2008 may be brutal again for Michigan real estate

2008 may be brutal again for Michigan real estate

Mich. housing slump may have hit bottom in 2007, but tough times remain, analysts say.

Nathan Hurst / The Detroit News

CLARKSTON -- Metro Detroit's real estate market was socked hard last year, marked by the largest drop in home prices since the Reagan administration, the third-consecutive drop in annual home sales, the lowest number of new home permits since at least 1969, and a massive wave of foreclosures that drove thousands from their homes.

It likely will be another tough year in 2008. While the downturn in the region's housing market may slow down, there isn't likely to be any noticeable rebound until the second half of the year, at the earliest, analysts say.

"I hate to say it, but the Detroit area, southeast Michigan, is one of the weakest parts of the U.S. economy," said David Seiders, chief economist for the National Association of Home Builders. "It depends on how the job market is going to perform, and I don't see that improving soon. I think the housing activity will remain low there for the next couple of years."

Data for Wayne, Oakland, Macomb and Livingston counties, compiled by Farmington Hills-based Realcomp, the region's largest multiple listing service, illustrate the damage in 2007:

• The number of homes sold in Metro Detroit dropped 3.6 percent. Since peaking at 44,185 homes sold in 2004, the number of sales has fallen 14.4 percent.

• The average price of a single-family home in the region dropped nearly 11 percent. Since its peak of $175,563 in 2004, the median home price in the region has fallen 17.3 percent, to $145,173, the steepest decline since the early 1980s.

• The number of homes on the market continued to surge, with an increase of 8.65 percent last year. The nearly 50,000 homes listed for sale in 2007 was 3 1/2 times the number listed in 2001.

• Construction of new homes and condos hit a nearly 40-year low, according to data from the Southeast Michigan Council of Governments.

• Home foreclosure filings in the four-county region surged in 2007, to nearly 93,000 through November. That's 65 percent higher than all of 2006.

Michigan's severe housing slump is a symptom of an economic downturn in the state that began in 2004. When automakers started cutting thousands of high-paying manufacturing jobs in a historic restructuring of the industry, the unemployment rate soared, thousands fled the state looking for work, consumer confidence plummeted and the housing market began to tank.

Last year, the national housing market fell into a funk, too. Home sales, new home construction and median sale prices fell, sometimes dramatically, in most parts of the country. And foreclosures skyrocketed as an alarming number of homeowners with adjustable rate mortgages, or ARMs, found they couldn't afford the higher payments when their mortgage rates reset.

Sellers give up
Many Metro Detroiters who put their homes on the market last year simply gave up trying to sell.

Out of desperation, Rob and Kelli Clifton of Ortonville tried swapping their lakefront home this summer without any luck. That was after they twice tried selling the home through a Realtor and reduced their asking price more than $30,000 since they first put it on the market in late 2006.

"It's tough," Kelli Clifton said. "We've tried selling it as a summer home. We've renovated. We've advertised everywhere. But right now, we're stuck."

Scott Cummings tried swapping an unsold house, too, to no avail.

Cummings purchased a four-bedroom home in Clarkston last spring and fitted it with premium fixtures and other fine touches in hopes of turning around the investment for a decent profit. After months of not selling at his asking price of $290,000, which would have provided a slim profit at best, he tried early this summer to swap the property with another homeowner to make another investment.

But it lingered on the market, even after a price drop, so Cummings now is renting the property, even though the income doesn't fully cover his costs.

"Better to stop the bleeding as soon as possible," said Cummings, who as president of Mid-American Mortgage in Auburn Hills has felt the impact of the housing slump in several ways. "At least something's coming in."

Bargains abound
If there's one bright spot in the slumping market, it's that there are plenty of bargains to be had, particularly for first-time buyers who don't have the burden of unloading their existing home.

Grace Brooks was one first-time home buyer who took advantage of the low prices.

In August, she purchased a three-bedroom house in Hazel Park for $90,000 after its price had dropped $35,000, the result of sitting on the market for nearly a year. Then in December, she purchased an investment property -- a two-family home in her neighborhood -- for just under $100,000. Its price had fallen about $25,000 since it was listed last May.

"I thought I'd end up being a lifelong renter," said the 37-year-old human resources administrator. "I didn't even think about buying property until the prices went down.

"It was too intimidating to buy before. Now there's more opportunities real people can afford."

That's the message local real estate agents are doing their best to spread. They believe there will be even more bargain hunters this year.

A 7 percent uptick in Metro Detroit home sales in December over the same month last year provides some evidence they could be right.

"In 2008, we're going to see opportunistic buyers getting some great deals," said Howard Fingeroo, managing partner of Pinnacle Homes, which is currently building subdivisions throughout Metro Detroit. "It's as bad here as anywhere, but we're all repositioning for an upswing."

Karen Kage, president and CEO of Realcomp, said the negative impact of foreclosures on home prices made 2007 a particularly difficult year for area Realtors. But, she too, sees a bright spot in the gloom.

"The prices have a lot of people worried, but the market will naturally find its equilibrium," she said. "There are great bargains to be had."

Low prices will help recovery
Don Grimes, senior economic researcher at the University of Michigan, does think the low, low prices will start to get more buyers' attention.

"We will probably see more trouble for the first half of the year," he said, "but as buyers scope out the low-priced homes, we can expect some upward movement in the second half of '08."

Still, Metro Detroit's housing market recovery will be slow to unfold.

"It's going to be a difficult recovery," Grimes said, "One that will take some time."

Whether it starts happening this year will depend on numerous factors, not the least of which are the health of the local job market and "if consumers have the long-term confidence," said Peter Allen, a real estate consultant and professor at the University of Michigan. "One more negative curve might be too much."

More job cuts at General Motors Corp. won't help matters. Last week, the automaker announced it will offer buyout packages to 46,000 blue-collar workers. It's unclear how many workers GM actually hopes to clear out, but it could be in the thousands.

Also pointing to a rough 2008 nationally is the March reset to higher rates of $110 billion in adjustable-rate mortgages. That's certain to drive foreclosures higher across the country, which in turn will put more homes on the market and further drive down prices.

That will certainly hit southeastern Michigan, said Bob Filka, CEO of Michigan Association of Home Builders. "We had originally hoped for a small upswing toward the middle and end of this year," Filka said. "But given some of the uncertainty of the national economy, I'm now saying there is only a dim light at the end of the tunnel."

But what about the axiom that those first in a recession are first out? That won't apply to Michigan this time, Filka said.

"We've been going through profound structural change, not a cyclical change," he said. "We have to keep that in mind, changes are being made for long-term benefits, but, now we may get wrapped up in a cyclical national downturn. This also dampens my enthusiasm for the year."

Mortgage crisis contributes
The foreclosure crisis that started building in Michigan two years ago and erupted across the nation last year has only made a bad housing market worse.

Contributing to the problem in Michigan was the proliferation of subprime adjustable-rate loans, but also the auto industry downsizing that led to the loss of jobs of thousands in the state.

The foreclosures exacerbated the oversupply of houses on the market, and the sale of foreclosed homes at bargain-basement prices depressed prices even further.

According to data provided by Realcomp, the 1,989 recorded foreclosure sales in Oakland County -- which averaged $115,000 -- sunk the median sale price for the entire county to $177,722. With those sales excluded, the median price is $192,000.

The housing slump also dramatically drove down the pace of home building in Metro Detroit. Only 3,482 single-family houses or condos were built in the four-county region last year. That compares to 19,417 in 2004.

That pullback, though, may actually speed Michigan's housing recovery.

Fewer new homes means less competition for those already on the market, and a greater chance they'll find a buyer.

And once home sales pick up, prices eventually will follow.