The real estate market has shifted and whether or not you are “in the market” as a buyer or seller, you need to know that the market has shifted.
Law of Supply and Demand
I wrote on the law of supply and demand recently. It is intriguing, to me, to watch agents and consumers adjust to the shifting of a fluid marketplace. As of this post, inventory levels are razor thin. Nearly as thin as the patience of first time homebuyers making their tenth attempt at getting their purchase agreement accepted by a seller.
A nagging thought I began to have mid way through 2012 was, “How much foreclosed inventory are the banks witholding from the active market?” For practical reasons, the actual number of foreclosed real estate being witheld is immaterial. The real question that prompted this thought was, “How much will the market be impacted by the foreclosed property’s absence?” Last year, we began to see hints at what was coming. Now, it is in dual, full bloom.
The first blossom is that the demand for homes has been pent up, and delayed. Like too much water striking a dike in Amsterdam, buyer demand has been so pent up that we are seeing multiple offers on distressed (foreclosed and short sale properties) and many over the asking price of these distressed properties. Magnifying this sense of urgency are the historically low interest rates for mortgages (as of this writing, I saw 3.5% on a 30 year fixed, conventional mortgage).
The second blossom that the banks have fertilized and brought to a wonderful bloom, is that we are seeing house values rising(!), in spite of the volume of distressed sales that made up the 2012 real estate market. For 2012, according to RealtyTrac, foreclosures accounted for 31% of the closed transactions in Michigan and short sales made up 33% of all closed sales.
Let that sink in a moment.
Sixty four percent (64%) of all transactions last year, in the state of Michigan, were distressed sales (foreclosure or short sale).
Nearly two-thirds of the sales last year, in the state of Michigan, were distressed sales. That is a huge portion of the overall housing market in the state. The effect on sales has been to purge the market of foreclosed and short sale properties. Another benefit of the amount of distressed sales in 2012 has been to elevate the purchase price. Sounds backwards, I realize, but when nearly two thirds of the homes sold in a region are distressed and the region still sees an increase in sales prices, well, the distressed properties added to the increase in sales prices.
Of the 124,052 home sales in the state of Michigan last year, 79,393 were distressed sales. By clearing a bunch of distressed sales off the market, banks and short selling homeowners have begun the clearing process for homeowners with equity or homeowners close to having equity. You see, by selling these distressed homes, and seeing an increase in home values, some homeowners that were close to even in their home’s equity may now come to the market without losing too much money or actually walk away from the closing with money in their pocket!
The common concern now is, “What home am I going to buy?” as the amount of inventory in the state of Michigan continues to be razor thin.
Thinking of selling your home? I’m pretty sure that I can help…
[image courtesy of VCU Libraries]