The Ann Arbor area residential real estate market is on the rise . . . mostly.
Many of the key metrics show a positive change. The Ann Arbor Area Board of REALTORS® provides a monthly report on key residential real estate listings and sales. According to the June report, the number of 2013 YTD listings was up 22% year-over-year for the same period, jumping from 684 listings in June ’12 to 835 in June ’13.
The average residential sale price was also up 22% for the same year-over-year period, from $228K to $279K. Meanwhile, the average number of days on the market shrank from 58 days through the first half of 2012, compared to 39 days through the second half of 2013.
Nancy Merdzinski is Executive Officer & Professional Standards Administrator of the Ann Arbor Area Board of REALTORS®. On the one hand, says Merdzinski, “We are starting to see listing numbers go up. Sales are becoming pretty strong and we expect that the good sales numbers will continue.”
Kathy Jackson, an Associate Broker at Howard Hanna Real Estate Services, agrees. “The market seems quite healthy right now,” says Jackson. “Buyers are coming in from other areas for jobs which are opening up around here. You can tell that there is some confidence in the economy.”
On the other hand, other metrics, are not as bullish. While year-over-year condo unit sales are up 27%, residential unit sales are actually down 11%. Even for the most recent month of June, residential unit sales were at 356, compared to 402 for June ’12.
“We still suffer from a lack of inventory,” Merdzinski reminds us. “Properties that are ready to sell, do so very quickly, often with multiple offers from buyers. Buyers can get frustrated because there are limited choices and the multiple offers on a house drives up the price.”
The mixed market signals underscore the uncertainty many have with where the residential market is headed. Clearly, the numbers are somewhat positive. What’s not clear is where the market is going in for the rest of 2013.
GENERALY POSITIVE NEWS
Most of the news, though, is positive and points to the continued economic recovery.
David Lutton is President and majority owner of the Charles Reinhart Company, Realtors. Lutton is a UM alum who joined the Reinhart Company in 1979 and then purchased the company in 1994. With six offices and annual sales of more than $663 million, Reinhart serves the greater Ann Arbor area, including the counties of Washtenaw, Jackson, southern Livingston, northern Lenawee and western Wayne.
According to Lutton, “The recovery is continuing and is running at a strong rate at this point. Our company had a record year in 2012, and there’s a fairly high likelihood that we will break that record in 2013.”
“In Q2 of this year we have seen a degree of strengthening on the listing side. We still have inventory as an issue, meaning that there are not enough available properties to satisfy demand, but that ratio is better today than it was three or four months ago. At the end of the first quarter this year the Ann Arbor area had an extreme shortage of inventory, but that situation had moderated some in the last three months or so.”
The year-over-year increase in average sales prices is encouraging to Lutton. It’s clearly not sustainable, he says, but it does underscore the strength of the local economy and the generally improved economy within Michigan. “We’re not going to sustain 20% annual price appreciation,” says Lutton, “but we’re also not back where prices were in 2005.”
Lutton explains that one reason for the improved residential real estate market is the relatively low interest rates available for those seeking a mortgage. “We have been blessed recently with some of the lowest interest rates in history. We’ve seen a little bounce of roughly a percentage in the interest rate recently, but we’re still in the 4%+ range. By historic standards, that’s an extraordinary level for interest rates.”
These low interest rates have helped get homeowners from ‘hunker down’ mode to selling mode. As sellers slowly become ready to enter the market, the pent-up demand that has been building since 2007-2009 is released.
“A lot of sellers who saw their equity decline or evaporate during the ‘great recession.’” explains Lutton. “In the Ann Arbor area market (a fifty-mile radius around Ann Arbor), some communities saw home prices drop 20% while others experienced 40%-50%. There was real devastation and a lot of sellers didn’t feel that they could sell their properties. People were in ‘hunker down’ mode. In 2012 and 2013, we have seen a gradual shift in those attitudes by sellers as they realize there is great strength in this market.
“Our recovery in Ann Arbor really began back in April 2009. We’ve seen now a four-year continuing of strengthening sales. A good deal of this strengthen sales has to do with people who had postponed real estate decisions now coming to the marketplace.”
Homeowners are coming to the marketplace, receiving multiple offers, attractive list prices, and short time to close. Still, the number of listings are below what real estate agents in the field need and expect.
Rick Taylor is a real estate agent at Reinhart. Taylor has sold over $50M in sales in his 11-year career as a real estate agent. Similar to Reinhart’s overall success in 2012 and 2013, Taylor, too, has experienced strong years for overall sales, even as his number of listings remains low.
“We are still seeing very low inventories,” says Taylor. This is the best year I’ve ever had. Last year I sold 51 houses. This year I have already sold 36 houses this year with five months still remaining. My problem, however, is the lack of listings. I’m down to 3 listings, even though I’m doing everything I can to get listings.
“Sellers are still nervous and apprehensive. I don’t think that they’ve got the message that the market is better. There were so many sellers that were under water. Some of them could still be under water and still not able to sell their house. Others are doing far better in the market but are still apprehensive.”
But even if a seller is not underwater, Taylor says there is still a temptation to hold back with expectations that prices will continue to rise. “Some sellers see the market improving and, so, want to wait in the hopes that the prices will continue to rise. They may be holding out to try to sell at the price that they paid to buy the home.”
One concern is that this interplay could lead to another housing bubble. “Areas surrounding Ann Arbor – Chelsea, Dexter, etc. – are not experiencing the same rise in property values as is Ann Arbor. Ann Arbor is going up fast in property values, and I’m concerned that we could get caught up in a bubble again. It’s almost growing too fast.”
ADVICE FOR THOSE IN THE MARKET
Given all of this uncertainty, we asked Taylor to offer some key advice for buyers and sellers in today’s market.
FOR BUYERS: “Have a pre-approval ready. Not just the letter, because sometimes the letter is only worth the paper that it’s written on. It’s important that you turn in W-2s, pays stubs, and other underwriting criteria before you even look for a house. This makes you a stronger buyer than the others, and the time that it takes to get underwritten is shortened. A seller is going to look more seriously at the buyer who has already gone through the buying process than at one who hasn’t.”
FOR SELLERS: “It’s the same as always. No matter how good the market is, the nicer your house looks the more it’s going to sell for. Don’t give a buyer a reason or excuse to complain about your house. Every time they complain about your house, you’re losing money. So have your house look spectacular. Unclutter your home and get the small maintenance projects done. Have a contractor inspector go through your house so you can address problems before you list the house. The cost to make the fixes will be less than the cost in price reductions sought by buyers because of those problems.”
Looking ahead, it seems we can expect interest rates to remain relatively low for the short term, housing prices to rise slightly, and more listings to come out to meet the pent-up demand, though perhaps not as quickly as everyone would like.
If that happens, the Ann Arbor area residential real estate market is on the rise . . . mostly.