The Michigan real estate market has come out of hibernation! As the snow melted, property showing and new listing activity jumped beginning in mid-March but has settled back down the first half of April, giving us some mixed signals. We had expected business to move up with the first thaw, but it is too early to tell how much of the reduction in business in the first quarter will be made up for in the second with better weather.
Our property showing data shows how quickly the market jumped with the warmer weather. The chart below compares activity to the same week last year. You can see the release of pent up showing activity in the second half of March, moving back down in April. With inventories down 1/3 from last year, it is not surprising to see showing activity (and therefore sales activity) drop. Although for buyers it is 20% more expensive to own a home than it was a year ago, homes are still very affordable. We feel most of the reduction in activity is a result of a 1/3 fewer homes available, not a reduction in buyer demand. Many buyers are sitting on the side lines monitoring the market, waiting until the inventory level improves as shown by the increase in our web traffic and how quickly a well priced home attracts attention the moment it hits the market.
You may see some national housing reports talking about a slow spring housing market. Remember we are coming down from two record years of activity so slowing to a more normalized market is not necessarily a bad thing.
We can get a good feel for the market by following the pace of new sales and new listings entering the market each month versus the prior year. The charts on the following page show significant differences in the under $150,000 and over $150,000 markets across Oakland, Macomb, Wayne and Livingston Counties. Under $150,000 shows a significant listing shortage, with inventories falling 40% compared to 2013. Sales have declined at a faster pace as well as a result of the listing shortage. The biggest concern we have for this segment is the slower pace of new listings entering the market.
Though this price segment was the hardest hit by foreclosures and mortgages exceeding home values, it has also seen the fastest value increase. With fewer foreclosure listings, this segment is now reliant on homeowners with equity selling to move up to their next home (i.e., a “normal” market). Many homeowners across all price segments do not realize how much equity they have, so they have been slow to put their properties on the market and move up to their next home.
The over $150,000 segment is benefiting from the inventory shortage of the under $150,000, with buyers moving up, since many can afford a higher priced home with interest rates still so low. Sales are stronger, but so are new listings entering the market, making it a little easier on buyers in their home search. The over $400,000 market follows the same trends of a stronger flow of new listings entering the market and a bit slower sales pace than the lower priced segments. All price ranges remain healthy in terms of price appreciation and buyer interest—it is just a matter of degree as to how strong compared to the others.
*Source: MLS Data - Metro Detroit area
Washtenaw County and Northwest Michigan are following a different pattern with inventory levels rising as well as sales, but providing a slightly more balanced market than the rest of Southeast Michigan. Still, regardless of where you are in most of the state, you will find yourself in a market that still has a shortage of “salable” properties (i.e., the right price and condition) and quite a bit of competition for the new properties entering the market. Home values continue to rise at 1-1.5% per month and although we had anticipated that to slow, at least for the spring market, it looks like that appreciation trend will continue. The message is clear to any homeowner who has considered selling in the past five years: get a current market valuation, you will be surprised at what your home is worth today.
As a caution, the online automated valuations, like those provided by Zillow, tend to be 6-8 months behind the market and miss the mark on accuracy. In spite of the active market, buyers tend not to respond to a property until it hits a relatively narrow price point range. For example, Zillow’s own statistics show that only 34% of the time their value estimates are within 95% of the selling price in Metro Detroit. This is significant since half of all buyers are making offers on homes within 95% or higher of the asking price, so using Zillow to set an asking price might cause a seller to miss a third of their potential buyers or worse, 50% of the time leave money on the table by selling too low.
The first chart shows that buyers are making offers on properties that they feel are priced very close (within 5%) to market value. The second chart shows, on average, how many Zestimates (only 17%) are within that value sweet spot to generate the best offers.
*Source: Zillow - since it is not in the best interest of sellers to under price, the Zestimate value range that would fall below the sale price is shown in the same light as a value too high to generate offers.