Falling Home Prices Drive Home Sales in Michigan

A month ago, a CD post reported the real estate boom in Detroit, with a 45.5% increase in January sales compared to a year ago.

February 2008 home sales were up again, this time by 49.4% in the city of Detroit, compared to February 2007. For the larger Metro Detroit area, home sales were up 13.8% in February over the same month last year, and marked the third month in a row home sales for the metro area were up over the previous year, welcome news for a region that in 2007 saw its yearly number of homes sold fall 14.4% from the peak in 2004. Read more here in the Detroit News.

According to another Detroit News article "Bargains Drive Up Sales of Homes," Median sale prices in February demonstrate the effect of foreclosure sales on the local market.

In Detroit, for example, February sales were up 49.4% from a year ago, but nearly 58% of the sales involved foreclosed homes, with a median sales price of $10,000. In contrast, the median price of foreclosed homes in February 2007 was $27,000.

In Oakland County, foreclosure sales made up nearly 35% of transactions in February, with a median price of $91,395, compared with $123,000 last year. The median price of non-foreclosure sales for the month was $176,500, compared with $191,000 a year ago.

In the Flint area, the 720 homes sold in January and February 2008 set a record for sales in those two months going back to at least 1998 (see graph above), driven mostly by falling home prices.

According to the Flint Journal article "Foreclosures Drive Home Sales," 394 houses were sold in February, up almost 16% from a year earlier and the highest February total in nine years. January sales also were up more than 15 percent from the same month in 2007 and the highest since 2003, when 327 houses were sold in January.

Real estate professionals say lower prices are the main reasons houses are selling. Buyers are seeing much lower prices or getting much more house for their money. The average sale price of homes sold in February was $76,997, down almost 26% from an average of $103,604 the previous year. The average sales price in January also was down sharply from 2007 averages.

Comment: Like any market with an excess supply, falling home prices are helping to stimulate home sales and bring about a better balance between the number of home buyers and home sellers. Although we tend to think of a real estate boom as a positive period of rising home prices and the current correction period as a negative period of falling prices, in both cases market prices are doing what they do best: achieving market-clearing equilibrium that helps to balance supply and demand. It's a great time to buy in the current "buyers' boom."