Dan Elsea is the Presidentof the Brokerage side of the business for Real Estate One and sends out market reports to all ofhte offices each month that use the perspective that he has of the entire Michigan market to give us better insight into what’s happening in the Michigan market overall. Here is his report for May, 2013.
The real estate market continues its wild ride into summer. This is the most active market we have seen in Michigan. The Months Supply of Inventory has dropped to 37 days for the majority of the market, not yet to the two weeks of inventory that Las Vegas has, but still the lowest we have recorded. So are we headed for another bubble? The answer is both yes and no, but mainly no.
Cash sales are near 40%, lending standards are still very tough, housing affordability is at record highs and values remain 25% off their peak. All of which serve as insulation against another bubble. The added equity being created by the rise in values is strengthening a weak economy, as opposed to overheating a strong economy (which was the case in 2006). So, we have some room to play with before there is any significant bubble.
On the “yes” side, however, values are rising faster than the economy should dictate. Because home values are so affordable, many buyers can also afford to overbid. But there will be a natural cap on a “bubble” getting too high. Looking out to late 2014/2015, appreciation rates will move down to a more normal level from the 1-2% per month we are seeing now. This is due to interest rates inevitably rising and buyer demand slowing, as the pent up demand from the past six years levels off.
The annual appreciation rate should have a bubble look as appreciation rates peak over this year and the next and then settle back down to a more typical rate.
Following the rate at which different housing indicators are changing is a good way to see just how quickly a market is moving. The rate of change compares the percentage change from one month to the same month the prior year. For example, new listings in February of this year might be 20% lower than last February, but the March comparison was off only 10%, which means listing inventories are still falling, but at a slower rate. The charts below follow the rates changing over the past year for new listings, pending sales, days on market and price per square foot.
We are seeing the first signs that listing inventories are starting to stabilize. On the chart below, the green trend line follows the rate of change in new listings coming on the market compared to the prior year. From June 2012 to February 2013, fewer new listings were entering the market each month. In March and April of this year, the rate of new listings continued to fall, but at a much slower rate. This shows it is getting “less worse”, which is a positive trend! Buyer demand (the blue line) has also been accelerating in March and April, absorbing any and all new listings and not surprisingly the average days on market dropped dramatically, as well. If these trends continue, we can expect inventories to continue to tighten through the summer, even if more listings hit the market, since buyer demand continues to rise.
Using price per square foot as a value indicator, the rate of appreciation began accelerating dramatically last summer and has leveled off some in the past few months (it can’t go up forever).
April of this year was our strongest month since June of 2006 in terms of homes sold, a solid indicator of just how far the market has bounced back. We have moved from the pan, into the fire, from the dog days of 2007-2010 to today’s wild market, each with their own challenges and opportunities. This market is much more fun, but no less exhausting!