A year ago today, my calendar indicates that there was a double showing on a brand new home listing. Not that unusual in itself. The home was a brick ranch in the north east side of the city. Having listed the property within the past two weeks, the activity on the home was notable given the time of the year and the fact that it was an older home in need of updating.
We were receiving several requests for home pre-view showings every day. And within a short period of time had multiple offers including a good cash offer. In less than a month, the home was sold and closed! This experience foreshadowed a shift which would become much more prominent in the real estate market in West Michigan during the 2012 calendar year.
Indeed, data obtained from the Grand Rapids Association of REALTORS revealed that home listings had plummeted dramatically from an average of over 8,000 homes for sale the previous year to just over 5,000 homes on the market at the end of 2011. By February 2012, the falling inventory levels were having a significant impact on overall home prices as demonstrated in a 15% increase in the average home price from just over $105,000 to approximately $125,000. This trend bode well for the remainder of the year.
In March, a notable first happened! The inventory/months of supply level dropped below 4 months. This was huge. To give perspective, in what would be considered a normal/healthy real estate market, a six month supply would be considered a balanced market. This would mean that neither Home Sellers or Home Buyers would be considered to have significant leverage in the market place. An increase in the supply side would give the potential home buyer an advantage while a decrease would be considered an advantage for the potential home seller. So, when the inventory level dropped BELOW 4 months and stayed that way for pretty much the remainder of the year, this translated into a significant advantage for the informed and reasonable home seller.
You will note my caveat…informed and reasonable. That being said, not every home Sold. We entered into a weird period of transition with regards to home value appraisals. As complaints from the real estate community reached crescendo levels due to the number of home sale transactions that were being flummoxed by low appraisals. What was going on?
Well, appraisals are a vital part of the real estate transaction, especially when financing is involved. A good appraisal protects the investment of the buyer and the lender in ensuring that the price paid for a home reflects the value of the home on the retail market. The problem was that as housing prices continued to escalate from an average of $105,000 in the beginning of the year to over $140,000 by mid year, there was little historical record to provide proof that this sudden increase was indeed an appropriate indicator of reasonable value.
So, while the market was being driven by low supply and low interest rates, there was downward pressure on the retail of homes due to low appraisal values because appraisers were finding it difficult to document a sales history that supported the current reality. Talk about interesting times! We had the bizarre scenario of homes with multiple bids being sold only to be undone because the buyer was told that he had over-paid for a home that he had just competed to purchase.
In time, all these kinks will work themselves out. But, that’s precisely why this blog post talks about ‘Shift’. Things are shifting, not just in the real estate industry but in our world as a whole. There has been a wholesale shift in the real estate market in West Michigan. Those who ventured into the market and put their homes for sale in good condition at the recommended sales price by and large moved on to their future. Distress sales of the Short Sale and Foreclosure variety declined as well.
Where are we now? Well, there has been some tempering in home prices. Which does give some credence to the caution exercised by the appraisal industry especially in light of the recent economic crisis. The average home price today in the West Michigan area is around $131,000, down from the highs during the summer. Inventory levels however have continued to remain below the 4 month range which represents a keen opportunity for home sellers with an eye on 2013.
If you’d like to have a more comprehensive analysis of the homes for sale in your neighborhood, please give us a call. 616-791-0511. Today, more than ever it is important to have a comprehensive perspective and strategy in executing a successful sale. When you’re ready to think about buying or selling a home, contact us for a conversation about options. We’re hear to make the process easier.
Oh…by the way, we’re getting a make-over! In the late Spring of 2013, we plan on launching our new website. We’re really excited about the re-design which will incorporate many of our marketing efforts into a more comprehensive package. Wishing you all the best in the New Year from Audu Real Estate.
Raw data from the Grand Rapids Association of REALTORS monthly market updates can be obtained here.