December 2016 real estate market update
Today it is possible (though not common…yet) to find property using an online real estate search engine and then research its sales history and recent neighborhood market activity with a few mouse clicks… arrange to visit the property for a virtual showing with no agent present…check out neighboring homes using Google Earth…make an offer using electronic signatures…have the home inspected and receive a written report via email… apply for a mortgage using an online portal where required financial documentation can be securely uploaded…. receive all closing documents electronically for review and then have funds to close wire transferred to the title company conducting the closing. Most lenders still require buyers and sellers to sign documents using real pen-in-hand ink signatures…but for how long? 2016 has been the year for me to think a lot about my relevance in the buy/sell process when the direction of my industry seems to no longer be focused on in person meetings with information exchanged and advice offered based on local market conditions and product knowledge. The real estate business is trending towards a are-you fast enough-what is-the-easiest-way-to-do-it technology-based business model. New technology is certainly creating a new type of consumer with an always close by smart phone that allows immediate access to all kinds of unfiltered data, a type of consumer who has come to expect a response to an online inquiry in minutes not hours. There are culture clashes in my industry between internet based agents who exclusively use texting for client communication and those who have a desk phone with voicemail and paper files to manage transactions. I believe (and I hope my clients know) that buying a home does not have to be like the Amazon Prime experience…see click buy. Home is a powerful word with many meanings…an investment, a commitment, a nest, a secure place. The conclusion I have reached at year end is this: The best of the new internet based communication and data gathering tools can certainly streamline and enhance the home buying and selling experience for my clients BUT we Realtors as an industry must remember that ours is…and always has been…a personalized one on one business based on trust and integrity with connections to people who are as unique as the homes they live or aspire to live in. Text, call, email, meet or tweet…it’s all about providing what clients need to know in a timely manner in order for them to make a confident, informed real estate decision. Buying or selling a home is way too important financially and emotionally for most people to let speed and efficiency alone drive the transaction. Take the personal connection out of real estate and it is a tremendous loss…a dis-service really…for consumers.
The seasonal supply/demand cycle, low interest rates, relaxed mortgage qualification criteria, reasonable weather and immediate access to just-listed property information meant that the early 2016 market was an especially good time to sell and a particularly challenging time to buy in many metro Detroit communities. Historically overall demand for property is highest in our market area from late February to early May; supply is lower then because for many sellers moving in the winter is not a must have Michigan experience if it can be avoided. Really low mortgage interest rates…in the 3.5% range… were a consideration for many on the fence about buying this year…could they do anything but go up later in the year? First time buyers realized that they could purchase a home using low down payment mortgage programs...3%, sometimes less…and end up with a payment lower than rent for the same property. Trade up buyers wanted to lock in a fixed low interest rate for their forever home; many of them also had an eye on the school year cycle creating added motivation to find a home sooner than later for a summer move. Consumer-oriented real estate search engines (the dating apps of real estate, look at a few pictures then click on homes of interest instead of swiping yes or no) introduced a quick notification option: when property comes on the market that is a match for the home feature profile a potential buyer has saved in the system an email or text alert goes out within 15 minutes of the listing posting to the system. This means that everyone looking for a brick bungalow in Huntington Woods, for example, can get the same information at the same time (no doubt alerted by a “ping” on those ubiquitous cell phones), creating an intense single property supply/demand event. So… tomorrow was not good enough this Spring Anxious buyers wanted to see new listings immediately after gettingthe match notification. They understood that the market was competitive, that everyone else looking for a brick bungalow in HuntingtonWoods knew about the same new listing. They did not want to risk missing an opportunity. I spent many early Spring evenings with clients outside a home in the dark in line waiting for our turn to see a just listed property. Some homes had 10-15 shows within 48 hours of hitting the market. Sellers were empowered by all the interest in their property and wanted nothing but a full price or better offer. Multiple offers were common, frantic buyers made over list price offers on homes that they may not have considered under different conditions. Low appraisals became a reality check (always a concern early in the year before there are enough recent closed sales to establish value for lenders) but buyers often somehow managed to come up with extra cash needed to close. And then the party ended as it typically does in May when supply and demand come more into balance for the usual reasons…committed to 2016 buyers had bought, more homes were finally ready to go on the market after months of fix up, nice weather meant there were other things to do besides follow real estate online. Access to real time information continued to front load immediate interest in new to the market properties all year but it general it became a kinder and gentler time for buyers.
So…advice for those planning on buying in 2017, especially early in the year since the market cycle described above, with varying degrees of intensity depending on rates, weather, the economic and political climate, has become a given in the SE Michigan marketplace since 2011. Spend time NOW getting to know/understand the fundamentals of home buying. (I often consult with people 3-6 months before they intend to buy, making sure they have a big picture understanding of the process). Use online resources to research communities. Visit open houses and drive thru neighborhoods. Develop a realistic buying checklist with target locations and a short list of must have features. Consult with a market savvy Realtor, list in hand, for a reality check. Get pre-approved for a mortgage. Then, with information and a goal, start looking at homes in earnest. It is OK to modify your buying checklist during the search as you learn the market but please, no impulse buys out of frustration. Buying a home in a competitive market can be more of an endurance event than a thoughtful process. I too often see people buy the wrong house in the wrong location due to the pressure/frustration of a seller’s market. I believe that keeping buyer clients on point and focused is big part of my job, but the fear of missing out becomes real and hard to manage for people who have lost out several times in multiple bid situations. It ultimately might make sense to take a break from the search if the process becomes too overwhelming or time consuming. By mid year prices are established for the year and appraisals can be less troublesome. Prices may be higher than in February/March but less competition may make negotiation possible. My buyer agent skills can shine then too…successful bids are no longer based on who can submit the highest offer the fastest. We can study comparable recent sales when discussing a bid price, look at similar homes for sale in other locations for comparison, walk around in the evening to get a feel for neighborhood demographics, go back a second time to carefully check out the property. I really enjoy my job when I can use my experience and product knowledge to assist and guide clients. Standing in line in the dark with nothing to offer them but a sense of urgency in March certainly does not allow for much professional finesse.
Sellers…there is always a magic month in the Spring market when just about anything listed at a reasonable price in decent condition sells quickly, even property in less than desirable locations. But what if you cannot time your sale to take advantage of the magic month? You need to understand what your position in the market will be during the rest of the year. HGTV and similar “shelter” shows have raised the buyer expectation bar even higher this year. People tell me that watching these programs can be an addiction not just an inspiration. Consider two bungalows for sale on the same block, one structurally sound and well maintained but with red shag carpet over wood floors, lots of dark paneling and the original kitchen and bath…what we used to call a home with potential to build sweat equity. The home next door in HGTV condition (updated kitchen and bath, refinished wood floors, stainless appliances, a more open floor plan, contemporary décor) is listed $45K higher. At today’s low interest rates that translates to paying about $250 more a month. For many buyers there is an easy decision here…pay more each month and avoid the hassle of remodeling. I estimate that about 10% of homes coming on the market fit what I call the HGTV profile; they are almost sure to sell in less than 14 days close to or at list price.
My recommendations for modest projects that can add value for owners of good homes in average condition have changed very little in the last five years BUT should be given more serious consideration in 2017 by potential sellers in light of even higher (unrealistic?) media-driven buyer expectations: Declutter: closets, cabinets, countertops, everywhere! As an aside, 48% of Americans think they have too much stuff and by getting rid of some of it their lifestyle will improve. (Professional help is available, decluttering can be like an intervention). Deep clean: touch every surface inside and out, no exceptions. Look at your landscaping with a critical eye: aggressively prune or remove overgrown trees and bushes; add mulch to freshen up flower beds; plant grass…first impressions ALWAYS count. Small but a lot of bang for the buck upgrades that may require an electrician: Replace outdated or broken light fixtures inside and out. Replace painted-over plugs and switches and install oversize cover plates (this is my favorite low cost interior upgrade…it creates an instant modern, clean look) While at it add GFI plugs in the kitchen and bath and on each circuit to effectively ground it if you have an older 2 wire electrical system. Large, elaborate ceiling fans have had their day in the sun…take them down and replace with compact flush mount models. If you have can lights paint the liners white so they disappear into the ceiling. Invest in the repairs that you meant to do years ago: install seamless gutters, fix dripping faucets, repair cracked window panes and broken seals. Paint using a modern color palate: credit.com commissioned a color study recently that indicated that these interior colors should definitely be avoided: slate (dark) gray; terracotta; dark brown; and surprisingly off white (too bland). A Zillow study reports that the value-adding colors of the moment are light green or khaki in bedrooms, dove or light grey living rooms, mauve or lavender dining rooms, yellow or wheat in the kitchen. The PANTONE color of the year for 2017 is Pantone 15-0343, colloquially known as greenery, which is to say a “yellow-green shade that evokes the first days of spring.” Be pre-emptive and incorporate it in your new décor for an on-trend look. Wallpaper is still a very tough sell, as is dark paneling… painting paneling is OK if done right, removing wallpaper is almost mandatory if you have rooms of it. I am often asked…should I remodel my kitchen and /or bath before selling my house…and I say no, 80% of the time you will not come close to recovering your investment. It is more cost effective to price the home competitively based on its current condition. Modest upgrades can make sense however: re-glaze the tub, change cabinet hardware, new counter tops. If the kitchen cabinets are really old and tired painting them might be worth the effort. Done right the improved look can be dramatic. I am always willing to walk thru your home with a critical eye and make suggestions when you are in the early stages of considering a move…I have seen it all, do not be shy about asking me to come by.
Interest rates/mortgages…every December I talk with trusted local lenders; I study real estate newsletters and blogs; and finally I gaze into the crystal ball I keep on my desk for inspiration in an attempt to correctly answer the question everyone has at year end…will interest rates go up next year? For the last four years all indications were that rates would start a gradual climb into the low 5% range. That did not happen. In mid-2016, 30 year fixed rate mortgages were offered to buyers with a good credit score (725-740) at 3.5%. Now, in mid-December, the rate for the same loan product is 4.125%. That translates to a $36. increase in monthly payment, from $449. to $485. for every $100K financed. Will that kind of increase move markets…no. What increase will it take to make buyers think twice…I am not sure. Ownership is so ingrained in our society that I think people will within reason adjust their lifestyle to secure the American dream of owning a home. Over 7 million properties were lost by owners to foreclosure in 2007-2010. FHA financing became available to them 3 years after the foreclosure (or a short sale) with a good credit history, conventional loans after 8 years.. Lenders tell me that as soon as they can qualify people are ready, if not eager, to be an owner again, an affirmation of the powerful draw of ownership..
Another pressing crystal ball question at year end: will prices go down if rates go up? Empty nesters and retirees in particular remember when people had to postpone retirement or downsizing during the Great Recession when home values dropped quickly and precipitously. They do not want to be caught in the same situation if higher mortgage rates suddenly cool the market. Nothing is certain in life and the country is entering uncharted economic territory with the new presidency BUT most real estate economists are calling for a slow but steady 2017 market. The National Association of Realtors predicts that home prices nationally will increase 3.9% next year, taking into account a modest rate increase (The Association predicts that rates will move to 4.5% by year end 2017). I believe modest rate increases…which I now define as up to 5%... will have a minimal effect on SE Michigan market values. Locally the economy seems to be booming…do you see the help wanted signs everywhere? Having a job and owning a home go hand in hand. It also helps that people want to live in the communities North of Detroit proper, that demand keeps the market active and liquid, supporting values.
Market trends…FIXER UPPERS sell quickly year round...who hasn’t watched TV programs showing how easy it is to buy, fix up and flip a home for a (large) profit and said to themselves “ I could do that”. Buyer beware, the margins are thin because demand, thus acquisition costs are high. These projects are often best left to professionals who know how to trim costs and remodel to sell (not the same as remodeling your own home). The biggest mistake amateur “flippers” make: buying in the wrong location. McMANSIONS…homes over 4500 SF built in the 90s or early 2000’s when bigger was better and prices could do nothing but go up…can be tough to resell. People have found that they can be happy in a home with 2500-3500 SF. The clean lines and defined spaces of homes built today are very appealing vs buying a massive used home whose age is clearly identified by its design and finishes. GOOD VALUES I saw solid, well maintained colonials lingering on the market in established Troy and Rochester Hills subdivisions last summer that were priced under $350K with 4 BRs and good SF. They were vacant, did not show particularly well but could easily be upgraded over time. Dry walled and carpeted FINISHED BASEMENTS with a drop ceiling can look a bit dated…an exposed ceiling spray painted a dark color with can lights, an epoxy floor and painted block or concrete walls looks modern and works for many people today who remember what happened in August, 2014, in S Oakland County. Matt Metcalf, a Colorado real estate agent, has built a successful business based on the STARBUCKS PRINCIPLE. Starbucks invests millions of dollars in research to understand area demographics and growth patterns. If there is a new or remodeled Starbucks store, the demand for all kinds of growth related products and services, housing included, logically should follow because Starbucks had done its homework. This makes me look at the new Starbucks store on Woodward N of my office in a new light. I now look for new stores in my travels so I can predict the next “hot” market.
Professional DRONE PHOTOGRAHY is a powerful marketing tool for homes on larger lots or those in particularly photogenic locations…I have used still and motion drone pictures this year with impressive results: more shows, more inquiries, great feedback from other agents. The single most important tool I have to market a home…besides properly positioning it price-wise…is quality interior photography. I believe in posting a moderate number of pictures…10-25 depending on the size of the home. My job as a sellers agent is to get as many qualified buyers as possible to the front door, the house has to take it from there once they get inside. I like to post “teaser” shots; the more detail I post the greater the likelihood of revealing a feature that is on a buyers “probably not” list; they will just click on to the next listing. WILL REMOVING THE TUB AFFECT VALUE of the home? Houzz,a home remodeling website, found that 56% of respondents to a recent survey never take a bath. That said I am starting to see homes this year with a walk in shower in the primary bathroom where the tub/shower combo used to be. If there is a 2nd bath with a tub in the home this improvement makes sense and adds value; if you have only one full bath think twice before making the change…it can limit resale in the future especially to people with children.
Miscellaneous Royal Oak remains the poster child for new homes in established communities. In mid December there were 38 homes built in 2016 priced from $369,000 to $675,000 listed for sale in the Multiple Listing Service database. 7 sales were pending in the MLS (sold but not closed) with list prices of $438,310 to $594,900. 52 sales of homes built in 2016 closed with final sales prices from $365,000 to $665,000. Speaking of Royal Oak…have you been in the area S of Lincoln behind Holiday Market lately? There is lots going on there including a stunning new rental project with condos
(of course) to follow. The design is very stylish and sophisticated; one could say high-end New York like. Data published recently in the Journal of Housing Research confirmed what I have always known…a price just below a round number works best in terms of shorter marketing time and a higher sale price relative to list price. So a $299K list price is a wiser move than $300K. I have noticed inventory buildup and significantly longer market times in the higher price ranges in the last half of 2016. Of course price is relevant to location: $600,000 might be high in Royal Oak, $1,500,000 in Birmingham, $400,000 in Ferndale. Borrowing $500K at 3.5% interest for 30 years costs $2,245. a month P and I, at 4.5 % interest the payment rises to $2,533., a $288. difference, not an insurmountable amount for many high end buyers so I am not convinced that rates are holding buyers back. This is a market condition that I will watch closely in 2017. Have you done an annual insurance check-up lately? I see buyers come to closing with a owners insurance policy that cost so little that I find it alarming …something is not right. It is important to understand replacement value, deductibles and rider options when determining what coverage you need. Once you understand what coverage you need comparison shop every 2 years to make have the right policy at the right price.
As always I want to be your go-to resource for all things pertaining to real estate…contact me any time with your questions/concerns I sincerely appreciate your buyer and seller referrals. I take it as a vote of confidence in my ability to provide exceptional real estate service.
BEST WISHES FOR A HAPPY, HEALTHY AND PROSPEROUS 2017