Michigan Monthly Market Report – August 2013

Just when you think it can’t get any wilder, it does. July activity hit near record highs and lows, highs in terms of home sales and lows in terms of low inventories. Again, more listings and buyers entered the market in July so at the end of the month the net result is fewer homes on the market. The feeding frenzy continues to be concentrated on homes on the market for under 90 days (and for the most part, under two weeks) where 90% of all buyers are focusing. The market continues to show that about 40% of the available listings on the market for over 90 days have only 10% of the buyers looking at them. Despite the wild activity, there are still many sellers who don’t feel the love from all those buyers. In most cases, it is because of a combination of condition, location and price (with price being the ultimate fix of the first two).

The big question of the month has been, “What is the impact of Detroit’s bankruptcy filing on the city’s housing demand?” The answer is, as of now, very little. Demand still remains strong, following the rest of the metro area, with median prices rising to a five-year high and multiple bids for many neighborhoods.  For the most part, homebuyers and sellers have anticipated some sort of financial change for the city. Although bankruptcy might not have been the ideal solution, it is a solution for moving forward, giving potential homeowners hope for better things to come.

We try to get ahead of where the market is going by tracking the rate of change of the key housing indicators such as new listings, pending sales and listing inventories. Since real estate sales are seasonal (more activity in the summer, less in the winter) we compare the change in any given month, say June of 2013 to that same month the prior year. By charting those changes we can see the speed at which any given indicator is moving. For example, sales may have been up each month, but the amount of increase is less each month, showing the market is still moving up but at an increasingly slower pace. We can anticipate a slower market even though the raw numbers are still going up. This allows us to look forward to see what trends we can expect in the next 3-6 months.

The following pages feature the rate of change trends for New Listings, Pending Sales and Month End Listing Inventories for each county and for the over $500,000 market.

Oakland County – Under $500,000 
In this chart, new listings coming on the market (after falling for most of 2012) picked up speed dramatically in 2013. So did pending sales, meaning the buyers gobbled up all the new listings hitting the market, and then some, ultimately driving down the total inventory available for sale each month. However, the Listing Inventory line shows that the rate buyers are eating into the housing inventory is slowing. When the green Listing Inventory line reaches zero, that means buyers are not buying homes as fast as they are coming on the market and listing inventories will begin to rise again.

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Macomb County – Under $500,000
Macomb follows the general trend we see in Oakland, but at a slower pace. The rate of increase in Pending Sales is ahead of New Listings, causing Listing Inventories (green line) to continue to fall. Macomb can expect to see more upward pricing pressure than Oakland over the next few months.

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WayneCounty – Under $500,000
Wayne follows a trend in-between Oakland and Macomb. Pendings are rising, but the last few months’ inventories have been keeping pace. This shows a recent, but slow, trend towards listings catching up with buyer demand (upward movement of the green line).

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Washtenaw – Under $500,000
Washtenaw shows the biggest change in market momentum. From March through June, the rate of New Listings entering the market outpaced Pending Sales. So although listings declined, it has been at a much slower pace. Pending Sales jumped up in July, reversing that trend, but overall Washtenaw is the county moving the fastest to a balance between available listings and buyer demand. Since it was the first county to become a Sellers Market, it makes sense that it would be the first to move to equilibrium.

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LivingstonCounty – Under $500,000
The pace of Pending Sales has remained very steady, with a 10% rise over the prior year for most of ‘12 and ‘13. New Listings entering the market were at a declining pace until February, but have since risen to catch up with buyer demand.

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Home Sales in Excess of $500,000 – 5 CountyMetro Area
The rate of increase in Pending Sales jumped up in January, as did the rate of increase in New Listings entering the market. Resulting in (since April) the listing inventory for the upper end market rising over last year.  Although the trends show the overall increase in activity slowing for the upper end, in markets with large $500,000 segments (like Birmingham/Bloomfield), the upper end demand is still growing. Overall, the market is pretty thin, so a small change in demand or supply will move the numbers up or down quickly.

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Although there are variances between counties and price ranges, the overall trends of the rate of sales growth slowing and the rate of new listings increasing (seasonally adjusted) means we can expect a somewhat more normal Sellers Market going into 2014.

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When you’re ready to buy or sell real estate, please contact me.

Matt Foster, 248-229-9002, matthewfoster26@gmail.com

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Michigan Monthly Market Report – July 2013

Buyer demand in June continued at a strong pace in terms of new purchase contracts written (pending sales). June also continued the trend of more sellers putting their homes on the market, which should “in theory” relieve some of the significant inventory shortages. We say “in theory” because although new listings did rise, so did buyer demand, quickly absorbing the additional homes. In spite of more homes coming on the market, the available inventory continues to fall, reaching a new low for Southeast Michigan of 2.1 months (1.5 months for homes on the market less than 90 days). As we have shown over the last few months, the rate of growth for both new sales and listings continue their upward movement resulting in fewer days on market.
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It is not surprising that the home value trend continues to accelerate, as well.

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Interest rates were the biggest news in the past 30 days, rising in anticipation of the federal government rolling back their support of low mortgage rates. Showing appointments slowed a bit in June, which might indicate a reaction to the rising rates. So how high will rates move? Since jumbo mortgage loans (loans over $417,000) do not have a federal subsidy, they are the best gage of where interest rates should move. Right now both conventional and jumbo rates are nearly identical, meaning they have moved to their true market level and we can expect them to remain stable in the short run. However, as the economy continues to improve, rates will rise.

What is the “cost” of waiting in the current market? For buyers the math is pretty easy. If values go up 10% and interest rates rise 1%, their buying power is reduced by 20% (i.e mortgage payments increase 20%), which is of course why so many buyers are attempting to buy now. For Sellers, that 1% rise in rates will negate a 10% increase in value. Therefore, over the next few years rising rates will offset some of the rising appreciation, reducing buyer demand and limiting the amount of wild cash offers given to sellers.

Buyers should be aware that in more and more cases, sellers are requiring the buyer to commit to covering some or all of the short fall if the appraisal comes in lower than the agreed purchase price. Prices have not yet reached their 2005 peak levels so overbidding is still a safe bet to get the home you really want, even if the appraisal comes in lower. Appraisers have a very difficult time catching up with a rising market, since they rely on historical sales data to determine the value of a property.

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Michigan Sheriff Sales and Redemption Rights

My name is Matt Foster, I am a licensed Realtor with Real Estate One.  It’s my goal to put out as much information as possible about the type of real estate I specialize in, Redemption Sales. 

I attend the Sheriff Sales every week at several county courthouses in the Metro-Detroit area and record what the redemption payoff of each property is set at.  From time to time the redemption is so low, that the homeowner is put in an advantageous position to sell the property and walk away with money.  It is your legal right to sell the property and pay off the redemption amount with the proceeds of the sale.  Redemption sales are, at times, the only way to avoid foreclosure.

Let’s back up from the beginning though, to give a clear picture as to how we’ve arrived at this point. 

John Smith loses his job and has no other choice but to stop making payments on his house.  After failing to work out a loan modification with his lender, Bank of America (BOA), he gets a notification that the home is going to Sheriff’s Sale.  John owes $300,000 on his mortgage. 

At the Sheriff’s Sale, BOA is responsible for setting the opening bid, which they set at $125,000.  You may be asking why they would bid so low, and that’s a great question that I might dive into with future blog posts.  Just know that this happens in a lot of circumstances.  Typically, there are no investors at the Sheriff’s Sale to outbid the lender, so in essence BOA “wins” the bid at $125,000 and this number also becomes the redemption amount on the property.  From this day forward John Smith starts his redemption period. 

In the state of Michigan, redemption periods are 6 months for any home that sits on less than 3 acres, 12 months for any home that sits on 3 acres or more. 

From this point on John has a few choices:

     1) Live in the house for the term of the redemption period and let the house foreclose upon expiration. 

     2) Redeem the property by paying $125,000 plus interest & fees.

     3) Sell the property

It’s scenario #3 that I’m focused on with this blog post.  After a market analysis, it is determined that John’s house is worth $200,000 in this market.  Winner winner chicken dinner!  John can now put the house on the market, find a buyer, and pay off the redemption amount with the proceeds of sale.  Let’s lay this all out to see how the numbers work…

 Sales Price:                          $200,000

Redemption amount:       $125,000

Proceeds:                               $75,000

After paying closing costs, commissions and sheriff’s sale fees, John Smith will walk away with roughly $60,000 at closing.  It’s as simple as that. 

Be on the lookout for future blog posts which dive deeper into how this all works…

Thoughts or questions, please email me at matthewfoster26@gmail.com.  You can also visit my website at www.mattfosterhomes.com

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February Market Update

January started at full speed.  The activity level matched the spring markets of 2010 and 2011.  The result, of course, is an even tighter listing market, since homes are selling faster than new ones are coming on the market. Good things happen with values when demand exceeds supply. Throw in a record low supply, add a touch of Buyers with record buying power and we can expect to see big value jumps. Certainly any one who has purchased a home in the last four years, particularly investors, should consider testing the market.

Multiple offers are not guaranteed for every Seller and values have not yet returned to 2005 peak levels, but there is enough demand in all price ranges that Sellers can be confident there is little likelihood a property can be under priced. If it is, it will quickly be bid up to market value. There is, however, still the danger of overpricing.  If you look where the activity is concentrated, 40% of properties have been on the market over 90 days. Most all of these properties are overpriced and attracting only 15% of interested buyers.

Bottom line, great time to sell AND buy.  We are squarely in a “seller’s market” due to supply vs demand.  Sellers are getting higher prices every day and have very little competition.  On the other hand, buyers are still enjoying interest rates under 4% and are buying at a perfect time.  Values will continue to climb over the foreseeable future so anyone entering the market for the first time is doing so at a time where there is very little risk from a value standpoint.  Buyers need to be quick & aggressive with their offers given the increased demand on homes.

Jump in, the waters warm!

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What is Deficiency?

Deficiency is often the most unknown and misinterpreted subjects in real estate.  Let’s first define the word…

An assessment of personal liability against a mortgagor, a person who pledges title to property to secure a debt, for the unpaid balance of the mortgage debt when the proceeds of a foreclosure sale are insufficient to satisfy the debt.

Deficiency is created, most commonly, in two scenarios:

  1. Prior to a Sheriff’s sale, the homeowner short sales the property.  Deficiency is the difference between what is owed on the mortgage and what the property sold for. 
  2. Subject property goes to Sheriff’s sale.  Deficiency is the difference between what is owed on the mortgage and what the property sold for at Sheriff’s sale.

 A few comments……

  1. Once the property goes to Sheriff’s sale, the deficiency that was created never changes.  It doesn’t matter if you short sale the property for a lower amount, the deficiency remains the same.
  2. In Redemption Sales, if a homeowner sells a property to pay off the redemption amount, deficiency will carry with the seller after the sale is complete. 
  3. Carrying a deficiency does NOT guarantee the lender will pursue it.  In fact, its unlikely they will since they have to file a judgement to do this – and that costs them more money to do so.  In a lot of circumstances, there isn’t much income for the lender to go after.  That said, I do believe sometime down the road when the foreclosure dust settles, they will start to strategically go after some of the deficiency owed. 

For a great article on the subject, check out this link which describes the subject a little more in depth…

http://www.mirealtors.com/content/upload/AssetMgmt/Documents/LegalLinesNov10.pdf

For any questions or thoughts, email me at matthewfoster26@gmail.com or visit my website at www.mattfosterhomes.com.

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Redemption Sale in West Bloomfield

Wanted to share another story about a successful Redemption Sale.  This particular property had 2 mortgages, a $340,000 balance on the first and $67,000 on the second.  The property sold at Sheriff’s sale for $134,000 which in turn became the redemption payoff amount. 

We listed the property for $267,000 and accepted an offer of $260,000 within 10 days of listing it. 

The wonderful thing about this sale was that we had enough proceeds in the sale of the home to pay off the entire balance of the second mortgage as well as the closing costs and STILL my client walked away with over $31,000.

Thoughts or questions, please email me at matthewfoster26@gmail.com.  You can also visit my website at www.mattfosterhomes.com

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What is a short sale?

What is a short sale? 

A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.

It’s important to understand the difference between a short sale and a redemption sale.  A short sale is a much lengthier process that requires the approval of the lender.  The one advantage of a short sale vs redemption sale is the possibility of negotiating with the lender to waive their rights to pursue deficiency.  It’s important to note, however, that most lenders will ask the seller to pay a portion of the deficiency in order to waive it.  Usually the payoff is only a small percentage.

Whether you do a short sale, or your lender has underbid at the Sheriff’s sale and you do a redemption sale all that’s important is you do one or the other.  Foreclosure is absolutely the worst option and should be a last resort. 

Comments or questions email me at matthewfoster26@gmail.com, cell 248-229-9002 or visit my website at www.mattfosterhomes.com.

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