. We have added an investment analysis program to our web site; distributed our listed homes to more web sites than any other broker; added a foreclosure division; and now have the #1 home purchase FHA lender (John Adams Mortgage) in Southeast Michigan to ensure a steady flow of mortgages.

This year, every homeowner in Michigan should be assessing their long term and short term housing goals. It is not likely we will see another time when prices, interest rates and tax incentives will come together at one time. Regardless of your current economic situation, there is opportunity worth exploring in real estate today. Over the past 80 years, we have assisted more than 400,000 Michigan homeowners with their real estate needs. Chances are we have helped you or a family member in the past. You can trust us to help you to find the best opportunity during this real estate recovery as well.

Dan Elsea           

President – Brokerage

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Stuart Elsea                                                                         

President – Affiliated

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Real Estate One Family of Companies

Real Estate One, Max Broock, Johnstone & Johnstone

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