DECEMBER 2017 Real Estate Market Update
There were three topics that dominated presentations and networking events at the National Real Estate Convention that I attended in November: MILLENNIALS…LOW INVENTORY….TAX CODE REVISIONS. If you are old enough to remember the career advice Mr. McGuire gave Benjamin Braddock in the 1967 film The Graduate you are probably a Baby Boomer, the large demographic group that has been closely tracked for decades by the National Association of Realtors as the“boomers” cycled thru the fairly predictable real estate phases of life…first home, family home, 2nd home, retirement home. All the data collected trickled down to practitioners like me who used it to better understand market trends and service the needs of our clients. But now the NAR research team is focused on the housing needs of MILLENNIALS, approximately 75 million people born between 1981 and 1997, a group with massive buying power for every type of consumable. Of great interest to real estate professionals:market researchers report that up to 66% of those who are now or who will be financially qualified to buy and have not done so already expect to purchase a home in the next 5 years. Early achievers in that demographic took out roughly 40% of home purchase mortgages originated in 2017. As a group these buyers prefer to communicate electronically and expect a real time immediate response…there was never a time when electronic devices were not a part of their lives.Move in condition tops their list of must have home features. Student debt means that parents may/must have a financial interest in the newly acquired property and therefore may participate in the selection process. I came away from the convention confident that as an experienced realtor I could (and should) learn a few new tricks/modify old ones in order work effectively with this influential demographic group. LOW INVENTORY coupled with high demand has defined the real estate market in Metro Detroit for several years. In 2015 41000 homes (condos included) were listed for sale in Oakland County. That number was 30,000 in 2016, and 26,000 YTD on Dec 10, 2017. There is a limited amount of vacant land to build a significant number of new homes. Most local new builds replace existing homes, so there is no increase in number of housing units. Current owners are just not moving as much: baby boomers are deciding to age in place; homeowners are choosing to remodel/add on instead of moving because they are settled in a neighborhood; owners who bought/refinanced when mortgage interest rates were in the 3.5% range like the low monthly payment.Add a strong local economy and in demand locations that people really want to live in to this low inventory scenario and I see homes move thru the sales cycle pipeline from active listings to pending sales very quickly.CNN Money reported in November of this year that homes nationwide are currently on the market a median time of 3 weeks; five years ago that number was 11. The implications of TAX CODE REVISIONS will make for an interesting first half of 2018 as people determine what the changes mean to their financial bottom line. The National Association of Realtors has lobbied long and hard to keep interest and property tax deductions in place for all homeowners. Some economists who follow the real estate industry believe that those deductions support values in high income, pricey real estate markets…New York and San Francisco come to mind…and question what the implications are for the market in this country as a whole if prices soften in those markets. This is an issue that all real estate professionals will be following closely. For many people the equity in their home is the basis for personal wealth; lack of confidence in its the future value could negatively impact consumer spending on many levels.
How big is my home? $ per square foot has always been a starting point for licensed appraisers and Realtors when doing proper valuation reports using comparable sales data. The Multiple Listing Service now automatically calculates and publishes with each listing a $/SF number based on the SF number supplied by the listing agent. Apart from being a valuation factor many potential buyers use a minimum SF as a must have feature when setting up on line search engine criteria. So… who determines the SF of a property? There is no national standard used when calculating SF. Realtors, appraisers, builders, and municipal assessors may each measure space differently.Realtors often use PRD (public record data) obtained from the tax assessors office when posting a listing.But often this number can be based on a measurement when the home was built 60-70 years ago and does not take into consideration a sunroom that has been enclosed and heated, a small addition done under the radar of the building department, changing standards in terms of calculating the size of a bungalow 2nd floor with an angled ceiling or rooms below grade with an egress window that by some standards could be considered true living space.I typically ask seller clients for a recent new mortgage or refinance appraisal. I can then confidently publish a number based on actual measurements obtained from a trusted source. Anyone making a buy or sell decision based on $ per SF should understand the same style home located side by side can have a different published SF depending on who measured it when.
Zillow is a very powerful real estate resource. Buyers ready to write an offer often pull out their smart phone to check a home’s Zestimate on line. Sellers tell me “but Zillow said my home is worth $289K and you say comparable recent local sales support a value of $254K…why the difference???”. In 2017 Zillow launched a pilot program in two cities — Las Vegas and Orlando, Florida, now expanded to include Phoenix — called “Zillow Instant Offers,” with the promise that a home sale transaction can be completed in as little as a week. This new Zillow product allows prospective homes sellers to receive all-cash offers from a hand-selected group of 15 large private investors along with a side-by-side comparative market analysis (CMA) from a local agent. The search engine and research components of the Zillow website are user friendly and make it a great place to start to research all things real estate. But how accurate are Zestimates? This Spring I followed closely a class action suit filed in Illinois to halt publishing Zestimates for property in Illinois because of negative impact on actual market values/sales prices in some cases. The suit was dismissed in August but the concept behind it is something to think about.I urge buyers and sellers to consider on line value estimates…generated by Zillow, Trulia and other sources using massive amounts of general data… as just a place to start when thinking about ikmarket value.
An experienced real estate professional knows the subtleties of the local/neighborhood market as well as the impact current market conditions have on pricing. We can use our resources and knowledge of the existing housing inventory to come up with a reasonably accurate property specific fair market value price range. Contact me anytime to talk about general pricing trends or for an update on the market value of your property.
When will the market slow down, ie, can/will what goes up come down (again)? In April an article in the Wall Street Journal with a bold headline voiced an issue people were starting to think about: Rising home prices stir overheating fears. The housing bubble of 7-8 years ago was fueled by low interest rates, easy credit, high demand…sounds kind of like 2017, right? The 5 year stretch since 2012 marks the 3rd fastest period of home price growth since 1895 per that Journal article. With negligible risk of a supply glut in the next few years and many key indicators pointing towards continued economic expansion the chief economist of the NAR announced at his keynote address at the November convention that “there is no bubble in sight”. A collective sigh was heard in the room…this was good news to take home. I tell my buying clients who are worried about future home values that the safest financial strategy is to buy something they can afford now and can grow into, then plan on staying put for 5-7 years, making additional principle payments if possible. Forget refinancing…the rate you can lock in is just fine, even great historically…and every time you refinance your amortization schedule resets and you are back to paying off pennies on the dollar each month. Enjoy the benefits of homeownership…space, sense of community, a place you can make your own and be proud to own. If you need to sell at the bottom of a pricecycle you want to position yourself now to have enough equity to do so, giving yourself options that other owners at that time might not have.
Real estate financing... Data published in the MLS pertaining to the 1,520 Royal Oak house and condo closed sales YTD reports terms as follows: 73% conventional mortgages (min 1-3% down or more, usually not the 20% down payment that some people still think is needed to buy a home), 20% cash, 4% FHA, 2% VA, 1% “other”. No big surprises here…the ratios are similar in surrounding communities. Using low or no down payment FHA or VA financing (government backed programs with slight potential for property repair requirements) has the same outcome for sellers at closing as do cash or conventional terms…a check…but those terms can be perceived, erroneously, as being financing for less qualified buyers who may not ultimately be approved for a loan. I have had a challenging time this year getting offers accepted in competitive bid situations for FHA or VA mortgage buyers despite great credit scores and strong pre-approval documentation. Often these buyers are first time buyers (probably MILLENNIALS) with high debt ratios and limited assets for a down payment due to student debt. Two programs that allow homeowners to tap into (and spend) their home equity are back at levels not seen since the 4th quarter of 2008: cash out refinancing and home equity line of credit. Where is my soapbox…using home equity as a piggybank to be raided at will should not be part of anyone’s financial plan. One reversal of fortune and the place they call home is at risk. A variation of the home equity loan is the bridge loan program. This can be a useful tool for qualified homeowners who want to buy before they sell. They can tap into home equity to use those funds for a down payment and closing costs on the new home. Typically these programs work like this: there are no payments and interest is accrued and paid when the home sells or when its six month term is up. Six months is the operative term here…buyers/then sellers must be confident in the marketability of their current home to use this program.
For SELLERS… real estate myths: The best time to list a family sized home is in the summer because families want to move then so school schedules are not disrupted. Historically in the last 4 years in most markets the monthly number of closed sales peaked in June or July. Those sellers put their homes on the market in April, early May at the latest, to allow time for marketing, working with offers, closing and negotiated occupancy after closing. I still have a few projects to complete but can finish them while my home is on the market. Absolutely not a good idea. Your home must be in the best possible condition for the very first show…yours will be the hot new listing that will be attracting serious buyer attention day one so it is prudent to be 100% ready for shows.My home has been on the market three days and I have two over full price offers….it must have been priced too low. It is logical to think this BUT when inventory is tight and all buyers have access to all listing information at the same time the greatest concentration of shows/competitive offers occur right after a home goes on the market. Some of these buyers may have been outbid before and are not inclined to fool around if they really like/want the property. Best advice this year for SELLERS…. PLASTICS was the key to
Benjamin Braddock’s success in 1967; the key to your success as a seller in 2018 is DECLUTTERING. Buyers want to look at clean, well maintained homes with stylish almost minimalist décor. You are selling a lifestyle as much as a home. A key word in real estate advertising used to be Pottery Barn; now it is HGTV. Remodeled homes on this program set the bar for home buyer expectations. On the other side of the spectrum a vacant home can be as hard to sell as a cluttered one. It takes too much work for buyers to see themselves there. As home stagers say the price of staging is always less than the first price reductions. I am available to give you direct/realistic advice about how to best prepare your home for a sale…just ask.
For BUYERS… real estate myths: The first full price offer submitted gets the house. Not necessarily the case in a competitive market where multiple offers are almost expected at peak market times. It is common today for listing agents to call for “highest and best” offers by a specific time say 48-72 hours after home goes on the market. All offers submitted are then presented to the Seller. With several offers to pick from a Seller can make a decision based on price, terms, quality of the of buyer pre-approval, the experience/reputation of the buyer’s lender/loan officer, the credentials of the selling agent/broker, the proposed close date, amount of earnest money etc. Timeliness is important when submitting an offer but does not guarantee success. I can get a better deal if I work with the listing agent directly, not involving a buyer’s agent. The contract the seller signed when putting the property on the market is with the listing agent’s Company/Broker, not the agent. The seller agrees to pay X amount to the Company at closing regardless of who sells the home. Any reduction of the contractual amount owed the listing Company is a management decision, not an agent option. I should call a lot of lenders so I can find the best interest rate. It is not always the interest rate that matters…the lowest rates often come with the highest closing costs. Comparison shopping is smart, but be sure you understand what the basic costs associated with obtaining a mortgage commitment are and then ask questions so you can do an apples to apples fee/interest rate comparison.
Best advice this year for BUYERS…. study the market, decide where you want to live, look at homes there so you understand options. Then make up a realistic, short (3-4 items) must have features list plus a 3-4 item would be nice list. Stick to the lists when looking at homes. I have again this year sadly seen buyers in a competitive market. just give up and buy something, anything, just to get the process over with. A sidebar consideration: with information/photos on all listings on line all the time it is easy for buyers to just keep looking in case they missed something that might be THE HOME. Yes, it is important to learn the market by viewing homes in person, but no, there is no benefit in going to look at a home found on line with no basement if a basement is on your MUST HAVE short list. Keep focused! Be patient! Take a break but do not compromise on impulse!
Home style and décor trends…Researches analyzed millions of listings on realtor.com from 2011 to 2016 to calculate the annual price growth trend of homes with certain features. The home features with the greatest annual appreciation rate are open floor plan 7.4%; patio 5.8%; hardwood floors 5.7%; fireplace 5.3%; finished basement 4.6%. In terms of the improvements in mid-price range homes that offer the highest return on investment the list is much more practical than what I would have expected: attic insulation 107%; entry door replacement 90.7%; minor kitchen remodel 80.2%; garage door replacement 76.9%.In the local real estate market stainless steel appliances are on every buyer’s “must have” list. Appliance manufacturers are trying hard to come up with something new…I have seen black stainless appliances at stores but not in homes yet. I see fewer dark kitchen cabinets…white, cream, light wood (but not oak yet) are popular. 42 inch almost ceiling height cabinets give a clean, modern look to kitchens. There is a slight movement away from shiny granite countertops in kitchens and baths...matte finish granite with subtle patterns or man-made materials like quartz are options with a more consistent appearance. Replacing tired looking aluminum or vinyl siding with a cement based material adds value (and curb appeal) particularly in neighborhoods with a lot of new construction with this type of siding. New construction homes today have living spaces that are more defined, not just one big space for living, dining, cooking. Replacing old style landscaping…those closely trimmed evergreens lined up close to the front of a home…really freshens up the façade of a home. Accent color walls have had their day in the sun…monochromatic interiors…gray, warm whites, some neutral greens and yellows…make small rooms look bigger and work well with contemporary furnishings. The Pantone color of the year may change this…there always is a trickle-down effect into furniture, accessory and paint colors. It is ULTRA VIOLET, a blue based purple that “takes our awareness and potential to a higher level” per Pantone spokespeople.
Real estate teams…Individual real estate practitioners (like me) are being replaced by groups of agents and support personnel working underone name at one company…the XYZ TEAM. I work with a team as well: the best title company, the best home inspector, the best lender, the best closing coordinator, the best home stager. Together our levels of experience combine to make our mutual client’s real estate experience truly exceptional! Thanks to all of you for another record breaking production year for me…your repeat business, referrals and confidence in my experience and knowledge of the real estate business mean a lot to me. Best Wishes for a Happy, Healthy and Prosperous 2018!