Turning the Corner on the Michigan Real Estate Market

Why it is Time to Enter the Market and Secure Your Investment Dollar

Is Housing Slump At a Bottom - WSJ 1

Have you been watching the media talk about real estate recently?  Be it print or video, the media is catching on that it is time for folks to purchase real estate.  Heck, Larry King Live the other day had a few folks on to talk about the foreclosure mess and this is what Donald Trump has to say about our national housing market:

TRUMP: I do agree with Barbara. I think that this is a great opportunity to buy. And, unfortunately, not everybody is in that position because they have seen erosion. But if you’re out there and you have some cash, this is a fantastic time to buy. And even if you don’t have cash, this is the time to buy because you can make deals with banks.

Hmm, if Barbara Corcoran, Robert Kiyosaki, and Donald Trump are saying this is a good time to purchase, it might be a good time to purchase!

Need more proof?

Check out the chart above.  When housing starts drop below 1 million, they immediately rebound, and pretty rapidly too.  The valleys also happen to coincide with national recessions, but that’s a topic for a different post and likely different blog!

It may be time to purchase, but what about pricing?  Are homes any more affordable than in the past?FACL_Q1_2008_V15 3

The First American CoreLogic CoreMortgage Risk Monitor shows that through the end of 2007, national housing values were trending to a less favorable point for purchasers.  Any point along the graph to the left that is below 1.00 is a point at which homes are more affordable than the 1995 baseline.

So housing affordability is still good, but got less affordable through the end of 2007?!

You Need More Examples and Articles?

Wall Street Journal May 6th, 2008- The Housing Crisis is Over

Home sales peaked in July 2005. [emphasis added]

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in. [emphasis added]

Wall Street Journal May 6th, 2008 – Is Housing Slump at the Bottom?

It’s important to note that real-estate prices in many areas are far from a historic bargain. And where there is a glut, prices — obviously — are likely to stay lower for longer. It is still a buyer’s market. If you are buying, drive a hard bargain.

Prices may still fall further. Yet if you are tempted to keep waiting for homes to get a lot cheaper, there are several reasons to think that might not happen.

First, there are too many other bargain hunters out there.

Second, the falling dollar has made these homes even cheaper to foreign buyers. There are plenty of people in Europe for whom Florida is now a bargain.

Third, interest rates are low right now. I hesitate to give my fellow Americans any extra incentive to borrow yet more money, but you can get a 30-year fixed-rate mortgage under 6%. If the economy recovers that won’t last. If you are shopping for a home, it is probably worth seeing if you can lock in one of these rates cheaply.

Finally, in an age of weak currencies and rising inflation, “real” or “hard” assets are in demand. That should include land, bricks and mortar. Sure, real estate isn’t as cheap as it has been at other times in the past. But are Florida homes any more expensive these days than steel, or copper, or gold? I’m not so sure.

Team366 even offers localized housing data!  Check out our quarterly inventory reports and our monthly housing market reports.

You’re still reading? Great!  Take advantage of this market, get into that home you’ve been meaning to buy.  Get locked into a near historically low interest rate, and let the market “recover” around you buoying the equity in your property.

Begin your Ann Arbor Area property search, talk with a lender and let’s go find a home!

4 Responses to Turning the Corner on the Michigan Real Estate Market

  1. I might be a bit dense here, but where in your blog post is the evidence that now is a good time to start buying real estate in Michigan? Based on what you posted, I can maybe see it being a good time to buy in portions of the rest of the country, but I didn’t see anything saying why it is a good time to buy now in Michigan?

    Taking a look at the news recently, it would seem like you would be smarter to wait awhile to buy property in the state rather than buying now. The big 3 automakers are currently cratering, the state had it’s biggest jump in unemployment in quite awhile and the likelihood of foreign buyers snapping up property here seems kind of bogus with gas prices skyrocketing and airlines cutting back service like crazy. Unless you are talking about Canadians stepping in, and even then they are going to be hurting from high gas prices and a slowing economy as well. Additionally, it sounds like state and local governments are going to have to start slashing jobs like crazy which is going to make things even worse. This morning I heard that the Detroit school district is cutting 1700 employees, and will be closing several schools over the next year.

    Could you post some Michigan specific data to support your claims rather than broad national data?

  2. Aaron,

    While I can not and will not argue with you about what is happening with regards to the State of Michigan’s economy, I think we can agree that Michigan is like the canary in the coal mine for the rest of the country! We have been in this funk for about 2 years, while the rest of the country is just now catching up with us.

    We are the canary because of our heavy economic ties to the automotive industry, yes. Furthermore, we are not through the economic forest yet.

    What this means to the savvy real estate purchaser is that there will be scads of homes to purchase. There are a bunch of foreclosures yet to come on the Michigan market this year.

    And while that may depress house values further, what will interest rates do? If you are looking to time the purchase of a home at the absolute bottom, then you may be gaining a half to full point on your interest rate. Thereby nullifying any “gain” by purchasing at the absolute bottom.

    June 19th, 2008 Detroit News Article: http://www.detnews.com/apps/pbcs.dll/article?AID=/20080619/BIZ/806190357/1012/BIZ03

    The bottom of that article shows, by county, that sales for the year are UP by at least 9%. That means that purchasers, investor, you name it, have decided that NOW is the time to purchase.

    Via data from http://www.bighousedata.com, through May 2008, Washtenaw County home sales are up over 23% compared to the same 5 months in 2007.

    With regards to out of state money coming into the local real estate market, think about the capitalization rates on the coasts. Historically, the East and West coasts are running 2-4% CAP rates (CAP rate is the Net Operating Income divided by the purchase price). Those “Coast Dollars” are staring at the Midwest where our CAP rates run 7-11%.

    If you could move your money from Bank A, offering 3%, to Bank B, offering 9%, would you?

    That’s what we are seeing NOW in the SE Michigan housing market. Coast Dollars are arbitraging the markets and ending up here!

    Those investors are buying portfolios of properties right now. In some cases, 30 cents on the dollar! When the market turns, and it will, those investors will make a killing!

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