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  • Andrew McManamon

DON’T BUY A HOME IN MICHIGAN!

DO NOT BUY A HOME IN MICHIGAN.. (Until you watch this video of course!), As I explain what is going on in today’s housing market, real estate headlines, inflated home prices, and mortgages rates being off the charts, so do yourself a favor and stick around until the end of this video, because I’m going to unpack ALL OF THIS.


This blog is a direct transcript from the video below. This comes in 3 versions: You are able to watch the video, read the blog for your convenience or listen to the audio experience (which is linked under the video below).



One of the biggest concerns that everyone has today are these drastically climbing interest rates, so I’ll break down a few negatives for purchasing a home right now, along with some positives if you can believe that.


As of recording this, mortgage rates sit at about 7.05% for a 30 year mortgage, and I’m sure by the time this is published, it will have increased even more. Just a year or so ago, buyers had the luxury of locking in a 2.55-3.25% mortgage rate, I know that might sound unheard of for some of you that haven’t been watching the news or seeing headlines, but I am living proof, as I was able to lock in a 2.65% mortgage rate for my current home in August of 2021.


This dramatic increase in mortgage rates has phased an incredible amount of buyers out of the market and they are now sitting on the sidelines, or looking for something to rent that hopefully isn’t ridiculously inflated, but unfortunately that opportunity is slim. With that in mind, I have noticed a quick change in behavior as well. A few months ago I had clients wanting to throw 20, 30, 40,000 dollars over asking price for a house they didn’t even like that much, because they were just fatigued by the strenuous home search and just wanted to move into a new home. Nowadays, buyers are pickier, showings have declined a little bit, because buyers aren’t feeling the need to rush into anything and make rash decisions, and they are circling back to that needs and wants list to make sure that what they are investing in checks all the boxes.


I know it seems like a no brainer to be doing that the whole entire time, but there truly wasn’t any time to waste. You didn’t have the luxury to come back and view the home again with another set of eyes, you didn’t have the time to drive around the area and get familiar, and you definitely didn’t have the opportunity to offer below asking price to have the seller counter offer something reasonable. These days, it’s all come full circle, buyers are able to take their time and truly assess whether or not they want to proceed with a home purchase or not.


With that being said, if you’re a seller in today's market wanting to throw the ole for sale sign in the yard, spend some more time getting your home in tip top shape to make it stand out among the competition and increase the likeness of a buyer being too picky with a home. It’s a night and day difference compared to what it used to be. As a real estate professional myself and seeing how other co-workers went about their home listing process, the main priority was getting the home to the market as soon as possible, it didn’t matter if the home needed a cleaning, walls painted, or a new roof, buyers were hungry and willing to dish out whatever it took to get the home in their name. So again, if you are a seller, consider getting a pre-inspection of your home to create awareness about any flaws in the home that could be dealt with before the home is listed, and make sure you get a professional on your side that lists the home properly. Unfortunately, with how the market has been and the direction it’s going, it’s hard to be as greedy as before.


Of course, it depends on the price point you’re at. The typical $200-$400,00 range tends to have more inventory, so it becomes especially crucial to pay attention to the detail as a seller to ensure your home stands out. If you’re a high end buyer above a million dollars, the homes are still moving relatively quickly if they are priced correctly. Yes, there has been a slight pullback in that buyer pool due to mortgage rates, but buyers in this price point tend to not worry about it as much as people in the let’s say $200,000 price point.


When thinking about the pros and cons of where this interest rate is going, I’ll touch on the obvious negatives first, and of course it has to do with taking a year at a glance. There’s this justification mentality for buyers these days, saying why in the world would I spend this much for a home today, when it was X amount last year with an Interest rate of Y, and it’s a fair thing to say, but unfortunately, the past is the past and it’s important to understand that it is near impossible to time the market. Yes, I may have locked in a 2.65% interest rate a year ago, but that doesn’t mean I didn’t pay top dollar for my home. Same with buyers today, their mortgage rate might be double, but the prices have gone down since i purchased my home since the bidding wars and competition has decreased drastically. So there’s trade offs here, but the negative is of course paying more now in the long term.


So instead of a buyer looking at their $250,000 price point, they most likely are looking at homes in the $215-$235k price point just to make the numbers make sense. Which brings me over to the next con and that is waiting to buy. There’s buyers out there looking to upgrade from their apartment or 2 bedroom condo since they added an addition to the family and need to make the move, well, now they are staying put and having to make due with what they have until they can gather up a little more buyer power and hopefully increase their budgets to find something that meets their wants and needs. The downside is, a lot of lease agreements are coming to that year mark and potential buyers are having to place extensions on them, whether it be month to month or tacking on an additional year at a new rental rate. It makes it a little difficult to save money for closing costs, inspections, down payment, etc. when the lease you’re agreeing to is most likely higher than the mortgage you'd be paying for.


Another con or negative I wanted to mention, which I touched on a little bit in my past video about homebuilders panicking, is homebuilders are panicking! There’s a lot less foot traffic coming through their communities since these interest rates continue to increase, so what was once a giant building boom over the last couple months has since halted since builders are needed to keep up with much demand since they already have the supply. Less homes being built means less inventory on the market, which means less options for you as a buyer.


Another negative to keep in mind from a seller's perspective is unless they actually have to move, sellers most likely won’t even sell their homes. Whether that be initially signing a contract or even a home currently listed on the market. They could just be putting their feelers out there to see if any buyers bite and if they try to put in a low ball offer, it will just be a hard no. The mentality is, assuming the seller capitalized on a great interest rate from a few years ago or refinanced, why would they want to leave this 2.5-3.5% interest rate to nearly double it to buy something new? They would most likely have to purchase a home cheaper for what their current home is now, so you’re going to see a lot of sellers sitting on the sidelines as well. So on top of buyer demand lessening, seller inventory is lessening as well, and with the seasons changing, especially here in Michigan, that circumstance is going to get worse before it gets better.


Switching gears to the positives, and the first one has to do with offer structure. Offers had to be extremely strategic months ago in order to get a buyer's offer accepted, you needed to get creative to stand out among the 10, 20 or 30 other offers that were being submitted. People waived their home inspections, offered thousands over asking price and also paid out of pocket to cover the gap in the appraisal if there was one, had earnest money deposits that were much higher than we’ve ever seen before to let the seller know they are serious, and even let sellers stay in the home for 30-60 days free of charge so they could find a home to purchase as well. Sellers had it made, but in today's market, not so much. Buyers can get their inspections, offer at the asking price, and offer a reasonable earnest money deposit of 1-3% of purchase price to let the seller know they’re serious about purchasing the home.


Another positive of the increasing interest rates is the ability to not be so competitive. So like I mentioned about the offer structure and being able to view the home a few times and get a feel for the area before you place an offer, you can be at ease knowing you spent enough time researching the area, getting a feel for the lifestyle before you dump your life savings into a home. With that being said, the offer you submit on a home could be 1 of 3 or even 1 of none so the seller is more open to negotiate terms and possibly even offer you some seller concessions, which are credits toward a buyer's closing costs.


It’s a good time for FHA, USDA and VA approved buyers to step forward and submit an offer. Back when the market was hot, most sellers didn’t want to deal with alternative financing, because there’s more involved with making sure the home meets a certain standard and that would ultimately prolong the closing process if it wasn’t up to standard. So as a buyer in one of these financing options, you could be the only offer on a home which would allow flexibility with who pays or replaces what. You don’t need this “highest and best” offer, you can dip your toes in the water and maybe even get away with a lowball offer that gets renegotiated into something more but less than what you were willing to spend.


That holds true for the next positive as well, the new construction scene, As i mentioned when referencing my other video about home builder panic, and how they have a lot of inventory out there, it allows you to get a good deal on a new home without settling with whatever the builder says, because they don’t have this massive waitlist of buyers they are raffling inventory off to anymore. You’ll have the ability to get some more incentives such as: warranties, price cuts, closing cost coverage, a buy down which would allow you to pay a fee to obtain a lower interest rate.


I know I talked a lot about people being on the sidelines, but in this situation, it’s a positive. If you’re someone on the sidelines right now twiddling your thumbs as a potential homebuyer, just know that the competition is much less than what it used to be and what the headlines portrayed it to be. Once those rates come down again, it will be a similar frenzy where you’re losing out on offers and don’t have the luxury of a true buyers market. The positive to purchasing a home now is you can always refinance your home later down the road to get a more appealing mortgage rate. Of course that’s if and only if you are someone who can afford a home right now with how the mortgage rates are.


Another pro that I don’t see a lot of people talking about in terms of refinances is the mortgage lenders out there. Several large mortgage companies out there have laid off an abundance of mortgage professionals, because they typically get most of their business through refinancing. They can stick to having a few clients that refinance year after year, but with rising interest rates there really aren’t a lot of people out there who want to refinance, so they are needing to get new business for home purchases. With that desperation in mind, some of the processes have gotten a little looser in terms of soft credit checks, less work history, just t name a few examples, so people who may of had a harder time getting pre-approved in the past may be in luck to take advantage of some of the new mortgage products these companies are releasing to get more buyers in the door.


It’s clear as day that mortgage rates are increasing and are projected to increase over the next few years, but let’s not forget that in the 1980’s there were people who locked in a 14-18% interest rate. We’ve been given quite the luxury this past year with mortgage rates and now they are around what we would call “normal”. So having that perspective in mind, it makes it a good time to buy still, but if you’re someone that wants to try and time the market, mortgage rates will come down at some point as they always do, but there’s no saying how many years you’re going to wait for that to happen.


MENTIONED LINKS 🔗 →Homebuilders Panicking Video: https://youtu.be/b6W70SELLHQ


Cheers,

Andrew


Andrew McManamon is a Michigan REALTOR® with Signature Sotheby’s International Realty and provides real estate services to Buyers, Sellers and Investors throughout SE Michigan including Livingston County, Oakland County, Washtenaw County, Genesee County & beyond. Andrew has become one of the rising stars of Michigan real estate agents. Prior to his real estate career Andrew was responsible for managing a senior living facility in Brighton, Michigan as a dining supervisor and an activities assistant. Andrew’s passion to help people is unlike any other, and he continues to strive to be best resource he can be. Andrew graduated from Cleary University in Howell, Michigan with a double major and currently resides in White Lake, Michigan.



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