Michigan Housing Market JUST SHIFTED! - Bidding wars, appraisal guarantees, no home inspection, and over asking price was the verbiage headlines used several months ago, today it’s more so along the lines of price reductions, seller concessions, and buyers market, so stay tuned to find out why.
The Michigan housing market has been doing quite a bit of shifting over these last few months, Interest rates jumped tremendously, price reductions are becoming more common and homes are sitting on the market longer even though just a few months ago people were offering tens of thousands of dollars over the asking price, saying no to inspections to make their offers more attractive and getting beat out by all the competition in the overflowing buyer pool.
Well, today it’s the complete opposite. Bidding wars are becoming uncommon, and sellers are facing reality about what buyers are actually willing to spend for a home on the market. The question to all this is why? Why has the real estate market after a few years of going 100 mph, suddenly slammed on the brakes and laid down the uno reverse card?
The big enforcer in this changing real estate market has to go to mortgage rates. Just to put this into more perspective, this chart provided by Freddie mac, shows the mortgage rates month by month since 2018, while providing an annual average at the bottom. In 2020 and 2021 we saw interest rates in the mid-2’s and average out at around 3%, which is an amazing rate, and everyone and their sister knew that, so when those rates dropped down, the buying power increased tenfold and people who had troubles in the past finding what they wanted at a certain price point were now opened up into a new world of affordability, so buyers got off the sidelines in droves jumping into this market feet first thinking they could capitalize. Some people did early on, but then the late bloomers caught on and made the buyer pool even bigger which then led to these ridiculous bidding wars that were as high as 6 figures over asking price in Michigan.
Many sources have been touching on how the coronavirus pandemic influenced the housing market, but there tends to be a lot of speculation as to what that means going forward. So obviously it’s no secret the mortgage rates are increasing, which would put some buyers on the sidelines as their affordability has changed quite a bit since 2021 to 2022 was an average mortgage rate increase of 2.12% based on the freddie mac chart I touched on earlier. With less buyers in the market, and less sellers wanting to move because they capitalized on such a great mortgage rate these last couple years, it leave housing inventory to be quite slim, and within that slim inventory are sellers who are still trying to capitalize on this market even though it’s completely changed within just these last few months, hence why there are so many price reductions. Keep in mind that when a Realtor prices a home to sell it’s based on comparables that have sold in the area within the last 30 days at most depending on how unique the property is, which would then give that timeframe a little more leeway, but in general terms, 30 days.
Once that window is closed, even appraisers begin to start valuing homes for less. So it becomes this domino effect where your neighbor does a price cut, and that home then becomes a comparable and then you have to do a price cut and so does the other neighbor who wants to list their home.
Buyers aren’t feeling the pressure anymore, because the main thing that pushed buyers to jump on opportunities a few months ago, was simply the fact that the competition was over-saturated so if you didn’t put in an offer by the end of the day there were probably 5+ offers on it already, and I noticed many realtors were encouraging clients to put in an offer as soon as possible without sleeping on it at all, just so they could potentially be the first offer which would possibly prompt the seller to accept that offer and not wait for the rest. So that added quite a bit of pressure as well, and what put most buyers at ease was something along the lines of “If you like it enough to put an offer on it, just do it. If you find that you don’t really like it after the offer is accepted just back out during the home inspection period if you have cold feet”. And that was something that was happening time and time again, that’s why a lot of listing agents encouraged the sellers to not just change the status of their home from Active to Pending, but ABO or accepting backup offers instead, because buyers were so incredibly flakey, and for good reason.
Not only were they taking on the stress of buying a home, they were tacking on thousands and thousands of dollars just to get a home they barely liked. Then after sleeping on it some more, they realized the home sucked and they’d rather live with friends, family or a cardboard box then pay a mortgage on something so overpriced it was hard to justify.
I have made content in the past about these topics and touched on a lot of the same points, but the main thing I wanted to scream from the rooftops is how much power buyers actually have in this housing market. For example, I’ll tell you a quick story of a real client of mine whose situation would’ve never made it a few months ago. This person is a first time home buyer with little to no funds, so he got qualified for an FHA loan, which is a government backed loan for first time home buyers, for 3.5% down. His credit isn’t amazing by any means and his debt to income ratio is on the high side but still falls into the guidelines for this home loan option, on top that his loan approval was based on getting 3% in sellers concessions, which means the seller would credit the buyer 3% of the purchase price to go toward their closing costs. I’ll unpack this a little more. During the chaotic pandemic market, sellers didn’t acknowledge FHA, VA, or USDA type home loans, because there’s a few extra steps to take into consideration before the loan can be finalized.
For example, the appraisal process requires an inspection to ensure the home follows certain guidelines, such as health and safety concerns being as they are government backed loans, so they may request repairs to be made such as installing a railing, testing for lead based paint, etc. then the buyer and seller would decide who pays for these repairs and someone would then come back and reinspect the work that was done and make sure it’s up to their standard. I have gone over to houses my buyers had under contract several times and patched the drywall, painted, and reinstalled miscellaneous items just to make sure the home complied. On top of that, buyers have higher negotiation rights overall to have repairs done or credits given based on findings during home inspections.
Before, you either 1) never got an inspection and bought it as is or 2) got a home inspection you didn’t want to argue about because the seller had 5+ offers in their back pocket if you misbehaved. So despite these rising rates, it’s a great time for these particular homebuyers to step forward and find a home in today’s market if you are able to find the one, because what’s going to happen is the spring and summer are going to roll around and get a little more competitive and hurt their chances a little bit for obtaining a home. Of course the competition won’t be as overwhelming as it was before considering the news stating their will continue to be rate hikes based on the federal reserve's intervention.
2023 is going to be an interesting time, because it’s one of those times where the market could go about any direction. Some people think the market will crash, some people think mortgage rates will hit 8% and home prices will increase at the upward trajectory that they have been over the last couple years while others think it will just float around what it is.
For those of you out there watching right now, what do you think will happen? Drop your thoughts in the comments below.
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.