Big Changes in Real Estate Sales
Unit sales in greater Lansing were up 15.5 percent in 2012 and more units were sold than any year in the last seven. We have had three straight years of unit growth. Average prices were up by 3.8 percent which was the highest since 2007, however the average was almost 31 percent lower than 2006. The absorption rate, which is a measurement of the current housing supply divided by the current rate of sales expressed in months of supply, dropped to 4.9 months which was the first finish below six months in many years. Demand is beginning to exceed supply in many price categories.
Affordability here in greater Lansing is still very good since prices are still relatively low and mortgage rates remain at historical lows. Mortgage interest rates should drift very slowly upward ending the year at slightly above 4 percent. Lending standards are high but comparable to pre-bubble underwriting standards which were and are rational and appropriate. The local economy is strong and employment is growing. Better job prospects are contributing to more household formations especially in the 18-34 year old demographic as children move out of their parent’s basements and form relationships delayed during the recession. Household formations this year are expected to equal the boom years and to be double the rate of 2008-2011. All these factors lead me to believe the sales of homes in 2013 will be strong and prices will rise as a seller’s market develops.
There is one fly in the ointment, however, and that’s inventory of property available for sale.
Many homeowners remain seriously under water and are frozen in place, unwilling to sell at a loss because of credit issues. As government programs kick in that encourage lenders to negotiate short sales, the flow of homes coming to market through foreclosure is declining.
Additionally, some homeowners are waiting for the market to recover to a point where they can sell without losing money. Spoiling this scenario is that in normal markets prices appreciate at 3.8 percent per year and it could take eight more years for this market to recover to the peak year.
So what is the solution for this inventory shortage?
Home owners who have a need for more space, a better neighborhood, or a better quality home need to understand that selling their current home for less than their desired price will be more than offset by the discounted price on the home they are moving up to. They can take advantage of current high demand by first time buyers and investors and move to a home where the price is more attractive to a smaller buyer pool. Before mortgage rates rise, move up buyers can lock in an attractive rate on a higher priced home and reduce the cost of home ownership for years. This category of seller is expected to be more than 75 percent of residential sales this year.
Home owners who are candidates for a short sale need to act while mortgage forgiveness remains non-taxable for the rest of 2013. Even though such a transaction will result in a blemish on their credit, by acting now they may be able to re-enter the home buying market in as little as two years.
I think 2013 is going to be a good year for sales of residential real estate and if the demand and the supply of inventory align, it could be a great year. Regardless, whether you are a buyer or seller, now may be the time to make your move and take advantage of the market movement. Consulting with a professional REALTOR® with a thorough understanding of the market dynamics should be the first step.
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.