Uncertain future, forgetting the past

Our collective memories tend to be short. Maybe it is human nature? I cannot even pretend to understand why we forget the past or how it may predict the future.

Not that long ago, the United States in general experienced a significant decline in property sales prices due to the Great Recession and the mortgage market fallout. Ann Arbor, the general community I have called my home for over 55-years, was not immune to the fallout. Ann Arbor is somewhat insulated from national market forces in that we are a university community, and the university brings with it a lot of stability due to student life, research and development, and the industries that tie in to the university. That said, we are not immune.

In June 2019 I wrote a piece about Ann Arbor for Mobility Magazine. In it I included a year over year chart of all sales through the local MLS back to 2005. This information clearly shows a declining trend from the 2005 data down to a low point between 2009 and 2011. Price increases both with single-family houses and condominium units started in 2012 in earnest. As of a 4/9/20 data run, there are signs of a leveling of prices as a whole, and a minuscule decline in prices with condominium units.


Year to year trends. Houses in blue, condominium units in orange, new construction included

With the World Health Organization officially announcing on 3/11/20 that the Coronavirus was a pandemic, our world started to change. On 3/23/20, Governor Gretchen Whitmer announced a “stay at home” order affecting all non-essential businesses, which included real estate showings. On this date, our world changed even further.

Buyers, sellers, and the Realtors who work with them are adaptable, and some transactions have continued via virtual showings. Many agents have noted that their buyers are reticent to purchase in this manner. This is logical, as anyone who reviews MLS photos will realize photos are often not truly representative of a properties condition due to enhanced photography, and the allowance (in our MLS at least) of virtual staging. Photographs of detrimental conditions are not usually front and center. Therefore, although there is still activity with some buyers and sellers who need to move, for the moment we are largely on hold.

Where will prices go when the stay at home orders are lifted? To me it is anyone’s guess, although there are factors that we should consider. One factor to consider is that prices show as already flattening by the 4/9/20 data run (not the same period as previously, but only two months and a couple days off, still containing one years’ worth of sales). For example, for all Ann Arbor sales, the median price increase was only $3,000 from $390,000 to $393,000, and condominium units saw a very small decline from $238,000 to $233,000 in this same period. If prices had already started to level even with an extreme shortage of inventory, what will happen when the market unfreezes and buyers and sellers are free to move around again? What happens if the unemployment rate tops 30%? What happens if it only tops 15%? Will interest rates be reduced even further to spur activity? What about property taxes and their effect on affordability? Will buyers reduce their price range so as to be better able to withstand future catastrophes? Will the stock market continue to be mercurial and buyers feel more comfortable having assets in something solid, like real property?

Agents in my market are largely optimistic. The very tight supply compared to heavy demand over the past few years had driven prices higher, but being a numbers person, it does not show in the data that I ran through the MLS as noted above. Granted, the data that I culled from the market included all sales within the district, and different markets within the wider school district have moved at different levels, but overall, this is meaningful information.

Optimism is a good thing; it beats being Eeyore. That said, our market is not immune to declines in pricing, as evidenced by the simple chart shown above.

My crystal ball is broken and I cannot predict the future. If I could, I wouldn’t be writing this particular blog post. The idea however, is we should examine different forces within the market and not only focus on positives or negatives, but take a more balanced approach. As appraisers, we let the market tell us what is happening, and just over two weeks into our States shutdown, it is simply too early to call.

Stay well my friends. Take care of your health, stay home and save lives. Collectively we will come through this, we simply cannot predict where prices will be when it is done. At least I cannot.