December 2020 Real Estate Market Update
At the end of February the number of new residential listings (condos not included) in Oakland County was 6% percent lower YTD compared to the first two months of 2019, pending sales were up 14% YTD...signs that it was shaping up to be another great year to be a seller and a frustrating one for buyers in a competitive, low inventory market. February is traditionally my vacation month...it is often the least active month of the real estate year...and I came home from Croatia on the 26th only vaguely aware of something called the novel corona virus. Cases of the virus in Michigan had not been confirmed yet (2 were on March 10th). I was ready to get to work helping my clients buy and sell real estate, and was looking forward to a positive, busy year. It was business as usual when I walked through open houses with buyers on Sunday March 1st; I did the same on March 8th and found some open house visitors had on masks, hand sanitizer was available but there was no limit on the number of people in homes at the same time. Fast forward a couple of weeks...real estate agents were not on the list of critical infrastructure workers identified in the State of Michigan Stay Home Stay Safe executive order that went into effect March 24th, so all in-person real estate sales activity was suspended. Ironically, property appraisers, movers and home inspectors were considered critical workers and could work if they wanted to. Mortgage lenders were nervous...who could forget the 2007-9 mortgage/housing market meltdown even though circumstances adversely affecting the market were quite different in 2020? Interest rates were gyrating wildly, between 3.25 and 4% in one 7-day period, tied to uncertainty about the impact of the virus on the global economy. By early April mortgage forbearance and deferment programs that allowed borrowers to temporarily stop making payments were available to homeowners experiencing pandemic related financial distress. Neither were forgiveness programs...the money owed was to be added to the loan balance or due in a lump sum when payments resumed, depending on the lender and terms of the program...but both presented a viable alternative to delinquency and possible future foreclosure. A loan officer I work with reported losing 9 transactions in a single week because borrowers were laid off, furloughed, or found their job eliminated entirely. Realtors became eligible for unemployment benefits.
SO...when a writer doing an article on Metro Detroit real estate called me in late March asking for my thoughts on how the 2020 market would play out, I predicted a lackluster year with modest price gains and skittish buyers/sellers avoiding a move in such uncertain times. How could it be otherwise...the world was dealing with a life-threatening virus pandemic, one without historical precedent and with no vaccine available. Businesses were closed. Unemployment numbers were rising. The stock market was sending mixed messages about future gains or losses. It was a Presidential election year with uncertainty about changes in economic policies. Working from home was a transformative experience for many with a steep learning curve.
But by mid-year it was clear that with my prediction was wrong. On May 7th most real estate activity was allowed to resume by the Governor. A Detroit News article in mid-June stated that Detroit area homes sales had bounced back to pre-pandemic levels. The National Association of Realtors reported that existing home sales nationwide surged to a record pace in June after 3 months of sales declines. Sales numbers climbed all summer. By the end of November 15,059 single family homes sales had closed in Oakland County YTD, just .4% fewer than YTD November 30, 2019, amazing numbers given the 45 and 72 percent drop in closed sales in April and May 2020 respectively compared to those months in 2019. The median YTD Oakland County sales price for homes at the end of November, 2019, was $268,000; in November, 2020, it was $290,000, an 8.2% increase. Average sales prices for the same location/ time periods were $319,679. and $343,435, a 7.4% increase. Oakland County activity has been consistent with statistics from most parts of Michigan. Nationwide home prices/levels of market activity have met or exceeded peak pre great recession 2006 numbers in most areas.
So...why has the housing market defied logic this year with such strong numbers in such unsettled times? My take at year end is that while financial distress/concerns were and are very real for many people in many industries (food, entertainment, retail come to mind), many others have the same job and the same income now as in January, especially in SE Michigan where the auto industry, a major direct or indirect employer, did not experience significant financial setbacks. People with a secure job who had planned on buying or selling in 2020 did not change their plans; in fact, where/how they lived had perhaps become a greater priority in scary times. They were incentivized to buy by record low mortgage interest rates. Everyone loves a bargain. With rates close to 3% it made sense to escalate plans to buy a first home OR, for current owners, some with quality of life issues that had developed during 3 months at home, to make a move to a larger space/a home with different amenities/a different location altogether since working from home could mean working from anywhere. But there was no quick solution in place for the ongoing local (and industry-wide) problem of a historically low supply of homes for sale...many current home owners seem to be settled in for the long haul and are just not making optional moves. So there indeed was a classic real estate fast track seller's market playbook in place on May 7th when the market officially reopened, with strong demand, cheap money and low supply. And that is exactly how the year played out in most Oakland County communities...prices up, multiple offers, and frustrated buyers who despite willingness to make feature/location/price compromises still could not get an offer accepted.
In August the chief economist of the National Association of Realtors said that "housing's resilience against the pandemic is remarkable." In November he said, "this may be one of the best winters for sales activity." He predicted in December that there would be no change in terms of market conditions/level of activity at least thru the end of 2021. I see nothing happening on a local level that tells me his market overview is anything but spot on for SE Michigan.
For BUYERS: I miss showing you homes when market conditions allowed us to revisit a property of interest, then take a few days more to explore the neighborhood and research its amenities before moving ahead with an offer. Negotiation was part of the process; compromises were made and a deal agreed upon. But there is no luxury of time in the buying process today. A low inventory market is like a game of musical chairs...qualified buyers who are just not quick or flexible enough will be eliminated in the bidding process and not find a seat at the closing table. Buying has become a competitive sport with just one winner per home. The biggest mistakes buyers make in a competitive market: 1. Not having a recent mortgage approval letter from a known local lender (versus a pre-qualification from an online lender). 2. Signing a purchase agreement emailed for electronic signature without reading it. At the start of the process ask your buyer's agent to review all standard forms that will be used to draft an offer. Read them, pay attention to contingencies and fill-in-the-blank timelines, ask questions. Discuss with your agent up front what you would be willing to do to strengthen the offer if you see a home you really want. Overbidding the list price, waiving the home inspection contingency or agreeing to make up in cash any mortgage commitment shortfall due to a low lender appraisal are common negotiating tactics today but they come with risks you need to understand before committing to them. 3. Inability to come to terms with home prices in 2020 (predicted to increase again in 2021) and making inappropriately low offers...repeatedly. 4. People buying a home with a friend without an exit plan in place. If both names are on a mortgage the obligation for both does not change if one person moves out. 5. Succumbing to the fear of missing out and wearing yourself out...and your agent...by looking at everything that comes on the market just in case it might be the right one. Keep focused on wants/needs/location.
For SELLERS: It's a great time to have something to sell, but most sellers become buyers and are faced with the issues noted above. A common scenario for me this year: you are casually thinking about a move, your housing needs have changed as a result of the pandemic, and one day you see the perfect home online. We look at it, you want to make an offer...but without financing in place or ability to pay cash, the reality of the situation is that an offer contingent upon the sale of your current home will not be considered. If this could be you next year...schedule a consultation appointment with me so I can review all financing and timing options upfront in the process Now more than ever it is important to understand the value of seller prep work...even in a market where multiple offers can happen, curb appeal and a clean, decluttered interior add value. If you plan on selling in 2021 search online for Your 12 week checklist for selling your home. See staging tips that can be adapted for any price/style home at ImpactHomeStagingExperts.com. If it is time to sell the family home, two must reads online are The top 9 mistakes downsizers make when they sell the family home, and the comforting Saying thank you not goodbye to a beloved home of 31 years.
STYLE and DECORATING trends: There is competition for Color of the Year. Pantone, the major influencer for many years in the field of color selection, has picked two colors to share the honor, described as follows: "A message of happiness supported by fortitude, the combination of Pantone ULTIMATE GRAY + ILLUMINATING (a bright and cheerful yellow) is aspirational and gives us hope." Benjamin Moore says its selection AEGEAN TEAL is an "intriguing, balance, and deeply soothing color that creates natural harmony." Sherwin Williams "taps into nature with a hue whose warmth and comfort breathe down to earth tranquility with URBANE BRONZE." ZILLOW reviewed 135K photos from old homes to see how paint colors impact sales. They discovered that homes with charcoal gray, smoky black or jet black front doors sold for $6271 more than expected. Please do not paint your door and expect to add this number to the list price...enhanced curb appeal and landscaping certainly add value however! I am seeing a lot of painted kitchen cabinets...if done professionally this is a great way to update a kitchen, along with new doors, for a modern look at a reasonable cost. I found a wonderful color resource this year, a woman who will help with wall color selection as well as color matching and touching up scratched darker wood cabinets...call me for her contact info. In 2019 the most popular terms used in real estate searches at most price points were hardwood floors, granite, open floor plan. In late 2020 they were office, backyard, pool. Some owners are now looking for ways to modify their open floor plan homes to more traditional separate rooms to accommodate the need for defined, private work and school spaces...how quickly things changed this year. There is renewed interest in the pull-down Murphy bed, allowing rooms to be multipurpose sleep and workspaces. More owners are converting shower/tub set ups into walk in showers, but if there is only one bath in the home this could be a limitation when selling in the future...people with kids need/want a tub. I recently saw a Kohler product called LuxStone used in a tub to shower conversion, a good looking alternative to ceramic tile. Fire pits and outdoor gas heaters are in demand for year-round socially distanced gatherings, but not all municipalities have modified building codes to allow open flame firepits...check with your city before buying or building one. There was a great article in the Wall St Journal in June: "The social front yard returns...sheltering in place has us moving those patio chairs so we can snatch a moment of human connection." Taking that one step further is a newly discovered interest in big gardens, turning front yards into flower and vegetable gardens...again, not every city or homeowner's association allows this use...check before digging big beds in your front yard.
INDUSTRY CHANGES: High quality photography, live video chats, 3 D floor plans, google earth street views and electronic signatures are tools that made buying and selling real estate possible in the contactless times of 2020. I appreciate all that new technology can do to enhance my business moving ahead...but I very much look forward to the time when I can (safely) connect in person with people and become a true partner in the buy/sell process, sharing my experience, knowledge and resources every step of the way. As always, your referrals are always appreciated. I welcome the opportunity consult with friends and family with real estate questions or concerns.
Best wishes for a happy and, in particular this year, a healthy 2021!