THIS Is The Michigan Housing Market! - Should you buy a home now in today’s housing market? Or should you wait and see what next year has in store? This is the million dollar question leaving home buyers legs on either side of the fence, so be sure to stick around because I’m about to answer that exact question and more for you.
Home prices skyrocketed all throughout the pandemic, and the FED’s are working to “supposedly” get the inflation under control by hiking the rates 10 or so meetings in a row, and mortgage rates are just soaring. With all this in mind, you would think the outcome of this equation would have any potential homebuyer waiting on the sidelines. A recent survey done by the Fannie Mae Home purchase sentiment index stated that 79% of consumers believe it is just a horrible time to purchase a home. That’s understandable, especially if you were aware of what the housing market looked like over the pandemic, 2-3% interest rates, and early on homes weren’t escalating into ridiculous bidding wars, over ask offers, and buyers buying other buyers out of their contracts, it was and is just pure craziness. At a glance it may not look like Michigan’s housing market is budging in anyway, shape or form, but looking at some of the data collected by several real estate data resources, the median sale price increased in Michigan by 4.5% in April 2023 year over year, and the number of homes sold dropped by almost 30%. New buyers are jumping into this housing market with a mortgage rate in the 6 and 7 percent range.
Waiting To Buy A Home In Michigan COULD Cost You! (Keep reading to find out why!)
The problem is the media is so gosh darn contradicting when it comes to reliable information, throwing out countless ratios and statistics, and no one even knows where that data even comes from. They say buyers have the upper hand, since the market is slower post-pandemic and Michigan is supposedly going to see a decrease in home prices by 20%, but that came from the same source that said 2023 is going to be a buyers market and if you have been paying attention to this market, it most definitely isn’t or doesn’t feel like it at least. I have been quite the observer in Michigan’s housing market these past couple years, being a Realtor it makes sense of course, but what I have noticed is the market has been twisting and turning like a roller coaster where one month, buyers are excelling and the next month sellers are capitalizing. The problem with these housing market headlines is they make the housing market extremely black and white. It’s either good or it’s bad, but the reality is, it’s 50 shades of gray without the whips. Mortgage rates are high, it’s a bad market, home prices are high, it's a bad market and vice versa. But you and I both know that someone can capitalize in any housing market at any time, it just comes down to whether or not you can afford it.
People ask me all the time, what do you tell people that are buying a home these days? And I start by putting my historian hat on and bring up the home price index year over year. The United States averaged a 4.59% growth from 1992 to 2023, reaching an all time high of 19.20% in July of 2021 and even factoring in the -10.60% in November of 2008 when the economy fell off a cliff. Buying a home today comes down to answering two questions: can you afford it with where the interest rates are now? And can you live in this home for 7-10 years to ensure the home appreciates adequately? Of course there’s a few caveats to this too, is it a home you’re planning on flipping short term or will this home turn into a rental at some point.
People get extremely hung up on Interest rates and home prices and it’s understandable, it’s good to be financially aware, but waiting for the perfect time to buy a home will be nearly impossible, I know we wish we could build a time machine and a buy a home in late 2020, or early 2021 when the rates were low and the home prices weren’t unbearable or even during 2008, but we can’t. If you are tech savvy enough to do that please let me know, I’d go back and kick my 11 year old self in the butt for not investing in real estate. Inflation is never going away, 90 cent gas in the 1980’s is not coming back, new $15.000 cars in the 1990’s are not coming back. Everything will continue to get more expensive, the dollar will be worth less, but we can all cross our fingers and hope salaries and income can match up better to this crazy cost of living across the nation. All of our parents and grandparents give us a hard time about why the average age of homeownership is getting into the 30’s but everything was just a lot cheaper back in the day, but also back in the day, 1981 to be exact, Freddie Mac recorded the highest mortgage rate of 16.63%, and years and years later when the rates came down to what they are now, those folks were ecstatic. We were blessed with what the pandemic did to our housing market in the interest rate department, but they aren’t going to fall down to that 2-3% range for a long time, if at all. It was pretty much a flook. 5-7% will be the norm in my opinion for quite some time, hoping they don’t escalate much higher than that.
Before I jump into that golden question I want to preface it with some real data from a true Michigan resource. Since I’m a data guy, I want to bring up this graph from the MLS to show you the median sale price over the last 3 years. As of right now, we are sitting at $240,000 which was a 4.3% increase year over year, but if you look at the section at the end, this price has been exactly the same since February 2023 until present time, which has been the longest time of consistency over the last 3 years, which is promising, especially when other sources are stating that home prices peaked in spring of this year. The biggest problem with this unbalanced housing market is inventory, some buyers have loosely accepted the fact that mortgage rates are what they are and they are making due with what it is, so the demand is still there, but the lack of inventory is what is driving the multiple offer, bidding war situation, so if we can add more inventory, we can have less showings per home, and alleviate some of that stress for homebuyers, that’s my opinion of course, yours could be different.
Taking a look at another chart that shows the homes for sale over the past 3 years, this graph shows a 4.1% increase in homes for sale year over year which isn’t a ton by any means, but it is a step in the right direction even if it was just temporary, as we can see there was a peak in springtime of this year and it’s slowly starting to make its way back down, which is pretty typical in Michigan, because seasonality plays a huge role in buyer behavior and as we begin to slowly taper off the summer, we think about kids going back to school, and most people don’t want to move during that time or when it starts getting cold unless they have to. Jumping to the next chart, this one is closed sales over the last 3 years, and I thought this one would be an important one to include, because I mentioned some buyers loosely accepted mortgage rates for what they are, but a lot haven’t and that’s what we are seeing here since there was a 17.8% drop in closed sales year over year despite, the slight uptick in housing inventory.
The last graph I want to touch on to solidify all the other facts, is the showings per listing. In June, July and August 2021 it was crazy high, but now we see it has dropped 15.7% year over year, which means less people are viewing homes. I know of several people who jumped into the market in mid-late 2021 and are on the sidelines still, so the buyer demand is still off the charts, and I know a lot of people are just hoping for the mortgage rates or home prices to simply drop to affordable levels, but that opens the door to the thousands of buyers waiting for that parking spot to open so they can park. This chart had a slight uptick at the end, and that proves that buyers are starting to accept the mortgage rates a little more, since inventory is still at a low point historically.
With all those questions, graphs and statistics in mind, it brings us back to that million dollar question of whether you should buy a home now or wait. Several sources have provided three instances in which it would make more sense to wait, and this is location specific. 1) Are home values dropping in your area? As of right now they are stabilizing in Michigan. 2) If inventory in your area is increasing. More inventory gives buyers more bargaining power, so that helps in negotiations tremendously, so if this steady upward trend continues, more inventory equals more bargaining. And 3) If your personal finances could use some help. The biggest reason why anyone should wait to purchase a home is if your financial situation is not where you want it to be. For example, let’s say you’re self employed like me, and your job depends heavily on market behavior which mine does. Not only would I be saving money for a down payment, closing costs, and emergency fund, I would want to store away 6 months in reserves, that could be excessive in your eyes, but I like that safety net, because if the market were to hit a brick wall for whatever reason I know I can make something happen in 6 months. So that would be business expenses, mortgage payments, taxes, insurance, groceries, etc. That’s just me, I’m sure 3 months may be adequate for you.
On the other side of the fence though, there have been several of you who have reached out who either own a home in another state or are renting an apartment or condo looking for the right place to call home here in the mitten state. For those of you who need to sell, I would recommend now is a great time to do so based on all the statistics I laid out for you earlier, but of course that depends heavily on your local market conditions, and if you have found something over here or not, or if it would financially make sense for you to jump into a rental below your means here, so you can save up additional funds or simply wait for a home to pop up on the market you wouldn’t mind living in.
Jumping back to the home purchase sentiment index, and for those of you that aren’t familiar with this I know I brought it up in the past a few times. We know that despite positive or negative indicators in a housing market, decisions are based solely on behavior. This index polls 1,000+ people a month based on 100 or so questions, some of which are distilled into a single indicator which is designed to provide signals on future housing outcomes, and it’s actually been fairly accurate since being established several years ago by Fannie mae, which has provided reliable mortgage financing since 1938. The most recent report indicated there was a slight increase in the index that can be attributed to net increases in two components (Buying Conditions and Change in Household Income) and net decreases in three components (Selling Conditions, Mortgage Rate Outlook, and Job Loss Concern). Home Price Outlook remained the same month over month, showing the majority of applicants said mortgage rates will continue to go up the next 12 months. In terms of home prices, they were asked if they would go up, go down or remain the same. In June 2023, 37% of consumers said home prices would stay the same in the next month and 36% of them said they would go up. Based on that behavior and the graphs I showed you earlier, Home prices are expected to stabilize or increase ever so slightly, whereas mortgage rates from numerous sources are said to increase. So if you’re someone ready to pull the trigger on a home and you’re sitting on the sidelines, the consensus is home prices will be around or close to the same they are now, but mortgage rates will be higher.
At the end of the day, these are projections, assumptions, and educated guesses at most. All anyone can do is follow the trends historically and make a theory about what economic factors will do to mortgage rates. For example, with election season coming up, there’s this fear of what will happen to the mortgage rates, but taking a look at the election cycle from 1972 to 2020, New American Funding listed the starting rates and the ending rates along with the differential, and it was equally positive as it was negative from 1972 to 2020, so it made almost no difference at all.
Marry the house and date the rate, is a saying i’m sure you’ve heard from countless Realtors and Mortgage lenders around the globe to describe this market with absolutely zero context, and as much as I think it is the most unpleasant saying that’s made its way into the industry, there is some truth to it. As I have mentioned time and time again, you want to purchase a home for the long term, so you are marrying that bad boy, rates fluctuate so much over the years that refinancing is almost inevitable. Before we started seeing those 2-3% interest rates, most homeowners around the country had refinanced at least once, maybe twice. So if you’re someone who is sitting back waiting for the mortgage rates to drop 1% while you continue to pay rent to pay off someone else's mortgage, I highly suggest you reevaluate your strategy.
In a housing market that has been all over the place, the question should I buy or should I wait has been something I hear everyday and twice on Sunday. I know the thought of buying a home is overwhelming, it takes quite a lot of patience and you’re hearing it from someone who eats, sleeps and breathes it everyday. Take some time to review your finances, think about how much you need to pay for down payment, closing costs and an emergency fund you're comfortable with. Start the conversation with a Realtor like myself and a mortgage professional to make sure you have your ducks in a row, because at that point you can decide, you know what, I see what I am approved for, I want to spend some time saving to increase that, with a higher interest rate in mind.
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 Brighton, Michigan.