September 2014 Southeast Michigan Market Update

by admin on September 19, 2014

August was a month that gave mixed signals. Sales and new listings entering the market were down, different from the last 60 days, when both were up. Prices still continued to rise (using average price per square foot) at the same 10% clip and the number of homes for sale remained about the same. It will take a couple more months of data to confirm, but it makes sense that buyer demand should begin to slow and the number of homes for sale should start to rise.

It would not be surprising to see home values actually fall a bit through the winter months as the market rebalances. This is not a bad thing and is expected, since values have jumped dramatically over the past two years. Going forward, it does not change the overall trend of values increasing. Any pricing corrections would tend to be in the upper-end markets (typically over $500,000) where inventories have risen the most. Along those same lines, we can expect asking prices to trend downward, as well. In many cases, current asking prices were set based on the torrid market pace we have seen through June.

One way to track the changes in market demand is to follow the percentage of homes that sold after at least one or more price reductions (as listings rise and demand falls, more price reductions ensue).

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Looking at the chart we can see as listing inventories fell (2013), the percentage of homes with multiple price reductions increased. This was because there were not many homes to choose from, so even those that were not ideal or priced right got attention and sold. The pace of sold properties with multiple price reductions continued to increase as inventories rose, a result of price adjustments due to more listings to choose from, and a drop from the higher prices set in spring/summer when demand was stronger. For sellers, this fall and winter will still be strong from a historical perspective, but not as strong as the first half of 2014. At some price points there may need to be an adjustment of both pricing and buyer activity expectations.

On another important point, we have received a number of questions about how the Great Flood of 2014 will affect home values. For homes that were affected as a result of sewer back up, the good news, relatively speaking, is that this event is insurable. In fact, many homeowners policies have a rider to cover sewer back up, which means the effect on values will be minimal (particularly since this was such a rare event). Should this become an annual flood then that would be a different story! In the future, it does behoove a buyer to ask if the Great Flood affected the home and what was done to clean/repair it. Homeowners should be sure to add a sewer back up rider to their policy (Seller’s Disclosure statements do address the issue, as well). If your flooding was simply a result of leaky basement walls, then that will affect the value of your home until it is repaired (leaky walls are not insurable).

For August, as a company we followed the market with sales down about 5%, but values up nearly 10%.  One of our strongest Augusts ever and a nice gain in market share!

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