Ann Arbor Area BUSINESS MONTHLY magazine brings the reader the latest business news and information important to the businesspeople in Washtenaw County. Each month articles cover real estate, legal, Internet, employee concerns and the climate of business in the greater Ann Arbor area. There is news about company employees and feature articles on local businesses. We cover business news from Ann Arbor, Chelsea, Dexter, Manchester, Milan, Saline, Whitmore Lake, and Ypsilanti.
Housing Sales Have Slowed
To A Buyer's Market
Laura Dykstra, president of the Ann Arbor Area Board of REALTORS®
By Kate Kellog
A few years ago, builders in Washtenaw County could barely keep up with demand. Home sellers could almost name their price. Realtors were scrambling to show houses which sometimes sold in less than a month. In September, '04, year-to-date (YTD), the median sales price for a home in the county was $229,000, according to information from the Ann Arbor Board of Realtors Multiple Listing Service.
Today, ubiquitous for-sale signs and business headlines are telling a different story: the frenetic pace has slowed to a crawl in some parts of the state and country. In the Ann Arbor area, housing activity is moving at a more leisurely jog. The median residential sales price for September '06 YTD was down to $223,000, a 2.6 percent decrease from September '04 YTD. Buyers finally are getting the upper hand in price negotiations.
"The market has swung from a seller's game to one of the strongest buyers' markets in 20 years," says Laura Dykstra, residential sales manager with Edward Surovell and president of the Ann Arbor Board of Realtors.
A Reality Check
While Washtenaw County still has one of the strongest housing markets in the state, it appears to be following the national trend. The National Association of Realtors' latest report on existing home sales showed that, nationwide, the median home price in August was $225,000, down 1.7 percent from a year earlier. This was the first year-over-year decline in median prices since April, 1995 and the biggest year-over-year drop since the record 2.1 percent decline of November 1990. The supply of homes on the national market is now up 38 percent from a year ago.
How is the downturn playing out in Washtenaw County? Even the most optimistic realtors aren't denying that the area's housing market is experiencing the long expected "correction." Washtenaw County's median price decline between August '05 and '06 YTD was 1.4 percent, according to the Ann Arbor Board of Realtors MLS statistics. (The median price is the point at which half the homes sell for more and half sell for less.) Yet homes in Washtenaw, Livingston, and Oakland Counties have the highest values of any counties in the state.
A look at residential sales statistics from the Michigan Association of Realtors for this past August (the most recent statewide figures available) provides some perspective. The Ann Arbor area market is not faring badly compared to many of the 41 real estate regions in the state. The average home price here was down 0.87 percent, and sales were down 8.44 percent between August '05 and August '06 YTD. In neighboring Livingston County, also a housing boom area, the average price declined by about 3.13 percent and sales were down by 25.18 percent. The Western Wayne Oakland County Board of realtors reported a 4.7 percent drop in the average home price and a 19.13 percent drop in sales for the same period.
An interesting note: the Ann Arbor area no longer has the highest average home sales price in the state. That distinction belongs to Emmet County. As of August, '06 YTD, the average price for a home in this fast-growing northern county—which includes Petoskey and tony Harbor Springs—was $315,577.
Prices here are barely stable. As of September, year-to-date, the average sale price in Washtenaw County was $264,736, down by 0.58 percent from $266,283 a year ago. That's not a precipitous drop but it reverses the trend of steadily escalating prices of the past several years. And overall sales also are down. The Ann Arbor Board's September sales report notes that statistics year-to-date through September 2006 "indicate approximately 11 percent fewer residential sales than the same time period in 2005."
Now that we're past the strongest selling season, local realtors don't expect the numbers to pick up until next year. "People who don't have to sell right away will likely take their homes off the market and wait until spring when we hope to see a stronger market," says Bill Miller, a realtor with The Charles Reinhart Company. He notes there are no guarantees on what will transpire next year, considering the uncertainty surrounding world events and Michigan's sluggish economy. While he doesn't expect to see the appreciation of past years, he expects the market, at least in Washtenaw County, to pick up, albeit at a slower pace.
"The years 2003-2004 were exceptional," he says. "We're experiencing a return to reality, rather than a crash. I'm still seeing plenty of people coming away from happy from home sales."
Another indicator of a softened market is the slowing down of residential construction. Data from the Southeast Michigan Council of Governments (SEMCOG) show a 48 percent decline in the number of residential building permits issued in southeast Michigan between the first quarters of 2005 and 2006. SEMCOG attributes the decline to "job losses, job uncertainty, minimal salary/wage increases and a slow housing market." Washtenaw County's has seen a 51 percent decline in residential building permits compared to this time last year. From January through September, '06, only 451 permits were issued, compared to 922 for the same period through September '05, according to SEMCOG data.
The building boom of previous years has resulted in excess inventory. "A lot of builders are slowing up and trying to sell their products before starting new spec homes," says La Tanya Keith, a realtor with Keller Williams. ""That's especially true in areas like Ypsilanti Township where there's been a lot of new construction." Large building companies are offering incentives that create even more competition for homeowners, she says. "Why buy an existing home when you could have a brand new one for a little more money?"
Miller urges buyers "not to rule out new construction." Builders have more flexibility than homeowners, he says, and often are willing to compromise on price.
Another reason for the decline in new home building is simply the lack of available land within Ann Arbor city limits, notes Geoffrey Perkins, CEO of Perkins Corporation, a construction and remodeling company. His company specializes in custom building, rather than spec homes for subdivisions. Most of his work is in Superior Township, Ann Arbor Hills, and Barton Hills. Especially in the latter two areas, "the practice of buying and tearing down and rebuilding is the name of the game," he says. "People are still looking for property in desirable areas," he says—even if it means demolishing a home and building a new one from the ground up.
Perkins doesn't think the housing picture is as bleak as the media portrays it to be. "The Ann Arbor area's economy is the best in the state. Jobs are coming here and people need to a place to live," he says. "The remodeling part of our company is quite busy now. People are still buying existing homes and want to personalize them."
The View from the Trenches
As of September, a record 9,751 homes were for sale in Washtenaw County, according to the Ann Arbor Area Board of Realtors' MLS Sales Report. "The most significant factor impacting our market is the increase in listings," says Board President Dykstra. "Where once there weren't enough desirable homes for all the buyers, now a buyer will look at 30 or 40 houses. When these buyers finally decide on one, they want a lower price than the seller is offering."
Transactions are becoming dicier, she says, because most sellers are still pricing their homes unrealistically high and buyers make unrealistically low offers. Even pre-approved buyers are having difficulty making decisions and that affects the numbers. "It takes a lot more energy to sell a house than it did in previous years. We're seeing more fall-throughs than we used to."
Consequently, houses are remaining on the market much longer than in recent memory. In fact, no one can really get a handle on average market days since real estate figures don't always reflect reality, notes Miller. For example, the Ann Arbor Area Board's MLS report says the average number of market days for September '06, YTD is 79 days. "A house may have been taken off the market periodically and re-listed with different companies," he says. "I'd love to expect to sell a house in 90 days or less. But it can be ten months or a year before the property actually closes."
When that finally happens, the seller most likely had to lower the asking price. This year, those who do receive their original asking price often make concessions, says La Tanya Keith, of Keller Williams. That may include assisting with closing costs so the buyer can put more toward a down payment. But many sellers are simply resigning themselves to the realities of the 2006 market, she adds. "It's not unusual for people to drop prices by $10,000-$30,000."
Of course, it's a two-way street. If homeowners are not getting what they want on the selling end, they can make up for it on the buying end even if they're buying up, notes Keith. "There's no reason to sit it out if you want to sell or buy," she says. "Ann Arbor is still a wonderful place to live. We just have to ride the tide."
The market shift is changing the way realtors approach listings and the market in general. In the past, realtors heavily relied on the Comparative Market Analysis (CMA) to establish a reasonable listing price. They compared the home to comparable properties that sold in the area within the past year. Today, they are looking at the level of competition, rather than relying strictly on the CMA, says Dykstra. "There may be 20 houses for sale in the same neighborhood, so the question becomes, 'what do we have to do to get this house sold?' "
Bill Miller agrees that sellers are now under more pressure than ever to keep both price and home condition as competitive as possible. Unlike location, those two variables are under homeowners' control. "Location is important to buyers but it's the one thing the seller can't change," he says. He advises sellers to remove some furniture, if necessary, to make rooms look larger. Bring in flowers and plants that make the home look warm and inviting. "When you open the door, you want prospective buyers to say 'Wow. I could see myself living here.'"
While some realtors think the market downturn is affecting most price ranges equally, Keith has found that $200,000-$325,000 is generally the best selling range. Prices at the higher end tend to sit longer she says. "If you're looking at the $500,000-$700,000 range, you can get what you want from a builder without having to clean the carpets." A house without the bells and whistles buyers want is competing with new construction. Keith compares the choice to paying a little more for a new car, rather than buying one with 50,000 miles on it.
But many potential buyers have simply decided to wait until the economy rebounds. Job insecurities may discourage some people—particularly those associated with the auto industry— from moving up to larger homes at this time, believes Dykstra. "People are saying let's wait another year before buying that $400,000 house that would double our mortgage."
She is confident the market will come back. This downturn is mild compared to that of the early '80s when interest rates were sky high. That crash lasted a couple of years and "then the market started cranking away again." The presence of Google, Toyota, Hyundai, and Ann Arbor Spark promises to keep Ann Arbor among the top markets in the state and growing, Dykstra says. "October has started out unusually strong. I'm optimistic that we'll see evidence of pent-up demand in 2007."
Buyer caution, Miller believes, is a product of "doom and gloom" forecasts. As he sees it, the combination of low interest rates and a large market inventory present unprecedented opportunities for buyers. "I encourage them to jump in and take a look," he says. "Don't wait until it bottoms out. It's a great time to buy home, whether for the long-term, or as an investment."