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Door Opens to a Seller’s Market

By Constance Crump, Crain’s Detroit Business

The pity party for residential real estate is over. Now the issue is inventory.

Residential brokers — and this year’s market data — indicate that sale prices and average time to sell are improving, good news for sellers and their real estate agents.

On the supply side, inventory is low. Plus foreclosures and short sales are a smaller part of the market as the local economy improves.

“There’s slightly over two months’ worth of supply in inventory. Six months is average for a normal market,” said Jeanette Schneider, regional vice president of Northville-based ReMax of Southeastern Michigan.

“For buyers, it’s critical that they are very firm on what they’re looking for and be ready to take action.”

Data from brokers and multiple listing services such as Farmington Hills-based Realcomp II Ltd. show an uptick in sales prices and a shortening in average time to sell.

The average number of days on the market for the first half of 2012 for the Realcomp MLS was 86.7 days, down from 94.5 days for the first half of 2011.

The median price for a home sold in the region was $71,733, up from $62,808 for the first half of last year.

The pool of available homes is also shrinking. In June 2011, 32,372 homes were listed for sale in Wayne, Oakland and Macomb counties. A year later, the inventory had shrunk to 27,191 homes.

Brokers say the improved sales data on the local market often surprise clients.

“The heartfelt question that I get so often: ‘Is the market getting better?’ ” said David Lutton, president of Charles Reinhart Co. in Ann Arbor.

“In the current interest rate environment, you can afford a lot more. There’s great activity in the marketplace. Back to the peak, we are still an underpriced market by around 20 percent.”

Dan Elsea, president of brokerage for Real Estate One Inc. in Southfield, said metro Detroit is actually one of the strongest residential markets based on the speed at which available homes are being sold.

“Based on what the rest of the country is seeing, it sounds like we’re the strongest outside of range County (Calif.) and Las Vegas, believe it or not,” Elsea said. “Our advice to sellers now is ‘give it a try.’ The right house, in the right market, in the right condition is getting offers at 9 percent over asking. … There’s an opportunity.”

Local variances

The specific traction on sales varies by area.

For example, according to research from ReMax of Southeastern Michigan, 7,312 homes were sold in Oakland County in the first six months of 2012. That’s up from 6,883 for the first six months of 2011.

Average prices rose to $152,000 in June from $99,000 in January.

In Wayne and Macomb counties, prices are also edging up, but not as dramatically.

In Wayne County, Northville, Plymouth and Canton townships are driving increased sales. In Macomb County, first-time buyers are looking to communities such as Roseville. Macomb homeowners tend to stay in their homes longer than residents of some other metro areas, Schneider said.

Elsea said the shortage of listings is partly the result of mortgages at or above current value.

“We’ve never had a market where the downturn occurred when there was so much debt,” he said. “Michigan is unique in that regard. People will list as soon as whatever value they have in mind hits.”

However, a tricky part of the equation for closing sales deals is still a challenge: appraisals. When pulling comparables, it’s still hard for appraisers to get a clear picture of value.

“They’re dealing with historical data,” Lutton said. “We know we have three offers (on a property). Like mortgage brokers, appraisers are also regulated. Their underwriting standards have tightened.”

Plus, foreclosure sales are still part of the market in some communities, Schneider said.

“Two years ago, 50-60 percent of the inventory was distressed. Now it’s 30 percent. A year from now, it might be 15 percent,” said Kelly Sweeney, CEO of Coldwell Banker Weir Manuel in Troy.

End of bargain-basement deals

Investors have opportunities, Schneider said, although they are not the majority of the market. Investors tend to pay cash and look for distressed properties, which are still available but less plentiful than a year or two ago.

Elsea said the bulk of the truly bargain-priced homes have been snapped up.

“Back in 2009 and 2010, there were lots of bargain hunters,” he said. “Nice brick homes in Ferndale and Royal Oak for $15,000 to $20,000 got lots of offers. Most of those homes are gone. Part of the reason the median price jumped so dramatically is that the inventory is gone.

“Buyers are paying $50,000 to $60,000 for houses at the lower end of the market.”

Sweeney said the upper end of the market is also more active than it was a couple of years ago.

“Virtually everywhere in Oakland County is a recovering market — all areas have more buyers than sellers, with 7 percent to 10 percent price increases in most areas,” he said.

Houses that come on the market, not distressed properties, are selling in 30 days, some over asking prices. In the Birmingham and Bloomfield areas, anything priced at $700,000 and below does not stay on the market long, Sweeney said.

In Wayne, Oakland and Macomb counties, 83 percent to 86 percent of properties sell in fewer than 90 days, according to Real Estate One research.

In Ann Arbor, the strongest growth has been for homes selling in the top 10 percent price range — $800,000 and up. In the middle of the market — houses priced at $300,000 to $350,000 — there’s an extreme shortage of inventory.

Reinhart said its data show that in 2011 there were 3.8 months of Ann Arbor area inventory; today, 1.6 months of inventory is in that price range. In the tri-county area, a handful of communities in each county help pull up the numbers fairly quickly, Schneider said. Because of the low inventory of homes for sale, prices aren’t appreciating as quickly. But brokers expect that to change soon.

“I think we’ll see big appreciation — as much as a 20 percent increase in home values” over the next two years, Elsea said.

For the ultraluxury market, the slowest to recover, it will take longer before supply and demand are more aligned, brokers say.

“In the upper price ranges — $1 million and above — there is still some activity, but there’s a couple years of inventory,” Sweeney said. “Grosse Pointe is a little behind. … It is not quite as hot as parts of Oakland County.”

Cautious construction

New construction is still problematic. There’s demand but no supply, brokers say.

“Last year and this year, there have been great reductions in condo inventory, with steady sales growth and significant absorption,” Lutton said. “The rental market is the strongest from a landlord perspective that I’ve ever seen it — not student housing, real-people housing.”

“All of this begs the question: When will new construction begin again?”

Macomb Township is topping the state for new home permits, Schneider said.

But, in many parts of metro Detroit, Elsea said, “lenders are not willing to lend to builders to build spec houses — that’s holding back values, as well. If builders could put up five or six spec houses, we could sell them in 30 days.”

 

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