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Modern House


Michigan Housing Supply TANKED!

Michigan Housing Supply TANKED! - It doesn’t matter where you are in the country right now, the common hardship home buyers and even renters are facing right now is there’s just nothing to buy or rent. And with mortgage rates as high as they are along with the price tags on the home, it’s hard to justify a compromise. Several sources have analyzed that The U.S housing market is short 6.5 million homes, as new household formations increased dramatically since the height of the pandemic. The questions are, how is this effecting homebuyers, what will the future hold for Michigan real estate, and is buying a home in the next year or so worth it? Stick around, because all those questions and more will be answered.

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Why is the housing market like this, why is the competition so high, why is everything so unaffordable?, what is going on with inventory? All these questions come back to housing supply, or the amount of homes that are for sale on the market. To fully understand this situation, we need to rewind 15 or so years and see where we went wrong.

Remember in 2007, 2008, and 2009 when the market crashed, millions of people got laid off, huge companies that we thought would be around forever went bankrupt, there were government bailouts, sketchy loan practices, and the list goes on and on, I’m sure you know the gist of it. Anyway, since that time, we’ve been moderately conservative when it came to the construction of new homes, then covid came around and threw gas in a fire that was already burning just fine, causing material and labor shortages which fueled yet another slowdown in new construction. The other aspect of this unbalanced housing market people are pointing fingers at are these “institutional investors” that have been outcompeting homebuyers and have been blamed for the drastically increased rents and home prices over these last couple years. Several articles have come out saying corporate investors or wall street purchased a quarter or so of homes in 2021, but what most people don’t understand is it includes ibuyers, first time investors, and your everyday people establishing LLC’s for a new real estate portfolio. In most markets, these investors account for only about 2-3% of homes sold in 2021. So it’s hard to blame this group of people solely for causing the housing market to be this way, but I won’t say they haven’t affected or distorted local real estate markets.

There are markets out there where builders are handing off their new communities to these investors so they can turn around and rent them out, which just hurts the old “American dream” mentality that has been branded in our minds for generations pertaining to homeownership. This argument could be made about the rise of those everyday people partaking in airbnb and vrbo to build additional streams of income too, but this whole heavy blame concept was said to be use of fear mongering, as Zillow and several larger companies bought up a bunch of real estate and had to off-load that portfolio at a loss. There’s just so many misleading statistics, and the other deceptive part of this situation is all these homebuyers being beat out by all-cash offers from this large investors, but the reality is, yes these offers are on the rise, but they are from smaller landlords, wealthy people and your typical house flipper. A survey was actually conducted by the national association of realtors, stating a “0% difference in offer price of institutional buyers compared to other buyers.” and the “median purchase price of institutional buyers [was] typically 26% lower than the states’ median purchase prices,”so they aren’t competing with homebuyers in these bidding war situations anyway, but more so specializing in going after distressed homes. All that back story just to say that the unaffordability is due to persistent undersupply, which can be tied to the rules and regulations developers and builders have to go through just to get a new community on the market.

There’s several legal hurdles that need to be faced, so the blame can’t be pushed onto builders and developers too much, as they are told there are environmental concerns with their new communities, which some economists believe is just a way for larger employment hubs to capitalize. For several decades, there’s been a shortage of building, especially in these large metro areas and hubs like New York, Boston and San Francisco which would then push prices up drastically. The thought process and argument here of course is to eliminate these constraints keeping the developers from doing what they do, develop. There’s bans on duplexes, triplexes, and multifamily buildings all over the country, which would create a ton of housing for people. Yes, I understand it may not be pretty, but it’s a roof over someone’s head and at the end of the day that’s all that really matters.

Of course this concept has already been thought of and the response from a report for the outcome of transferring single family rental homes to owner occupants showed that 85% of renters wouldn’t even be able to qualify for a mortgage anyway. The idea is to push landlords to sell off their inventory, with the theory it would make affordable housing since they wouldn’t be banking on inflated rent prices, then down payment assistance would be implied to help these renters transition into buyers. But no matter the assistance, it was found that most renters don’t have the credit score to obtain a mortgage. There was actually a similar policy enabled by Hong Kong that didn’t effectively decrease home prices. I’m in no way defending these investors, but they have been the center of the spotlight for quite a long time and the reality is, we just need to build and keep building.

With this backstory about what’s going on with housing supply at a large scale, there’s of course still consumer behavior that’s oftentimes blamed in this situation. How many realtors or people have you talked to over the last couple years who have said when asked “why is the housing supply so low?” and they respond with “sellers just aren’t selling”. And why would they? They see articles saying the world’s ending, there’s no supply and these sellers who may have profited substantially are now in your shoes as a buyer, in the trenches trying to find a house to live in which could take months and months unless they already have a second home or a family member or friend to fall back on, it makes this circumstance a tough one. Sellers sell when their life changes, new job, for family, to downsize, to upsize, etc. The uncertainty in this market isn’t their fault, we just need more homes, period.

So will all this in mind, circling back to the questions: how is this effecting homebuyers?, what will the future hold for Michigan real estate?, and is buying a home in the next year or so worth it?

Homebuyers are needing to have a little more patience, compromises might be essential to getting yourself into a home. For second and third time homebuyers I know that’s a time to be a little pickier, after gaining experience in your first home and understanding what your lifestyle is like, but it’s crucial to truly define what a “need” and a “want” actually is. An entry level primary bedroom is one thing, but a must have for a gas stove over an electric one, this could be a $1,000 conversion that shouldn’t have you crossing this home off your list especially if it checks all the other boxes. In Michigan seasonality affects our housing market quite a bit. We have the 4 distinct seasons, whereas other areas of the country drop 20-30 degrees and call it a day and that’s about it, but during the holidays and winter season, there’s a significant halt in transactions. unless you actually HAVE to buy or HAVE to sell, people sit on the sidelines and wait for the spring. More homes pour into the market, more buyers pour into the market and the supply and demand goes off the charts. I know of some agents in Michigan who plan their vacations over December and January because it scales back that much.

So as a buyer in Michigan, what are you supposed to do? You hear about home prices holding their ground, interest rates have doubled over the last couple years, and your uncle Dave is telling you to go for it champ while your aunt Edna is calling you crazy for considering it. It comes down to two things: where are you at in life? And can you afford it? Are you settling down in life and can commit to a home for the next 7-10 years so your home can have the potential to appreciate? Great, check that box. Can you actually afford a home right now? It’s one thing to purchase a home below your means (which is a good idea regardless) but are you going to be stuck living paycheck to paycheck for the next 7-10 years and hardly be getting by? Let’s leave that box unchecked then, but if you can make it happen with current rates and home prices, there’s no point in sitting on the sidelines. Be proactive with your search.

I had a buyer recently say “screw it, I hate this, this search has been going on long enough I haven’t found anything I like, I’m done”. It’s frustrating and I’m not going to talk anyone down from feeling the reality of this housing market, but I do mention to continue to keep your eye out for anything that pops up on the market through my home search platform, because when you least expect it, the “one” pops up. If that person that said those words to me actually stopped like they intended, they would have never come across their dream home for their family that includes lake privileges that were a HUGE plus, and now I see their family posting lake pictures on Instagram. It’s a patience game, I know how annoying it is. I talk to buyers and sellers everyday, and the mentality is often more negative than positive.

So what does the future hold for Michigan's real estate market? Well, as several articles have stated in the past couple weeks, Michigan's housing market is cleaning up its wildest party in decades with prices seeing double digit increases, and the days on market were actually hours. Sources call this transitional period in the house market, a housing “hangover”, full of headaches and Advil. Nationally Home sales fell 35.1% year over year in November according to redfin data. Which was the largest decline since 2012 according to their data.

In Michigan however, closed home sales in present time were lower than in 2021 and even lower in 2018 prior to the pandemic. Prices have increased over the last 5 years as they have across the nation. The mitten state saw an increase of less than 2% year over year, with the median home price coming in at around $230,000 as of November 2022. Housing supply is still an issue in Michigan, but there was some light at the end of the tunnel, hearing there was an 11.6% increase in homes on the market. That may seem like a lot but in terms of months supply, a health housing market would have 4-6 months, which is the amount of time it would take to sell off all the inventory if no more was added. In Michigan we are in the 1.5-2 month supply range. After talking to several agents and doing some additional research, the anticipation for the upcoming spring market is a positive one (or maybe we are telling ourselves that so we can sleep at night), nonetheless, historically speaking, in terms of seasonality there will be improvements to this unbalanced housing market. The question is how drastically better it will be, but I’ve chatted with enough buyers in the market to know they have high hopes for the market as well, as it has been known, a lot of people, not just buyers but sellers are on the sidelines right now itching to make the move and start their life in a new home.

If you’re someone looking to buy a home in Michigan and are wondering if this year or next is a good one to pull the trigger, just revisit the 2 questions I mentioned earlier to ask yourself about life and affordability. At the end of the day, time flies and life goes on whether you’re on the roller coaster or not, so if you can make it happen, it never hurts to start the process, but if it’s something out of your capabilities at this moment in time, break down a budget and figure out what you need to do to achieve your dreams in homeownership. Maybe it’s improving your credit score, paying off debt, saving money, whatever your barrier is to homeownership, you just need to get in touch with the right people to help you get there, because I see so many times that people sit there thinking it won’t ever happen before they even have a conversation or get any sort of advice from a trusted and reliable professional. Believe me when I say it’s possible for you in this day and age, because I help people do it, just don’t let anyone tell you otherwise because they bought a 2,000 square foot home with a $40K salary in 1950 for $10,000 and a paper clip.



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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