DECEMBER 2018 Real Estate Market update
The market…what’s up? During the first 5 months of 2018 I worked in the fastest real estate market that I have ever experienced …fast being defined as short market times for sellers (hours not days in some cases) fueled by a rapid turnover in inventory due to high demand (think robust local economy/the threat of rising mortgage interest rates/the unfailing desire by many to own a home) and low supply (among other reasons many owners are happily locked into an under 4% mortgage and not inclined to sell unless there is real need/motivation). It was back to waiting in line to show homes the first day on the market, consoling buyers who repeatedly lost out in multiple offer situations and assuring sellers who got over full price offers that they were not “giving their home away”. The National Association of Realtors declared that spring 2018 could be “the most competitive market in recorded history”.But things can change quickly. By mid-summer I started to get calls from anxious owners who thought it might be wise to cash out while prices were high; news media had no shortage of stories on the faltering housing market; even casual acquaintances became real estate experts and started to ask me how I planned on handling the upcoming real estate crash. In the Fall the respected S&P CoreLogic Case-Shiller Home Price indices, the leading measure of US residential real estate prices, tracking changes nationally as well as 20 specific markets, “confirmed” a cooling national market with markedly fewer sales and a slowdown in price growth. The economy is booming with low unemployment and people are confidently spending money on consumer goods…why, local Realtors asked each other at the beginning of the 4th quarter, are sales flat and prices even flatter all of a sudden? Sunday open houses are always a market indicator for me...sellers typically are not inclined to have strangers walk thru their home if they are having scheduled shows to qualified buyers. In April it was common to have fewer than a dozen homes advertised as being open to the public in Royal Oak. One Sunday in early November there were 46 properties held open, a sure sign of no or few scheduled shows and anxious sellers.
So...where is the market heading in 2019? I will have a look into my crystal ball further down the page.
The real estate industry and technology… my industry like most others is changing at warp speed in the digital age. What was standard procedure two years ago is not relevant to clients today. Homes are now being shown to potential buyers in ways that might not be as far fetched as they sound…
On line access to high quality, detailed photos and videos of a property and the neighborhood with a real time smartphone based room by room walk thru with an agent on site can potentially eliminate the need to inspect it in person before making an offer. Redfin, a brokerage with significant tech based online presence, surveyed 1503 buyer clients in December 2017, who had purchased a home in the last 12 months, asking them if they at any time in their search had made an offer sight-unseen. 35% said yes. Of the respondents 45% were millennials (born between 1981 and 1997 and totally comfortable with all aspects of internet information gathering) and 6% baby boomers. Perhaps baby boomers might not select a high-tech company like Redfin to work with, skewing the percentages, but there is definitely a trend emerging here. Zenplace and REX, California based real estate companies, got a lot of press earlier in the year because robots are put in homes to create marketing materials including 3-D videos and detailed floor plans. An investor in the robot technology was quoted as saying “they are far more intelligent than a real estate agent and are a way to sell a home more efficiently” (!!!). Interactive displays are then programmed to show the images captured by the robot and answer property specific questions posed by potential buyers touring the property. An employee is on site during home showings to provide supplemental information upon request. The interactive screen also captures information on the needs/interests of the buyer based on questions asked that is used for future personalized target marketing.As an aside my local real estate trade association has rules that make our fiduciary duty to clients clear: showing agents are required to be present at shows unless specific permission to the contrary has been granted. It is common practice to see comments in the MLS reinforcing this obligation: “an agent licensed in the state of Michigan must be present at all showings”.New construction builders/developers might have a full-sized model home for potential buyers to walk thru but today it is becoming common to have instead a well-appointed sales office with elaborate large-scale video presentations depicting finished homes inside and out. When it comes time to pick a floor plan, finalize the price, select optional finishes/amenities and sign a sales contract all selections are made using a virtual reality software program, not printed floor plans and a room full of product sample boards. The home is built room by room using 3D floor plans as the basis for seeing how materials and colors work together, adjusting the look…and maybe the price… until the is buyer is satisfied. It has been my experience that new construction buyers have great anxiety making finish selections, they fear disappointment when the materials they specified do not come together as anticipated in the completed home. A picture is worth a thousand words as they say, certainly in this case when thousands of dollars are on the line.
A very real consideration when I show homes today in a decidedly traditional way…by appointment accompanied by buyers who want to walk thru the property in person and talk about it with me. I find that security camerasare becoming commonplace inside homes. When I see active security cameras I always assume that they are recording and/or broadcasting in real time to an off-site seller everything said during the showing. I immediately take my clients outside, explain the situation and advise to say very little when we are back inside. I tell them that any comments good or bad could impact any future negotiations with the sellers. I find it extremely frustrating, as do my clients, not to be able to talk freely when touring property. I understand that security concerns are very real for many people, but I urge sellers to live with only an outdoor security system if in their comfort zone when their home is on the market. I believe that while not required it is courteous for listing agents to advise me in advance if inside cameras will be active while I am showing the home…I can plan my time inside accordingly.
A new tech tool may help ease security concerns of sellers: in 2019 electronic lockboxes will be phased in to replace the mechanical key storage lockboxes now in use to facilitate showing agent access to homes. With the new Bluetooth enabled lockboxes once a showing is confirmed with the property occupant by Showing Desk, the appointment setting service most of us use, an app on the showing agent’s smartphone will be given permission electronically to connect with the lockbox on site and open it for access to the door key kept inside. An up to the minute record is kept of the name and license number of the showing agent as well as the date, time and length of the showing. I can elect to get a text when the lockbox is opened and when it is closed. The new system definitely adds another layer of safety and security to the home showing process.
Style and décor trends The Pantone color system originated in 1963 as a color matching/classification system where all colors were analyzed and given a number not just a name. Using the system meant that the navy-blue fabric used to sew a garment in France could be exactly the same color as the buttons on it that were manufactured in the United States. Since 2000 Pantone has been analyzing cultural trends in order to identify the color of the year, one that “reflects the state of society as a whole” (an ambitious undertaking if there ever was one!). This year LIVING CORAL is the color of the year. A company representative says“Living Coral was chosen because it conveys a sense of optimism”, suggesting that the orange-pink hue would offer comfort and buoyancy in our continually shifting political and social environment. Expect to see this color in home accessories, furniture and clothing early in 2019. My own recommendationfor interior wall color of the year is Sherwin Williams AMAZING GRAY. It is a color you cannot go wrong with if in doubt when re decorating or freshening up your home for resale. White trim, natural wood trim, accent color trim/wall all look good with this classic but sophisticated gray. We all were excited about open floor plans … living, dining and cooking areas not separated by walls…when they became an option in new homes 10-15 years ago. Shelter magazines and tv shows were full of ideas about how to incorporate the concept when doing interior remodeling…Chip and Joanna Gaines make taking down a wall between the kitchen and dining room look like a weekend project. While an open floor plan is still one of the top three features on buyer clients “must have lists” (the others being wood floors and stainless appliances) I am seeing a bit of push back on completely open to living space kitchens. Full visual access from the living or great room to prep, cooking and sink areas may not be pretty when enjoying a meal or relaxing afterwards.Built in appliance cubbies that hide kitchen countertop clutter and walls of storage right by the food prep areas are being incorporated in kitchen designs to create a better kitchen visual. I suggest adding a second dishwasher, space and plumbing hook ups permitting. One dishwasher is never enough after an ambitious cooking project, a second allows for quick and easy out of sight and out of mind clean up.
Speaking of stainless…more subdued but still subtly shiny black stainless is growing in popularity. Some GE appliances are offered in slate or black slate…interesting colors that are not shiny and look fresh and modern. White is the current cabinet color of choice for kitchen and baths; I am seeing some nice looking two tone cabinet color schemes in kitchens…gray island and base cabinets with white uppers for example. Dark granite without the ultra-busy patterns of years past remains a popular work surface material, especially with a honed or buffed finish. White/light color marbled quartz is a timeless look that works with all cabinet colors. Smart home devices arebecoming common place, in particular thermostats and doorbells with cameras that can be managed from anywhere with a smartphone. Utility companies often offer cost discount promotions on Nest and Eccobee, popular and easy to program models.
How are increasing mortgage rates effecting the local real estate market?Rates for a 30year fixed rate mortgage are around 5 % in December, 2018. This translates to $5.37/month P and I for every $1000.borrowed/$1611/month for a $300000 loan. In December of 2017 the rate for the same type of mortgage was about 4% or $4.77/month per $1000 borrowed/$1431/month for a $300000 loan. An increase, yes, but manageable for most buyers. If mortgage rates continue to slowly rise will the increase deter buyers in 2019?For first time buyers, the answer is absolutely no. Rates are what they are when the stars align and they are ready to buy. Move up buyers are another story. Interest rates are only one of several factors that determine if and when it is time to sell the starter home and upgrade. Those owners may have doubts about moving in general. Per the National Association of Realtors historically people have stayed in their homes for 6 years, recently that number has increased to 10 years. After 10 years they have a home they have settled in and adapted to so moving may have become less of a necessity and more of an option. They may be too busy to move…it takes time and commitment. Tight inventory scares them…if I sell where will I go? Move up buyers are payment sensitive: they understand that the property tax component of the payment on the next home may increase a lot when the taxable value is uncapped upon sale…that along with higher interest rates may decrease their buying power, making an optional move less compelling. What if they do not get raises to offset a commitment to higher housing costs? There is employment uncertainty in Metro Detroit because of auto industry restructuring. There has been a lot said in the last 6 months about higher interest rates causing a significant decrease in the number of sales in higher price ranges (however that is defined in your market area) but I think that the decrease is a buyer motivation/confidence issue more than a rate issue. I think 6% mortgages will be the line in the sand that may take time for buyers to adjust to and cross. Real estate financing 80% of the mortgages associated with my sales in 2018 came together seamlessly. For the rest more often than not problems arose because inexperienced loan officers did not know what questions to ask before issuing a pre-approval OR because an out of the market area lender did not understand acceptable loan processing protocols and timelines (Currently about 25-35 days until closing once a contract is finalized). I am a great believer in having experienced local real estate service vendors working with me to get a sale closed (title company, inspectors, loan officers). We are in the same time zone so we can communicate readily, we all understand market conditions, we have relationships established that makes solving problems if (when) they arise easier. A Wall Street Journal article in April about mortgages reinforced this belief. It made a strong case for buyers having their pre qualification letter prepared by a known local loan officer with an established track record. It stated in print what I know to be true: listing agents look at more than price when reviewing offers and the right prequalification letter can mean positive consideration in a multiple offer situation. The hardest phone calls those agents have to make are to sellers a weekbefore closing when a supposedly well qualified buyer has been turned down for a loan. There is time for buyers to carefully shop rates and closing costs once their offer has been accepted. There is no obligation to the lender generating the pre qual letter. The local career loan officer however may end up being the most competitive after comparison shopping…they will sharpen their pencil in order to secure business with a product/cost package that will generate referrals.
More financing considerations…In 2017 37 % of mortgage origination volume was because of refinancing according to Inside Mortgage Finance, an industry research group.In 2012 this number was 72% The number of borrowers who could benefit from refinancing is down almost 40% from the end of last year. Refinancing is/was obviously big business for mortgage lenders…we all got compelling calls or letters as rates dropped presenting numbers demonstrating the monthly cost savings of a refi compared to the current mortgage payment. It was easy to be a serial refinancer and lock in lower then even lower monthly P and I payments. Lenders loved the repeat refi business and the income refis generated. But each refi started loan amortization all over again, meaning payments weremostly interest with a miniscule principle reduction. Now that we are all set with a good rate and perhaps were able to shorten the loan term to 10/15 years I hope that homeowners will keep the end game in sight…a free and clear home at a time when it makes sense for their financial plan….when the kids go to college, retirement nears, or when career change opportunities arise. Having a HELOC (home equity line of credit) in place makes a lot of sense as an emergency cash resource. Last year’s tax code overhaul eliminated the interest deduction unless the money was used for certain types of home improvements, discouraging use of your home as a convenient ATM.Many homeowners found themselves in a precarious financial position during the great recession because they had assumed home prices would always increase so they used the home equity as fun money to spend on stuff.One of the greatest regrets people close to retirement have is that they did not pay off the mortgage on their home. So again, keep the end game in sight…think ofbuilding home equity as a long term savings commitment. For sellersI know you have been looking at Zillow for the last year and the algorithm used to calculate the Zesimate value of your home comes up with a number that makes you smile. 30-45 days before you plan on putting your home on the market it is time to get real. Ask me to do a neighborhood specific current market condition-based market value analysis. Zillow does not understand the nuances of location, school district, age and condition, even the value of curb appeal.I say this every year in my newsletter but most people I talk with about selling still start the conversation by saying “Zillow says my home is worth XXXX”.
Are homerenovations really necessary? This is a question posed recently the general context of home ownership by a real estate blogger I follow and it plays right into the continuing evolution of the HGTV look home as the gold standard for style and décor and subsequently market value. There is absolutely nothing wrong with your home if it has good structural bones, operational mechanical systems, a roof that does not leak. It is comfortable and habitable, a spacethat hasserved you wellasa home. But exposure to online content, Pinterest and shelter magazines has served to raise buyer expectations at all age and price points and in all locations exponentially in the last few years. Many if not most buyers I work with aspire to buy a home that hits these hot buttons…move in condition with fresh, trendy décor, new/updated kitchens and baths; floorplans in line with current lifestyle expectations.When it is time to sell your home if it falls short in terms of current buyer aspirations/expectations you have options: Sell as is: do a deep clean and declutter and take a stand…what you see is what you get. If your location is stellar or if the home itself has exceptional/unique features this just might work. You can list at a very competitive price, always a real attention getter. Or you can take the smoke and mirrors approach...this is what I recommend. Typically money invested in important visuals… door hardware, paint, new window treatments, landscaping come to mind…will generate a good return on the investment. It will be photogenic, your home will look appealing on line, buyers will come and so should solid offers.
For buyers Most people start their home search online. When you click on a listing or fill out a form requesting more information you can become a lead is scrubbed (your name and contact information verified if possible) and sent to individual agents or companies that pay for real estate leads. You may be contacted by an agent offering their real estate services. Much like with working with a local mortgage lender there are real benefits to working with an experienced agent who has a proven track record in the market areas you are considering. Ask questions before committing to a buyer’s agent. Referrals from friends/family are always a good resource. The Spring 2018 real estate market (a weather sensitive period, historically March-May) was extremely challenging especially for first time buyers and their agents. Multiple offers for in demand (style, price, location) homes were commonplace. Buyers were willing to takes risks to secure a home…waive home inspection contingencies, bid significantly over list price, agree to buy the home regardless of the lender ordered appraised value. A heartwarming letter and picture of the family pert were thrown in for good measure. My best advice is this…if you are risk adverse understand that there will always be multiple offer situations on certain categories of homes (HGTV style comes to mind) but if you can adjust your buying timetable think about looking in January or the last quarter of the year for a potentially kinder, gentler real estate experience. Once you move into your new home learn to do it yourself. I may not be able to help you if you need a referral to a plumber, electrician or even a handyperson…my go to people are busy and charge a lot to discourage business! Check out Home Depot Saturday classes on many DIY projects. Coupled with U-tube videos you should be able to confidently tackle simple projects while saving money.
Looking into my crystal ball Little wonder that there is grass roots concern about the housing market with recent headlines like this: speculation in housing slows in a weak sign (WSJ); what’s behind the big drop in home sales (Crain’s); why the housing market is slumping despite a boomingeconomy (NYT).But…homes in this area are affordable relative to household income. Demand is strong and sustainable due to the variety of good homes at every price point. I see very few distress sales.Given all the decidedly un-optimistic media commentary on the overall economy I understand why people have reason for concern. I believe that the SE Michigan market in the last half of 2018 has been in a holding pattern rather than heading towards a major downturn.Sellers are waiting to see if prices go up in the Spring, buyers are waiting to see if they come down. I do not believe that either group will be a big winner or loser in 2019.There may be compromises and adjustments in expectations, but we will have a market with opportunities for all.
As always best wishes to you and yours for a happy, healthy and prosperous 2019.
Your referrals are welcome and appreciated.Please contact me anytime with your real estate questions/concerns.