The overall market in December continued the trend of sales growth for the second half of 2014, but at a slower rate. December’s new sales contracts picked up in all price ranges after a lull in November. For Sale inventories continue to fall in the under $250,000 category, while rising in all price ranges above $250,000. New listings entering the market are following that same trend. Price per square foot went up over 8% for the under $250,000 market compared to last December, while the values of the over $250,000 market are coming in at under 3%.     

The chart above combines the sales from November 2014 and December 2014, smoothing out the swings that occurred during both months. The increase in pending sales for the over $250,000 range was surprising. This change was most likely a result of sellers moving to take advantage of the jump in home value, which have occurred in the last few years. Simultaneously, more homes were available for purchase, prompting some buyers out of the woodwork. However, we don’t expect sales to continue increasing at that pace into 2015.

The charts follow the percentage of change between 2013 and 2014 for each month, showing the direction of the market for sales, home values and For-Sale inventories. Across all price ranges, For Sale inventories rose throughout 2014, slowing in the fall season, but continuing to rise in the over $250,000 segments. For Sale inventories actually fell in the under $250,000 market, which made finding a home more challenging for first-time homebuyers. Pending sales gained momentum in all price ranges as the year progressed, recovering from a slow, cold winter. The improving economy later in the year has provided some good momentum going into 2015. Home values (here shown as price per square foot) increased throughout the year, but at a declining rate, as a result of more competition with more homes for sale and a squeeze in housing affordability (due to the big jump in values in 2012-2013).

For 2015, the overall economic indicators look good with continued historically low interest rates, increasing home values and improving employment and income numbers, particularly in the under-35 age group. The first-time homebuyer market has been lagging during the recovery, but changes in low down payment and FHA loans should help boost that segment this year. The rest of the world appears to be less stable with flat to slowing economic growth, making the U.S. the shining economic star globally. This may be bad for U.S. exports, but good for housing by keeping mortgage rates low.

The general consensus among economists seems to be that 2015 will be as strong or stronger than in 2014 in terms of the number of homes sold and the number of new homes built, but slower in terms of appreciation rates. We think Southeast Michigan home sales may be off by 3-4% compared to 2014, with a chance of a breakeven. Since we recovered ahead of most of the country, we have been one of the first to move to market equilibrium. If there are any surprises in terms of home sales in 2015, they should be pleasant surprises since we are using a more conservative view.

Although housing continues to show steady trends in terms of appreciation and the number of homes sold, the economic momentum should be creating more housing activity than it is. There are a number of primary suspects that are holding back activity: tougher credit standards, added jobs that are lower paying, record student loan debt and an overall more cautious consumer. All of these counter the positive economic momentum, which is keeping housing on a steady pace. Although we all love a wild market, a steady pace is healthy. It is actually quite amazing (and a positive long term trend for housing) that our market activity has been so strong in spite of the holdbacks. Home equities are just now getting near 2005 peak levels and the fast appreciation we have seen in the past two years has made home purchases less affordable, particularly for the first-time homebuyer segment. Over the next 3-5 years, the buyers and sellers who are being held back from these various conditions will jump back into the market at the first chance, resulting in a steady future flow of business.

For sellers, expect values to continue to rise in the 3-5% range. With inventories rising, the market might feel slower, but it is not. There will continue to be an inventory shortage in the under $250,000 markets, though at the same time, an excess inventory in the over $500,000 segment. The Months Supply of Inventory (MSI) is now at about three months for under $250,000 and should remain under four months. In general, it should continue to be a Seller’s market. With an MSI of just under six months, the $250,000-$500,000 segment will show a more balanced market between supply and demand. The over $500,000 market’s MSI is now at about 11 months and will remain a bit schizophrenic. Homes that are priced right and in great condition will sell in months while others will take over a year or longer to sell. With a milder winter, we expect that the spring rush will come early, so we recommend that sellers who would traditionally wait until spring, to jump into the market now. The buyer demand is there and the competition for homes is not as tight, so good things could happen for those who don’t wait!

Across our organization, 2014 was one of our best years ever. Sales fell slightly following the general market, but thanks to your hard work and great client service, our share of the market grew. It is the ultimate compliment when consumers choose our family of companies more often over the hundreds of choices in the market place.