Real Estate Sales in 2011–Searching for the New Norm
You could use a roller coaster metaphor for the Lansing-area real estate market over the last four years, except for the fact that roller coasters do go up. Our market hasn’t. Prior to 2010 we had continuous double-digit declines in units sold, dollar volume and average selling prices for three consecutive years.
The first half of 2010 was very strong in dollar volume and units as the twin effects of an extended and expanded home buyer tax credit and historically low interest rates stimulated sales. After the credit expired, it became obvious that a great deal of business had been pulled forward from later in the year and sales dropped precipitously. As the year progressed, the market strengthened a bit and on balance the year will be off marginally in units and volume.
What conditions will influence sales in 2011?
A key indicator in a market recovery is absorption rate, which is how many months of inventory are on the market given the rate of sales. A stable market is usually defined by six months of inventory, and at this level buyers and sellers are normally in balance. Less is a seller’s market and more a buyer’s market. Buyer’s markets depress prices.
In mid-Michigan recovery is uneven with homes under $50,000 having an average absorption rate of four months while homes $350,000 and above average over 18 months. Overall inventory of homes on the market has dropped, however, which normally precedes a recovery in prices. Sellers who are motivated to sell are becoming more realistic in their pricing strategies so inventory does not sit for extended periods of time.
Because of the lowest mortgage interest rates in over 50 years and overall home price declines the past three years affordability here is like nothing we have seen in generations. The average household income qualifies for the average-priced home in our market. Coupled with tax benefits, this is an unprecedented opportunity for first-time buyers as well as move-up buyers. Many families that couldn’t afford to buy an appropriate home just three years ago may now find it well within their means. Employment and creditworthiness are required for financing, however, and this is a return to an old norm.
A factor negatively affecting a market recovery is the continuing stream of foreclosures coming into the market. We expect that to continue apace throughout 2011, and there are pundits who believe lenders are in fact managing the stream of foreclosures and that a “shadow inventory” exists which could exacerbate the current situation if the flow is allowed to increase.
What is going to happen in 2011?
Average selling prices will begin to firm despite foreclosures. As our local economy continues to improve with a corresponding increase in confidence, more buyers will be willing to take advantage of a once-in-a-lifetime opportunity to share in the many benefits of home ownership.
Prices, of course, will remain far below bubble levels, but as Warren Buffet says, “For every seller or lender hurt by this there will be a buyer who benefits.”
We are predicting that the market in mid-Michigan will stabilize in 2011 and that we will return to growth in the two to three percent range in 2012. Barring unusual and negative government interference or catastrophic national or international events, what drives real estate sales remains intensely local, and the intrinsic and economic benefits of home ownership are undeniable. A new norm is ahead and I believe it will be positive for home ownership in mid-Michigan.
| || |
Debbie Barnett is the president and owner of Tomie Raines, Inc. The company was founded in 1977 and Barnett has owned the company since 2002. She began her real estate career in 1985 after attending Michigan State University and was an award-winning agent with two other local firms before joining Tomie Raines, Inc. in 1995. Barnett also owns TRI Title Agency and Tomie Raines Home Warranty Company.