Home price slide not over
After lousy '06, values could hit bottom and sales could pick up this year, analysts say.
The best that can be said about the Metro Detroit housing market is that some of the worst may be over.
And the worst that can be said is that the rest of the worst is yet to come.
Year-end numbers for 2006 show home prices across the region fell by 7.1 percent, their biggest drop since 1989. Home sales dropped, too, down 11.2 percent, according to the multiple listing service Realcomp.
The only number that went up wasn't a good one. That's the number of homes listed for sale, and it soared across southeast Michigan by a staggering 41.2 percent.
Even after all that, home prices haven't bottomed out yet, real estate experts say, but probably will sometime this year. The only good news is that buyers seem to be coming off the sidelines after years of waiting out job uncertainty in our troubled auto-dependent economy.
Median sales prices dropped about 5 percent in Macomb and Oakland counties, almost 7 percent in Livingston County and more than 13 percent in Wayne County. That means the owner of a $200,000 home lost $10,000 to $26,000 in value.
The number of sales dropped, too, by a whopping 25.3 percent in Livingston and 22 percent in Oakland. Wayne sales fell 3.4 percent while Macomb saw an actual -- but slight -- increase of 1.2 percent.
But any good news from last year was more than offset by the soaring number of homes hitting the market. In Wayne, the number of listings increased 35 percent; in Oakland it was nearly 47 percent; and in Macomb, 50 percent more homes were slapped with "For Sale" signs.
"I never saw values go down like this," says Steve Cole, a 32-year real estate veteran with Weir, Manuel, Snyder & Ranke in Birmingham. "This year will be the bottom. We'll probably see an increase in sales numbers, but I don't think we'll see an increase in home values."
Auto industry woes blamed
The obvious culprit is Detroit's ailing auto industry, and the layoffs, loss of overtime, job cutbacks and buyouts that come with massive restructurings at Ford Motor Co. and General Motors Corp.
As more workers learn their fates, those who see their jobs survive will begin to take advantage of the bargains on the market, real estate brokers say.
"The people I'm selling to are feeling secure about their positions," explains Karen Thomas, an associate broker with Coldwell Banker Schweitzer in Commerce Township. "They're attitude is 'Let's go ahead and take advantage of the market.' "
Others seem simply to be getting used to living under the cloud of southeast Michigan's troubled economy.
"They've been scared for a while, and now the current market has become the norm for them," Thomas adds. "I think that everybody has just become a little bit immune to it."
One question raised by the massive buyouts at Ford and GM is whether workers will stay put in Michigan or decide to move on in search of new jobs.
"There will be a rush because a lot of those people are going to get jobs out of state," Cole says.
Foreclosures are on the rise
Another issue that could continue to hit the market is the rising number of foreclosures.
Wayne County ranked first in the nation and Michigan fifth in the percent of households in foreclosure in 2006, according to RealtyTrac. One of every 21 Wayne households entered foreclosure last year, the equivalent of 40,219 households.
As more foreclosed homes are dumped on the market, listings climb while prices drop, and it's unclear whether the situation will get better or worse this year.
At the moment, foreclosures aren't tapering off, says Doug Schrandt of Life Properties in Chesterfield. His firm works with Macomb County owners who are in danger of losing their homes to foreclosure.
"We have a steady 60 to 70 homes a week," Schrandt says. "Some areas are really suffering, like Eastpointe and the areas closer to Detroit."
The foreclosure market could improve as auto-related job losses slow down. Or it could increase as more adjustable-rate mortgages continue to reset, hitting struggling homeowners with rising monthly payments that may push their house payments beyond reach.
"We've got lending institutions to blame as well as the auto companies," notes Thomas.
Regulators have leaned on mortgage lenders to tighten their lending standards to stem the tide of defaults, not just in Michigan but across the nation.
ARMs will be a factor
Still, the damage may be done. While there aren't any estimates available for Metro Detroit, the Mortgage Bankers Association estimates that across the nation $500 billion in adjustable-rate mortgages will reset this year as many three- and five-year ARMs expire.
The loans have been popular ways for homebuyers to stretch their budgets to get into a home. Just how many of those loans stretch beyond the breaking point will play a big role in our market.
Homeowners who can afford to refinance can find relief thanks to continued low mortgage rates, points out Eric Burgoon, head of retail mortgage for LaSalle Bank in Troy. The Federal Reserve voted to leave interest rates unchanged Wednesday. Area lenders note that refinancing activity increased 25 percent to 50 percent in December when 30-year interest rates dipped to their lowest point in 11 months.
"If you see a dip in rates at any time we will see some pickup in refinancing," Burgoon says.
LaSalle also is highlighting new mortgage products. One offered through homebuilders allows buyers to put no money down, pay no closing costs or to buy with no payments for up to eight months.
"One of the main challenges we have is that a lot of people want to move but haven't been able to sell their houses at this point," Burgoon notes.
In the meantime, starter homes in the $150,000 range are selling better than high-end homes, brokers say. That's partly because demand is steadier at that level, and because some savvy owners of cheaper homes are taking advantage of the price decline to trade up. Though they take a hit on the sale of their less expensive home, they save much more off the price of a more expensive property.
Higher-end homes will continue to stay off the market unless homeowners are desperate. Cole just handled the sale of a Birmingham home for more than $600,000 where the owner still had to bring nearly $80,000 to the closing to cover the shortfall in what he owed to the bank.
"If buyers don't buy now," says Cole, they've got to be crazy.
In the long run, the pick-up in home sales should prompt a gradual rise in home prices as the excess inventory is absorbed in the market. That's expected to start showing up sometime in 2008, real estate experts say.
"Once everything starts, it all works off itself," notes Burgoon of LaSalle Bank. "If you can start to get some homes sold, it's a positive domino effect."
After lousy '06, values could hit bottom and sales could pick up this year, analysts say.
The best that can be said about the Metro Detroit housing market is that some of the worst may be over.
And the worst that can be said is that the rest of the worst is yet to come.
Year-end numbers for 2006 show home prices across the region fell by 7.1 percent, their biggest drop since 1989. Home sales dropped, too, down 11.2 percent, according to the multiple listing service Realcomp.
The only number that went up wasn't a good one. That's the number of homes listed for sale, and it soared across southeast Michigan by a staggering 41.2 percent.
Even after all that, home prices haven't bottomed out yet, real estate experts say, but probably will sometime this year. The only good news is that buyers seem to be coming off the sidelines after years of waiting out job uncertainty in our troubled auto-dependent economy.
Median sales prices dropped about 5 percent in Macomb and Oakland counties, almost 7 percent in Livingston County and more than 13 percent in Wayne County. That means the owner of a $200,000 home lost $10,000 to $26,000 in value.
The number of sales dropped, too, by a whopping 25.3 percent in Livingston and 22 percent in Oakland. Wayne sales fell 3.4 percent while Macomb saw an actual -- but slight -- increase of 1.2 percent.
But any good news from last year was more than offset by the soaring number of homes hitting the market. In Wayne, the number of listings increased 35 percent; in Oakland it was nearly 47 percent; and in Macomb, 50 percent more homes were slapped with "For Sale" signs.
"I never saw values go down like this," says Steve Cole, a 32-year real estate veteran with Weir, Manuel, Snyder & Ranke in Birmingham. "This year will be the bottom. We'll probably see an increase in sales numbers, but I don't think we'll see an increase in home values."
Auto industry woes blamed
The obvious culprit is Detroit's ailing auto industry, and the layoffs, loss of overtime, job cutbacks and buyouts that come with massive restructurings at Ford Motor Co. and General Motors Corp.
As more workers learn their fates, those who see their jobs survive will begin to take advantage of the bargains on the market, real estate brokers say.
"The people I'm selling to are feeling secure about their positions," explains Karen Thomas, an associate broker with Coldwell Banker Schweitzer in Commerce Township. "They're attitude is 'Let's go ahead and take advantage of the market.' "
Others seem simply to be getting used to living under the cloud of southeast Michigan's troubled economy.
"They've been scared for a while, and now the current market has become the norm for them," Thomas adds. "I think that everybody has just become a little bit immune to it."
One question raised by the massive buyouts at Ford and GM is whether workers will stay put in Michigan or decide to move on in search of new jobs.
"There will be a rush because a lot of those people are going to get jobs out of state," Cole says.
Foreclosures are on the rise
Another issue that could continue to hit the market is the rising number of foreclosures.
Wayne County ranked first in the nation and Michigan fifth in the percent of households in foreclosure in 2006, according to RealtyTrac. One of every 21 Wayne households entered foreclosure last year, the equivalent of 40,219 households.
As more foreclosed homes are dumped on the market, listings climb while prices drop, and it's unclear whether the situation will get better or worse this year.
At the moment, foreclosures aren't tapering off, says Doug Schrandt of Life Properties in Chesterfield. His firm works with Macomb County owners who are in danger of losing their homes to foreclosure.
"We have a steady 60 to 70 homes a week," Schrandt says. "Some areas are really suffering, like Eastpointe and the areas closer to Detroit."
The foreclosure market could improve as auto-related job losses slow down. Or it could increase as more adjustable-rate mortgages continue to reset, hitting struggling homeowners with rising monthly payments that may push their house payments beyond reach.
"We've got lending institutions to blame as well as the auto companies," notes Thomas.
Regulators have leaned on mortgage lenders to tighten their lending standards to stem the tide of defaults, not just in Michigan but across the nation.
ARMs will be a factor
Still, the damage may be done. While there aren't any estimates available for Metro Detroit, the Mortgage Bankers Association estimates that across the nation $500 billion in adjustable-rate mortgages will reset this year as many three- and five-year ARMs expire.
The loans have been popular ways for homebuyers to stretch their budgets to get into a home. Just how many of those loans stretch beyond the breaking point will play a big role in our market.
Homeowners who can afford to refinance can find relief thanks to continued low mortgage rates, points out Eric Burgoon, head of retail mortgage for LaSalle Bank in Troy. The Federal Reserve voted to leave interest rates unchanged Wednesday. Area lenders note that refinancing activity increased 25 percent to 50 percent in December when 30-year interest rates dipped to their lowest point in 11 months.
"If you see a dip in rates at any time we will see some pickup in refinancing," Burgoon says.
LaSalle also is highlighting new mortgage products. One offered through homebuilders allows buyers to put no money down, pay no closing costs or to buy with no payments for up to eight months.
"One of the main challenges we have is that a lot of people want to move but haven't been able to sell their houses at this point," Burgoon notes.
In the meantime, starter homes in the $150,000 range are selling better than high-end homes, brokers say. That's partly because demand is steadier at that level, and because some savvy owners of cheaper homes are taking advantage of the price decline to trade up. Though they take a hit on the sale of their less expensive home, they save much more off the price of a more expensive property.
Higher-end homes will continue to stay off the market unless homeowners are desperate. Cole just handled the sale of a Birmingham home for more than $600,000 where the owner still had to bring nearly $80,000 to the closing to cover the shortfall in what he owed to the bank.
"If buyers don't buy now," says Cole, they've got to be crazy.
In the long run, the pick-up in home sales should prompt a gradual rise in home prices as the excess inventory is absorbed in the market. That's expected to start showing up sometime in 2008, real estate experts say.
"Once everything starts, it all works off itself," notes Burgoon of LaSalle Bank. "If you can start to get some homes sold, it's a positive domino effect."
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