Michigan’s hot real estate market expected to cool, agents say

Michigan’s hot real estate market expected to cool, agents say

Despite continued high inflation and rising interest rates, local housing experts say spring is coming and that should signal a better time to buy a new home.

Forecasters expect the market to stabilize, leading to fewer bidding wars and lower sale prices after a year in which homes sold quickly and prices rose sharply. Homes could remain on the market longer, which also would help buyers.

Aaron Fox, president of the Greater Lansing Association of Realtors, has worked in the industry for 20 years and said last year’s market had the “craziest price increases that I’ve seen.”

Buyers overpaid for their homes, which kept driving up comparable homes’ values, he said.

Fox has put a lot of hope in economic development projects on the way, like the new $2.6 billion Ultium Cells battery plant and Amazon’s fulfillment center, both in Delta Township. The workers hired when those businesses open in the next two years will likely earn enough money to consider home purchases, which could help neighborhoods and school districts, he said.

“One of the things that we have in our benefit that some of the other areas don’t is we’ve got a lot of good jobs coming into town,” Fox said. “There are competing jobs that can offset some of the affordability issues that we have.”

Realtor Natalie DeBartolo of Keller Williams Realty in Lansing said the sellers’ market of the last 18 months created bidding wars and caused homes to fly off the market quickly.

Realtor Jeff Burke, also of Keller Williams Realty, said clients clamored to beat out other buyers and, in some cases, waived inspections and cosmetic fixes and made offers as much as $25,000 over asking prices.

“Buyers were fighting over houses as soon as one hit the market with a low inventory,” he said. “It was like a frenzy. You get into it within a day or the house is going to be gone tomorrow.”

University of Michigan economists predict a mild recession in 2023 as interest rates are expected to continue to climb. But the fallout from high rates could be mitigated by the state’s low housing stock.

Fox believes the market in Michigan will swing in the favor of buyers as more homes stay on the market longer.

What does the state look like?

In May, Moody’s Analytics dubbed housing as “overpriced” in more than a dozen Michigan metropolitan statistical areas. The Lansing and East Lansing areas were considered overvalued by 22%, compared to Muskegon, where homes were 59% overvalued. The Detroit area had homes around 25% overvalued. Moody’s concluded that home values in 97% of U.S. cities were overvalued.  

While experts are seeing signs that calm is on the way, there are bad omens that may keep potential home buyers from buying.

Brian Westrin, general counsel at Michigan Realtors, hesitated to give a statewide outlook due to the market’s volatility, but said many areas are facing issues with the availability of homes.

“From what we’re reading, we’re noting the public sentiment is concerned about inflation,” Westrin said. “They’re concerned about housing stock and the property taxes.”

According to Freddie Mac’s Nov. 21 research brief, mortgage rates rose from about 3% in the early spring more than 7% for a 30-year fixed-rate mortgage by November. It’s not near the 18% 30-year fixed rate highs seen in 1981, but is markedly higher than the rates people were seeing in 2020 and 2021.

Homes on the rise:Think homes in Michigan are overpriced? You might be right.

As for housing stock, seven real estate associations in Michigan have, on average, two months’ worth of inventory on hand to sell. That’s a near 20% improvement – or approximately 0.3-month increase – from October 2021’s stock average of 1.68 months.

The Southwestern Michigan Association, which covers Allegan, Berrien, Cass and part of Van Buren counties, had the highest supply in both years at 4.1 months in 2022, and at 3.2 months in 2021.

The Greater Regional Alliance of REALTORS, which covers Grand Rapids, Kent, Ionia, northeastern Allegan, the northern half of Barry and southeastern Ottawa counties, had the lowest supply in both years with an 0.8-month supply in 2022, and a 0.6-month supply in 2021.

According to data the USA TODAY Network analyzed on Calhoun County’s real estate market from Realtor.com, the county has a median sale price of $168,000 up 1.82% from a year ago as of October 2022. The county, in that same month, had 279 active listings to date, up from 229 in October 2021.

Homes in Calhoun County were spending about 54 days on the market.

Fox said the state is slowly adjusting to a more stable market from the 18-month seller’s market the pandemic created. Detroit is likely to see market changes first, he said, then it’ll spread to the rest of the state in weeks opposed to months.

Michigan Realtors doesn’t collect statistics beyond sales and average prices from its partner associations, Westrin said. Current statistics on the website are as of August 2022 with an average sold price of $278,044, up nearly 8% from the previous year. Most real estate associations don’t have data publicly available.

Westin said first-time home buyers have greater chances at getting a home this coming year with Federal Housing Administration loans being easier to obtain than conventional loans, which are typically for those with high credit scores, lower debt-to-income rations and a down payment, according to Rocket Mortgage.

Gov. Gretchen Whitmer signed legislation to create a four-year program that allows first-time buyers to deposit money into a tax-deductible savings account for the purpose of buying a home. Buyers are restricted to a $50,000 account maximum.

“That’s one way to do it. Teach our friends and family financial literacy to save,” Westrin said.

Buying in Northern Michigan:‘It’s killing us’: Interest rates make home buying almost impossible for average person

Greater Lansing’s outlook

Fox predicted the region will see homes on the market for longer periods of time as transactions fall. The association covers Clinton, Ingham and Eaton counties.

According to the Greater Lansing association’s market snapshot data as of Nov. 15, the average cost of a single-family and multi-family home and a condo increased $1,950 to $186,950 for October 2022. Okemos topped the market’s median sale price at $483,000.

“We don’t have the inventory of those lower price points for those buyers,” he said.

The Greater Lansing region had only seven fewer units on the market in October compared to October 2021. Realtors closed on 464 sales in October 2022, down 143 from October 2021. Lansing continues to lead in units sold with 201 closings, followed by East Lansing’s 40 closings.

Lansing’s hot summer market:How hot is the real estate market near Lansing? Home prices rise to $151K

Fox said buyers will hold more power over where they’ll live versus last year.

“Buyers will pick the communities that have the needs and the amenities that they desire, whether it’s parks and rec, shopping or business districts, buyers gonna have those choices again,” he said. “They didn’t have them a year ago.”

He doesn’t think the market will have enough inventory for buyers as there’s a local and national shortage of homes for sale.

“We would carry anywhere from 1,400 to 1,600 active listings in the tri-county area,” he said. “Being that we’re at 763 homes, we’ve got a long way to go before we even get into a neutral market.”

Livingston County’s outlook

While Michigan has seen its population decline steadily, Livingston County has seen more than a decade of steady growth. The county’s population grew 7.7% between 2010 and 2021, from 180,967 to 195,014, according to the U.S. Census Bureau.

That has created pressure on the housing market.

Livingston County Association of Realtors President James Dewling said people are debating affordability with the fluctuating economy.

According to Realcomp, the system Livingston uses for its real estate statistics, the median sale price of a residential home right now is $378,685, up $28,685 from last year. As of October, the association has two months’ supply on hand.

Condos in Livingston’s market sold at a median price of $258,273 this year to date, up $3,273 from last year. It has a one and a half month’s supply of stock.

Sales of residential homes and condos fell by 13.7% and 0.9%, respectively, to date. Realtors closed on 2,036 residential homes and 430 condos through October.

More:Sales of empty, dilapidated homes complicate true picture of Detroit’s real estate market

“If you’re still in this market, it’s you being an intentional buyer as needing a home,” he said.

Currently, sellers continue to hold more power in the market because of low inventory and multiple buyers still bidding on one property, according to Dewling in Livingston. He predicted homes being listed over the winter to reflect comparable prices from last spring.

He added new home construction still isn’t matching buyer demand and more first-time buyers are still in the market. First-time buyers aren’t the ideal people for new construction as entry price points can easily exceed their budgets.

“We’re still talking to first-time buyers about what’s to come and what’s available,” he said. “It’s nothing new to tell them, ‘There’s nothing on the market but we’re continuing to search.'”

Dewling said inflation and rising interest rates have forced more to shop based on monthly payments with other necessities in mind to see if they can afford to live in a home or not.

Inflation will work in buyers’ favors, Dewling said.

“What is going to be the motivation of sellers to get a home on the market?” he asked. “One thing we’re continuing to monitor is the motivation of a person who will purchase a home at a 6% or 6.5% rate. It’s a market dynamic as a whole that I don’t think any more knows the future of.”

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Contact reporter Krystal Nurse at (517) 267-1344 or knurse@lsj.com. Follow her on Twitter @KrystalRNurse.

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