We ran the full year 2022 numbers- the NoMi real estate shift is here

December year end results indicate THE SHIFT is finally here.

Early January is wild in the Winslow household. Like most American families, we are recovering from a holiday activity and spending hangover. Then we head straight into the first of our three children’s January birthdays. At the same time, we put finishing touches on our business plan for the year ahead, create vision boards, reconcile financial reports, and cap it off with an annual trip to a real estate conference to help keep us connected to the industry and energized for what is to come.

We are busy.

Even so, Alisa is thinking about only one thing in the seconds after the clock strikes midnight on January 1 after she gives Bill a smooch.

Creating the full year Northern Michigan real estate market report.

You see, even though we feel like we understand what is happening in our market based on our involvement in dozens of transactions and our regular monthly market reports, we eagerly await the mountains of annual data to dive into like a kid diving into a pile of unopened presents on Christmas morning.

The main reason Alisa was ready to run numbers while she soaked black eyed peas for New Year’s dinner, is we have been waiting to see signs of THE SHIFT. Unless you have been under a rock you know interest rates are down, housing inventory is still historically low and the economy has been contracting. All of this has some experts predicting doom and gloom for the national real estate market. And indeed, on a national level recent weeks have produced signs of a change of direction.

More importantly, we have felt the slowing here in our little corner of the world too. We have seen more negotiating in the inspection period, more price reductions across all property types and price ranges, and it seems like homes are staying on the market longer. It has felt like this for a few months now. But strangely, it hasn’t really showed in the data in a meaningful way. Especially not in November when average days on the market for home sales was lower than it had been all year and the percentage of homes closing at or over asking price remained relatively flat from 2021.

We had a sneaking suspicion the year-end report would finally contain tea leaves to help us divine the future based on what we have seen in the past.

And boy were we right.

Like any good numbers geek, we have to caveat what we are about to share with the classic “We don’t have a crystal ball” comment. But…

It does seem like we finally have evidence of a shift. And further, we have pretty clear evidence our market is beginning to return to a more normal state of being, which is what we have predicted for months.

We reviewed data from multiple counties and in two multiple list services. The stats were unsurprisingly similar. So for the purposes of this report we will focus in on Emmet County which serves as a darn good proxy for all the others. And what did we see?

First, in keeping with monthly trends, number of transactions are down.

Don’t let this unit number fool you and make you think the end has come. No this decline in sold units is in line with what we have seen over the last five years and is more a function of lack of inventory than an indicator of a market shift or change in demand. To understand the whole picture, one has to consider what happened with prices in 2022. In January of 2021 we predicted a normalization of prices. Yet that is not what we saw. Instead, Northern Michigan continued to produce double digit year over year appreciation rates across markets with a startling 19% increase in Emmet County, outpacing even 2021.

Also beating the ever-loving snot out of 2021 numbers was the 2022 days on the market statistic. This number measures the time between listing and actually closing on a home sale. In a normal market you would expect a number between 80 and 120 days. Days on the market have been precipitously declining over the last several years and for the full year 2022 it averaged 46 days. Which in layman’s terms, is Incredibly. Stupid. Low.

Taken alone, we might be tempted to think the year ahead will offer similar results. Especially when you factor in the previously mentioned November results where appreciation was still in double digits and days on the market DROPPED BELOW 40! Yes, for the first time we saw days on the market fall at a rate which is slower than most banks can even review and approve a loan (of course over 50% of transactions were cash which helps). Still, the point is 38 days is unnaturally, lightening, CRAZY fast and it was happening in the midst of high interest rates and a slowing economy.

What does it all mean?

December brings it all together for us. First a disclaimer. Transactions are super light in December even in the most normal of inventory years and this one was anything but. In fact, the number of new listings in 2022 dropped 18% from 802 to 660. Which means the data is based on a fairly small number set. Still, it’s pretty sound for directional purposes. And what we saw was median price appreciation was flat (down just under 1%) and days on the market creeped up for the first time in several years. The increase was only 8%, and again, small numbers. But to have a month where prices depreciated and days on the market increased for the first time since we began measuring this hot market, it sure seems like what we have been feeling is finally materializing in the numbers.

Keep in mind, 1% depreciation is not a catastrophe. And 8% increase in days on the market could truly be a rounding error with the small data set we have in December.

Probably the most telling statistic in December was the change in the competitive landscape illustrated by the drastic difference in percent of homes sold at or over original asking price. This number has consistently been between 50 and 60% across all markets for the last couple years. In December, what we have been seeing in negotiations throughout all part of the transactions finally manifested in the numbers. The percentage was 38%, falling below forty for the first time in recent memory.

Despite the decline, this remains a historically strong number. We continue to hold our opinion this is just a sign of normalization.

We need and want normal.

It’s not normal to have 12 offers on your home, most of which are over your reasonable asking price based on recent sales data. It’s not normal to sell your home in 38 days. It’s not normal to have interest rates below 3% year, after year, after year.

It might not be sexy, but where we are headed is not to the “new normal” (a phrase I have personally grown sick of in the last three years). No, in real estate we are headed back to just plain old normal. Sellers can expect their home to be on the market for more than 5 minutes before receiving an offer. Buyers no longer need to offer up their limbs in order to go under contract.

The really great news is, even if there is a bigger-than-we-expect correction, buyers and sellers in general are positioned to do very well. The most awe-inspiring stat we looked at as we digested the numbers is the five-year appreciation rate. In Emmet County, home prices have appreciated an incredible 78% since 2018.

Um yes… we triple checked and it is correct.

This means as we return to normal, its pretty good news all around. Buyers should do better than they would have one year ago, sellers will likely do better than when they purchased. And in a normal market most sellers are likely to have owned their home for longer than five years.

Buyers will do better because experts are predicting a return to 5% or below interest rates and a staving off of inflation which should make their investment safer over the long term, less likely to lose value. And of course, prices are beginning to be more predictable and negotiable. Sellers will do well because they are likely to realize a gain. In general, most sellers aren’t anywhere near the point where they will have to bring a check to closing if a move is desired or required.

Our opinion is even further bolstered by the inventory numbers.

No serious, experienced expert is predicting any kind of crash because of the ongoing inventory issue.

There are people in the world. Those people need homes. There are not enough homes. It is fundamental supply and demand.

Selling is going to get a little tougher though as some buyers are sidelined by rates and possible recession. Which is why it is more important now than ever to hire a seasoned professional who understands all the market dynamics, how market changes impact pricing,  and has a well-thought-out marketing plan.

This is why as we traveled to Orlando for our conference, Alisa used the time on planes and in airports to finalize the numbers. The data help us understand the market which in turn helps us support our buyers in sellers in making crucial life decisions on whether to sell, move, and what prices make sense in either case. The data also helps us make important decisions about where and how to invest in our business which is ever more important as we continue to grow.

Your situation is unique. And we have a personalized solution for you. Call or DM us today to establish time to talk through what all this means for you and your real estate goals.