December2019 Real Estate Market Update
Low mortgage interest rates, a strong local economy…people had jobs and were comfortable spending money/taking on long term debt….and many still affordable housing options in SE Michigan meant Realtors, an optimistic lot by nature, anticipated a good year in 2019 with plenty of opportunity driven in particular by interest rates. The historically low rates meant qualifying for a mortgage remained possible for 1st time buyers with entry level jobs; trading up to a larger, perhaps forever home, seemed like a wise move to make before rates went up for confidently employed homeowners. To put mortgage rates in perspective…in 1981 rates were over 18%; in 1990 the national average for a 30 year fixed rate mortgage was 10%; in 2000 8.0%; in 2005 5.9%; in 2010 4.7%; in 2015 3.8%; in 2018 4.5%. In November 2019 rates were between 3.5 and 4.0% depending on credit score, down payment and other lender specific criteria. The lowest rate I have seen since the housing crisis of 2008 was 3.25% in late 2012. Monthly principal and interest for $200K/30 year term at 5% is $1070; at 4% $952; at 3%(some economists suggest this rate is possible in 2020) $842
At the end of 2019 many local Realtors characterized the year as “busy as expected but unsettled” as we transitioned from several years with the market favoring sellers (quick sales, little or no price negotiation, multiple offers) to one with more balanced, some would say more normal conditions that we have not experienced since 2014 (ie, longer time on the market for some sellers/types of homes, buyers asking for and sometimes getting price and/or closing cost concessions).My in-box was full of “price improvement” emails, particularly in the last quarter of the year as inventory built up and buyers became less frantic/more price/amenity sensitive because they had options.But at year end most sellers (especially those in the low to mid-price range in their community) who had been willing to make adjustments (price, décor, staging, curb appeal) as needed to improve their position in the market had sold. Others in no hurry to sell took a wait and see position, confident that the new year would bring new buyers and new (increased) prices. Many of the homes on the market in December 2019 are in the “good bones” category, solid but without the WOW factor the majority of buyers have come to expect…see STYLE below
Looking at the annual total number ofclosed sales of single family homes in a sampling of Oakland Co communities I see declining numbers in some areas. In ROYAL OAKon Dec 1st 1175 sales have closed YTD; in all of 2018:1251; all of 2017:1371. FERNDALE for the same periods: 547/498/570, HUNGTINGTON WOODS: 97/99/95; BIRMINGHAM: 378/441/463; TROY:754/910/943; ROCHESTER HILLS: 766/788/890; BLOOMFIELD TOWNSHIP: 548/577/610. (NOTE: These are numbers are for trend-spotting, other resources may report sales differently. I use the REALCOMP MLS for sales data. Some new construction sites are marketed by the developer and sales are not reported to Realcomp so community numbers above may not reflect the entire sales profile of a city). Economic conditions in Metro Detroit the in last few years have been positive and owning a home remains a goal for many….so why are some city specific sales numbers unchanged or declining instead of increasing in these good economic times with low mortgage rates? I believe that buyers (apart from omnipresent 1st time buyers) and sellers were HESITANT in 2019. The auto industry is in transition…electric vehicles mean there will be changes for supply chain vendors, engineers and designers, auto mechanics…so some current home owners with employment tied to the a auto industry are taking a wait and see position before committing to a more expensive/bigger/different location home. Homeowners are questioning if they really need to move. People are staying in their homes longer, typically 13 years now between moves vs 8 in 2010. Moving is expensive and disruptive. I know working parents with kids in many extracurricular activities who would like to move but just don’t have time. With Michigan’s capped taxable value protocol long term owners typically have seen only modest increases in property taxes. Moving to another home uncaps that home’s taxable value andcould mean a significant increase in taxes. People are still trying to figure out the implications of the 2018 income tax reforms in terms of mortgage interest and property tax deductions.OVERALL I believe the market is OK. There may be fewer optional home purchases and sales for a variety of reasons but as long as there are jobs the market will be fluid with value appreciation in the 4-5% range predicted for 2020. I believe that in 2020Realtors will navigate market conditions similar to what we experienced in 2019. 1st time buyers will be competing for affordable housing particularly in the 696/75 corridor communities.Affordability for entry level buyers will continue to do great things for older cities with a newly discovered hipness factor…Oak Park, Hazel Park, emerging neighborhoods in Detroit come to mind. Owners of slower-to-sell pricier or larger homes may need coaching in terms of how to optimize the characteristics of their property so it stands out from competing listings. Property will either sell the 1st week on the market because of immediate on line match ups to buyers looking for specific styles/pricing/locations OR it won’t…and if it does not we know that average days on the market times vary greatly by location but 35 is a number we saw a lot in 2019.
Style and décor Homes in SE Michigan are aging (many were built in the 1950s-80s and are in need of nips and tucks like people of the same age) but buyers are not. There are a lot of younger buyers with younger style and design preferences in the pipeline. It has been a long time since a buyer of any age has told me they want to buy home with a traditional floor plan, conservative décor, an older kitchen and minimal perhaps even original landscaping. People today have limited time for and no interest in/skills for redecorating/remodeling. Quality tradespeople are almost impossible to find and high demand for them means high prices. We have all heard about millennials, a huge demographic group with buying power that is shaping all kinds of consumer products and services. They have been exposed to shelter TV (HGTV comes to mind) and style/design blogs for years. That exposure has shaped their housing expectations.I may have helped their parents buy homes with “good bones” and “potential” but not them. They have very specific housing requirements; they want to buy the “after” not “before”, the homes with bright interiors, stylish décor, modern finishes and updated kitchens/baths. At current mortgage rates it costs less than $250 a month more to buy an upgraded home on the market for 50K more than a neighboring property without updates. Millennial design sensibility has moved quickly up the buyer age and price ladder in SE Michigan. Homes in most price ranges, new or retrofitted with on point style and popular finishes and amenities, inevitably sell for a premium and in a very short time. That said It is perfectly OK to sell a classic home with traditional décor as is…not every seller is interested in or capable of doing a total facelift before selling; list price, sometimes location, can take care of many buyer objections. A bit of fine tuning however can really make a difference especially if there are many competing similar homes on the market. I know stagers who will work with owners to declutter and then arrange their furniture and accessories to best accentuate the features of the home. Sometimes just moving out and then investing in modest updates and/or full house staging can bring a handsome $ return at closing…and a quicker sale. I often walk thru a home months before it goes on the market to discuss options and make suggestions…contact me if this service is of interest.
Mortgages Lenders are making it easy for cashless but qualified buyers who want to buy a first home. I’ve seen promotional materials for mortgage programs with these headlines recently: “ Home ownership is more accessible than ever…get up to $7500 for down payment”“Government programs can cover the3.5% down payment requirement for FHA loans”“Special mortgage programs for teachers, EMS techs, paramedics, police and fire professionals, borrow up to 99% of home value” . Owning a home is an aspirational part of the American Dream BUT buying one with a highly leveraged mortgage and no or limited cash reserves can be a set up for personal financial disaster when faced with the inevitable major repair.Refinance vs recast your current mortgage.I am a big proponent of taking advantage of low mortgage rates by refinancing to reduce the term of the mortgage to 10-15 years, household budget permitting.A shorter term may mean higher payments even at current low rates, counter intuitive to the reason most people refinance…to lower P and I component of their payment… BUT faster amortization indirectly establishes a savings account because you are building equity quickly with every payment.If your original low down payment mortgage required PMI and you now are in a 20% equity position based on current market value (due to appreciation or reduction of principal by monthly payments) it is definitely time to refinance to eliminate PMI.Some lenders offer a recast option with much lower closing fees than a refinance. Typically, the borrower makes a one time lump sum principal payment and the lender re-amortizes the loan at the existing mortgage rate so the term remains the same but the payments are lower. Bridge loans are an option for homeowners who want to tap the equity in their present home to use for a down payment so they can buy another home before they sell.
For homeowners of a certain age…of interest is a Wall Street Journal article in November with the headline OK Boomer, Who’s Going to Buy Your 21 Million Homes? with the sub headline Baby boomers are getting ready to sell one quarter of America’s homes over the next two decades. The problem is many of these properties are in places where younger people no longer want to live. Most of these boomer-owned properties are in traditional retirement locations in the southern or western states. But I certainly see many people committed to aging in place all over SE Michigan. Younger buyers of family homes are favoring smaller…2400 SF vs 4400 SF…. properties in more centrally located, walkable locations. Sellers in the future, in particular those with big homes in aging subdivisions a drive not a walk from shopping, recreation facilities and schools, may have to find ways to adapt to changing markets with fewer buyers. Also, an article in the NYTimes in October titled Sorry OldFriend, You’ve Got To Go addresses BROWN and is a must read if you, like me, are counting on family members to accept “gifts”in the future of (old, brown but much loved) furniture, fussy/patterned china and collections of photos and music that are not digitized.
Real estate trivia A recent report by ATTOM, a property data company, looked at how home values were affected by proximity to different grocery stores: Trader Joes, Whole Foods, and Aldi. In zip codes studied with at least one of each of the stores the average return on . investment was greatest for property close to Trader Joes. A start up construction-technology company, ICON, says it will use a 3D printer to produce concrete houses by year end 2019. A NYTimes article in September said spending on home improvements has increased by more than 50% since 2010. A study by the National Association of Realtors assigned a JOY SCORE to popular home improvement projects done by owners to make a home their own (not to flip or purely for future resale value). Kitchen renovation got a 10 joy score; closet renovation:10;
full interior paint job: 9.8; new fiberglass front door: 9.7; new vinyl windows: 9.6. Insurance industry data analysis indicates than 1 in 50 homeowners filed a claim for water damage each year between 2012 and 2017 because of aging pipes and connections, the popularity of 2nd floor laundry rooms or appliance connection failure. I suggest that you locate the main water shut off in your home and make sure it is operable in case of a water emergency.
Real estate industry trends I rarely look at a trade publication without finding an article about the impact of iBUYING (instant buying) on our industry. iBuyers (companies with access to massive databases to analyze current and future property values) use algorithms to identify homes that can be purchased at a discount and resold quickly. Property owners interested in either by-passing the open market (no listing, prep work or showings) or just a quick sale can solicit a contingency free cash offer online from an iBuyer company. These tech driven buying platforms are only available in select metropolitan areas across the country now but all plan to expand to more markets in 2020. There have always been “I buy homes for cash” offers available from investors or even real estate brokers but technology adds a new spin to the process. ZILLOW wants to move beyond being used to research property listings and provide Zestimates of property value to becoming a one stop shop resource for all things related to real estate…home listing and selling, mortgages, iBuying, moving companies and property insurance. Zillow is a powerful brand with deep pockets, an industry influencer not to be underestimated. Locally I see more agents forming teams, kind of creating companies within companies (though the parent company owner (the broker of record licensed by the State) is legally responsible for all agents working there, team members or not). The team has a name and a leader; individual team members often handle just one aspect of home buying or selling process: buyer showings, listing management, client communication, closing coordination. There can be several unique teams in the same office. This is a very different business model from the one I have used successfully for a long time: hands on involvement with all aspects of the transaction from the initial in person client meeting thru closing day emphasizing quality transactions not quantity..
Color trends Gray has been the color of choice for interior walls for several years but now grays are being replaced with white or off white for a more neutral, calming look. The four most popular whites in the Benjamin Moore paint line are white dove OC-17; super white OC-152; chantilly lace C-65; simply white OC-117. The popularity of accent color walls is waning, replaced by peel and stick patterned wallpaper. In the kitchen and bath there are cabinet choices besides stained wood or white. Simple styles in a solid color are a fresh look; I see blue-gray cabinets or even bolder colors...teal or yellow...in homes. Existing cabinets can be painted if you are tired of the dark wood finish you loved 10 years ago. Painting them is a multi-step process but the results if done right make them look new. A bold style move for sure: painting the exterior of a home black. There’s one on Catalpa in Royal Oak near Woodward Avenue. The Pantone color of the year is CLASSIC BLUE. Pantone describes the color as the “sky at dusk,” “timeless,” “easily relatable,” and “restful.” Watch for it in home décor, even apparel, soon.
In 2020 it is my goal to remain relevant in a changing industry. There is a lot of real estate information available on-line but I believe my years of experience in local markets allows me to bring filtered information to my clients that is appropriate for their specific buying, selling or thinking about making a move situation. Last year was my 7th as an HOUR Magazine Real Estate All Star, thanks to you and your referrals. I appreciate your continued confidence in my ability to deliver an exceptional real estate experience.
Best wishes to you and yours for a happy, healthy and prosperous 2020