Looking at the months supply of housing inventory (MSI) gives us a good indication of why the Michigan real estate market has felt so frenzied (MSI of 0-3 months = Sellers Market, 4-6 months = Neutral, over 6 months = Buyers Market). We have been in a Buyers Market for nearly 6 years but in a short period of time we have moved from 8.3 MSI in December to 4.6 months in March and under 3 months for bank-owned for Southeast Michigan!
Within those numbers is a growing housing quality issue. For a percentage of homes where the mortgage has exceeded the market value there has not been an incentive to update, upgrade or even maintain. The result is a higher percentage of homes for sale that are less desirable since they may be dated or require significant work, even if they are not bank owned. So when you factor in the quality of the current housing inventory, the overall market number of saleable homes may be closer to 3 months MSI.
The following chart shows how the market has shifted from 2009 to 2011 in terms of the number of homes for sale and the rate of sales.
It is not hard to see the forces of supply and demand at work over the past three years.
Increasing sales and decreasing inventories have created the multiple offer situations we have seen in the last 90 days. As strange as it sounds, we have a significant shortage of saleable homes for sale.
Does that mean prices are rising as well? Not really, conservative appraisal standards will still hold back values to some degree and at this point in the early stages of our recovery; increased activity translates into a faster sale, but not necessarily a higher price. So pricing still needs to be aggressive to attract attention. But it is clear that for sellers it is the best time in the past six years, with demand exceeding supply, to try the market.
The best advise for a buyer is to be very flexible and willing to act quickly, hesitation will be costly. As prices begin to firm up, buyers will need to shift their mindsets from making deep discount offers to working within the range of the asking prices.
So with all these good signs, what can slow things down again? There has been some conversation about a real estate double dip and in fact Detroit was named as a double dip market (we have not seen that in our data). Increasing gas prices and in general a slowing of consumer confidence will keep a lid on growth. Also the number of bank owned homes being released to the market could have a negative short term affect, but positive in the long term. There is also a large backlog of homes that have been leased because they were not able to sell which, if placed on the market in high numbers, could slow the recovery.
Any market that changes direction, in this case in a positive way, gives off confusing signs to both sellers and buyers, so remember the weirder it gets the better it is for home ownership and home values!
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