Thanks to low inventory, higher mortgage rates, and home prices, this summer is looking a lot like last year for metro Detroit real estate — it’s still a sellers’ market.
Big time. Sellers can expect multiple offers over the listing price and cash at closing from the buyers who are willing to close those deals.
It’s not such a sweet time for would-be buyers who can’t afford either the interest rates or the cash out-of-pocket to cover the amount over appraisals. It leaves potential buyers hoping for lower interest rates and more houses to hit the market to level the playing field.
Among those waiting it out are homeowners adding to the low inventory while they wait to afford to move up. It doesn’t help that this is an election year — adding to speculation about the economy through the rest of the year.
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Dimitri Elher, branch manager with Union Home Mortgage in Sterling Heights. Photo: Supplied/Facebook.“Homebuyers are getting frustrated,” says Dimitri Elher, branch manager with Union Home Mortgage in Sterling Heights, who says their purchasing power is shrinking.
He doesn’t see mortgage rates dropping any time soon, despite some expecting them to. Already rates are 0.5 percent above this time last year based on Freddie Mac’s primary mortgage survey with 30-year fixed-rate mortgages expected to stay above 6.5 percent, he notes.
For realtors, things have certainly slowed down. “We are receiving less offers overall from buyers but the quality of offers is still very high,” says Kimberly Drescher, an associate broker at Real Estate One in Shelby Township, who estimates offers are down by about 30 percent this year.
Last year, she was getting maybe 24 offers on a property. “This year I may be receiving seven to 15,” she says. Still, those offers have aggressive terms, with fast closings with out-of-pocket fees and sometimes not even a home inspection.
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Kimberly Drescher, realtor and associate broker at Real Estate One in Shelby Township..And those willing to buy are paying more than they would last year. Drescher, who specializes in North Macomb and Oakland counties, says median home values in Macomb County have increased more than six percent in the last year, according to the National Association of Realtors Property Resource. Most homes have pending offers within 10 days.
Supply and Demand
The number one issue is low inventory, not enough homes on the market, say real estate professionals. Covid largely factors into the shortfall because builders stopped building, notes Drescher. “It will take several years to balance that out.”
With less than a 1.5-month supply of homes in metro Detroit, that means if every buyer bought up currently listed homes, there would be no homes to sell in a month and a half. Anything under a four-month supply is considered a sellers market, she says.
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Supplied /FacebookRealtor Bernard Shamow of eXp Realty.“You need a four to six months supply to make it fair,” says Realtor Bernard Shamow of eXp Realty, who specializes in Oakland and Macomb Counties. Today a home in Macomb or Bloomfield Hills will sell in 72 hours “and five to 10 percent over asking price. A $500,000 home can easily sell for $580,000.”
Shamow, who also works with new construction, says builders cannot keep up with demand. COVID-19 is not totally to blame, he says: Low inventory is also due to Baby Boomers and Gen Xers holding onto mortgages at under three percent who don’t want to overpay for a new home and more than double their current rate, he says. “A lot of people aren’t moving due to interest rates.”
Jo Ann Steuwe, a realtor with ReMax and part of the mother-daughter combination behind The Steuwe Team, based in Plymouth, says buyers who are making the leap are mostly facing a life event — divorce, expanding family, job transfer, moving out of state.
“They are getting hit twice with interest increases and higher home prices, so they need a significant reason in life to make a move.”
It’s a different market today, she says, having survived the 2008 recession “no problem.” “I sell around 40 to 60 houses a year and I don’t think I’ve even sold 15 yet this year.”
She echoes the frustration of her buyers who have made plenty of offers but miss out due to multiple offers. Moreover, with home prices even higher than pre-recession, Steuwe expects prices to keep rising.
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What is a buyer to do? Steuwe has concerns for first-timers especially, who Drescher says make up the largest segment of home buyers.
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SuppliedJo Ann Steuwe, a realtor with ReMax and part of the mother-daughter combination behind The Steuwe Team, based in Plymouth“I have a soft spot for them," says Steuwe. "I worry about them in this overpriced market.”
She says within the typically younger generation, not too many are paying cash unless their parents are putting the money up. Even then they’re hoping to refinance when interest rates drop.
As for older residents, Drescher says many are aging in place for now. “Even if they downsize, those uncapped taxes would be significant,” says Drescher.
“They’re staying put even if the house is not set up for aging at this point.”
Where to look
For buyers willing to take the plunge this summer, experts say there are plenty of great options.
For first-time buyers, Drescher says walkability and good schools with strong ratings are important considerations. She likes St. Clair Shores, Clawson, and Berkely as well-established communities. She also likes downtown Utica in Shelby Township, which are affordable for first-time home buyers.
“They’ve really revamped that area,” she says of Van Dyke and M-59 up to about 23 Mile Road with new restaurants and parks.
For homeowners moving up, Drescher says they are looking at Clinton, Macomb, and Shelby townships, both new and existing homes. She also likes Sterling Heights by Dodge Park near the Farmers Market, and Macomb Township with its new recreation center, and activities like ice skating and outdoor concerts.
Shamow is particularly optimistic about the suburbs. “You could pick 100 cities that are booming,” he says, calling “anchor cities” like Birmingham, Bloomfield, Rochester, Franklin and Troy recession-proof with great schools, shopping and dining.
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Downtown Royal Oak.
He likes Royal Oak for young people and Huntington Woods for historic homes and great appreciation. For a great value, he likes east side communities, like Macomb and Chesterfield townships with good schools. “The same house in Troy for $600,000, you can get for $450,000 in Macomb,” he says.
According to Steuwe, those seeking walkability, great shopping, restaurants and summer entertainment, its hard to beat Plymouth and Northville in western Wayne County. “Million dollar condos overlook downtown Plymouth with the Penn Theatre showing reruns of popular movies,” she says. Northville is much the same, but has a historic section and lots of entertainment throughout the year.
Nearby South Lyon and Lyon Township offer good value with lots of growth, she says. You get newer homes, lower taxes, and a more rural feel with larger subdivisions and plenty of nature and walking trails. Further out, in Livingston County, Steuwe likes Brighton for the high-ranked schools as well as a the downtown.
But the best bang for your buck, she says if you like an urban feel, buyers would be well served considering living just outside the cities and riding a bike or taking a short car ride to town. “Townships have lower taxes,” she says. “Plus you still get the benefit of the schools, which is always good for resale."
Home style is another consideration with ranches being a top choice for many buyers, with basements the same footprint as the house. Drescher says older buyers especially want a main floor primary bedroom suite.
“We have an aging population,” she says. Ranches allow people to age in place since they don’t have to deal with stairs. Home offices or space for one is also a big plus for any age.
Stuewe sees more and more double-income younger buyers wanting updated houses regardless of style. “They don’t want to do the work,” she says. “They want move-in, mint condition, attached garages, and more and more want three-car garages […] at least two bathrooms and at least three bedrooms.”
Her advice to older buyers? Look at condos. “Baby Boomers are huge buyers,” she says. They still want the space for visits with grandkids but not the upkeep. “They want to travel and go.”
Buying vs Renting
Despite the hurdles buyers are facing this year, Steuwe says it’s still better to buy than rent overall, not only for the tax deduction on the mortgage interest but to build equity in a home.
Shamow agrees but admits the decision depends on the situation: “If I just got engaged or was a first-timer and cannot get pre-approved….” He says it might make sense to rent for a year to save money.
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Still, with area rents now about five percent higher than last year, according to
Redfin, Shamow asks why not buy? “Now you have a financial responsibility, something to take care of.”
That said, Shamow is big on educating buyers, especially in this market. “They need to be prepared to spend over appraised value and have decent money for downpayment. That means more cash out of pocket.” His best advice? “Do what makes financial sense for you. Do not worry about what the market is doing. You can always refinance down the road.”
Steuwe and Drescher agree.
“If you like it, buy it, because seven to eight percent interest is not awful and you can always refinance when rates go down,” says Steuwe of what she tells young buyers.
Don’t wait for rates to drop, says Drescher. “Rates may go down but demand will go up and push home prices up. If you find a home where you want to live, and it has 80 percent of what you’re looking for and the other 20 percent can be changed, you have a good fit.”
Drescher’s advice to sellers this summer? “Absolutely do it. You’ll get top dollar this year for your house and it will sell in less than a week if priced properly. But you have to know where you’re going to go.”
For those who want to dig into more details, you can download Real Estate One’s latest market report for Southeast Michigan.
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All photos by Steve Koss.