Should You Wait Until 2023 To Buy A Home In Michigan? - Is it worth waiting until next year before buying a home here in Michigan? In this video, I break down hypothetical scenarios, the housing market, and show you the forecasts and projections floating around in the economy today that I use to analyze whether or not it would be better to wait to buy a home in 2023. Will home prices and mortgage rates decrease enough to make it worth it? What else should you consider?
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).
Should you buy a home now or wait?
This has been the question of the year for years with the pandemic throwing a meteor at the real estate market, but every time you come across a headline like this, it isn’t very specific, because every state across the nation has faced different hardships and market conditions, so here is your Michigan specific headline.
In order to better understand the situation as a whole it makes sense to take a step back to February 2020 where it all began, when Michigan’s governor activated the emergency operations center, and just a few weeks later, the first covid cases emerged. Just a day later, schools started to suspend in person classes and moved everything online. A few days later, all schools were shut down and gatherings of 250 or more people were banned. A day later, restrictions for entertainment venues and fitness centers were only able to allow 50% capacity. Just a couple days later, no gatherings of 50 or more people.
March 23rd, 2020 a stay at home order was issued for non-essential workers, and our death toll hit 15. This was also around the same time when the real estate industry completely shut down, since our services weren’t considered essential. No home tours, no closings, no nothing. By March 30th, deaths rose to 184 and covid cases were around 5,000. Mid-April rolls around and we see operation gridlock, a protest against the stay at home order, and by the end of the month, cases break 32,000 people and death toll breaks 3,000. The most affected county was Oakland, where I live now. Michigan’s covid-19 cases according to this graph from Michigan Department of Health and Human Services shows from ages 20 to 29 the cases were the highest, whereas the highest death rate was for people over the age of 80.
Why does any of this matter? Well, it creates a perspective about the rapid progression of Covid-19 in Michigan, which supports the reasoning for the real estate market to decline nearly 33%. Jobs were made remote, and people not only realized they didn’t like their home after being in it so much, but that they didn’t need to be where they were because their home purchase was based solely on a manageable commute to their workplace that they no longer had to go to. There was an uptick in housing inventory, and people had more money stashed away than ever, saving gas money, stimulus checks, work benefits, etc. And at that point, the real estate market saw home prices that have never been seen before. People were bidding tens of thousands, even hundreds of thousands of dollars over the asking price to get a new home, the buyer demand outweighed the housing inventory 10 to 1. Home prices were rising dramatically, appraisals were coming in much higher than anyone had ever expected and third party real estate services such as Zillow, Trulia and Realtor.com had home value estimates that were so blown out of proportion that sellers knew they had an opportunity to make a large profit, which they did, until they turned around and threw all their profits into their home purchase because that’s what it took to succeed.
Mortgage rates were in the 2% range and people jumped on that opportunity when they could. Putting less money down on a home and placing what they would put down on a home in the stock market, because those profits far exceeded the interest you’d have to pay on a home. Mortgage rates are rising, and are sitting in the 5.5% range as of recording this in September 2022, and with this drastic increase people are contemplating whether it’s worth investing in a new home or not. Home prices are high, mortgage rates are rising, so you’d think it would be the worst time in the world to purchase a home, but what everybody doesn’t know is what the future holds for the real estate market, so I am going to throw some stats and facts your way and we are going to talk about where this crazy market is going to turn next, but before I do, I want to throw a hypothetical scenario your way just to get you thinking.
Taking a look at this graph provided by the MLS which covers the whole state of Michigan. It shows the Median Sale price over the last 3 years, and as of today, it’s just over $233,000, which grew 8.4% over the last 12 months. Taking this Median Sale price, and throwing it into this mortgage calculator, and taking out Taxes, insurance, Private mortgage insurance and HOA for the sake of this example, we will put 7% down, which is the industry average, over the course of a 30 year mortgage at a 5.55% interest rate. With all that in mind, the payment would be about $1,237 a month, but if we decide to purchase a home in 2023, based on projections from several economists following the market, the consensus provided by property onion states that mortgage rates could be at 6.7% by 2023 and 8.2% by 2025.
Assuming you’ll buy a home in the middle of the year, we will just make the rate 7%. This is where it gets a little sticky. Some sources say home prices will be 4-6% higher in 2023 compared to 2022, due to slowing or negative economic growth and rising unemployment. While other sources say home prices will begin to flatten out and the market will “correct” itself. Of course, that would be the best case scenario, but it’s very much a betting game since more sources say home prices will stay high rather than decrease.
If you look back at the graph showing the median sale price in Michigan, you can see that steady increase in home prices, it wasn’t just from 0 to 100. It was a 3 year progression. These prices won’t “level out” or “correct” overnight, or even in just a year. Things tend to get a little worse before they get better when it comes to economic recovery. So for this next example, I’ll do what the sources are predicting, an increase in home prices by 4-6%. I’ll do 5% just to hang out in the middle. 5% of the median sale price of $233,000 is $11,650. So 244,650 becomes our new sale price. Jumping over to the mortgage calculator with these new figures in mind, home price of $244,650, 7% down payment to keep with averages, over the course of 30 years at a 7% interest rate. That brings us to a monthly payment of $1,513. Which is a $276 increase from purchasing this year. Of course it excludes Taxes, insurance, Private mortgage insurance and HOA fees, but it’s a noticeable difference to say the least.
It may not seem like a drastic increase by any means, but the first time homebuyers are the ones that will feel this the most. Imagine them being pre-approved for a $230K or $235K mortgage and being priced out of the market over the course of just one year. They’ll also have to bring almost $1,000 more to the table for a down payment. This is a prime example of why the average age of a first time homebuyer is increasing so much, because affordability is just outside their grasp, and everyone isn’t fortunate enough to be gifted funds from a friend or family member. Of course, if you don’t feel priced out of the market in 2022, taking your time to find what you want and not rushing into something you don’t, might not be the worst idea, but for those of you that graduated college or are trying to get out from your landlord hiking up rents because they can, it might be a good time to jump on this opportunity.
At the end of the day, as I have mentioned, it all comes down to your personal situation, not only financially, but timing as well. If you have questions or want to run some hypotheticals by me, feel free to reach out anytime and I would be happy to talk you through it.
For those of you that saw the pandemic hit first hand, what was your experience like? 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.