The real estate market is complex and cyclical in nature. And, as with other commodities, demand and supply can significantly impact home prices of properties in a given market. Mortgage interest rate fluctuations also impact the real estate market.
During the Covid pandemic in 2020 and 2021, federal emergency actions helped to push mortgage rates down to record lows. While the Federal Reserve does not directly set mortgage rates, its actions indirectly have an impact. Mortgage rates fell to just under 3% for a 30-year fixed rate mortgage. As a result, many new buyers took advantage of the new affordability in their monthly payments and purchased new homes.
Mortgage rates began to increase in 2022, in part due to actions taken to curb rising inflation. Many real estate professionals that year wondered if these rate hikes would impact home prices and soften the real estate market. As of early 2023, it appears that many buyers who hoped that mortgage rates would fall back to 3% have adjusted their expectations and moved forward to purchase properties.
Keep in mind that no one knows for sure what the economy holds for the future. Nevertheless, real estate professionals can benefit by keeping an eye on the economy and standing ready to adjust their marketing efforts accordingly. Great sources of reliable information on the real estate market include the National Association of REALTORS® (for national trends); the Michigan REALTORS® (for state trends); the Local Association of REALTORS® (for local trends); and, the Multiple Listing Services in which the brokerage company participates.
A seller’s market is one in which buyer demand exceeds the local housing supply. In other words, there are significantly more buyers than there are available homes to purchase. As a result, buyers are forced to compete against one another to get their offers accepted. This leads to higher purchase prices over time.
A buyer’s market, on the other hand, is the opposite of a seller’s market. In a buyer’s market, there are significantly more sellers than buyers which means that housing supply exceeds buyer demand. This time, it is sellers who are competing against one another for a limited number of buyers. As a result, sellers often choose to lower their home prices to attract the attention of buyers. This tends to result in lower home prices over time.
Michigan, as with most of the country, has experienced a strong and protracted seller’s market. For at least the past three years, properties have been selling at a brisk pace. This resulting demand has caused an inventory problem. In other words, there are not enough available homes for interested buyers to purchase. Many real estate professionals wonder if these market conditions will change in 2023.
While predicting tomorrow’s economy is much like predicting the weather, many economic experts believe that we are likely to see a return to a more balanced or “normal” real estate market. One 2023 forecast (delivered in late 2022) predicted that mortgage rates are expected to stabilize, some markets may see modest home price increases while others may experience slight price declines. And, nationally, home sales may drop slightly due to continued inventory shortages.
Several factors affect the market prices of Michigan properties. Here is a brief discussion of some of these factors.
Mortgage rates affect all housing markets, and Michigan is no exception. We have seen the impact of rising mortgage rates from the record lows seen in the Pandemic Economy to where it is today. A relatively small increase in rates can price many potential buyers out of the market due to the additional amortized interest costs. In other words, as interest rates increase, so do monthly mortgage payments.
For example, a one percent jump in mortgage rates may only increase the monthly payment by a couple hundred dollars. However, when this is multiplied by 12 months, it may make the particular loan unaffordable. All is not lost, however, since the buyer can always purchase a less expensive home. Also, if the buyer can afford the higher payment now, he or she can always entertain the possibility of refinancing the loan if rates come back down in the future.
The property market in Michigan tends to ebb and flow as the overall health of the economy shifts. Some indicators of economic growth include the state's GDP, development activities, employment ratio, and the prices of goods. GDP, which stands for Gross Domestic Product, is the total market value of all finished goods and services produced within a country’s or state’s borders within a specific period of time. Currently, Michigan’s economy has been growing steadily. A healthy economy is ideal for a robust and competitive housing market.
Demographics refers to statistics that relate to the composition of a population in terms of age, income, race, gender, and/or growth. For real estate professionals, demographic data also answers questions such as: who is buying and selling; what are the characteristics of the homes being purchased; how many buyers are searching for homes; how are homes are being financed; and, why sellers and buyers chose to use the services of a real estate professional. Armed with this information, real estate professionals can help buyers and sellers make better informed decisions.
State governments also play an important role in housing. A state may implement policies that lower the cost of homeownership through mortgage programs and state matching funds. For example, the state of Michigan offers the MI Home Loan Program, a mortgage product available to qualified first-time homebuyers statewide to help residents purchase homes.
The state also offers several down payment assistance programs designed to encourage homeownership for certain buyers. Tax credits, subsidiaries, and deductions can also impact the demand for real estate. In Michigan, the Homestead Property Tax Credit helps qualified homeowners pay a portion of their property taxes.
Leveraging Property Market Data for a Greater Profitability
Regardless of the type of market–Seller’s or Buyer’s–a real estate agent should always be ready to put on their “marketing thinking caps” and adjust their marketing efforts when the economy shifts. By doing so, the real estate professional thinks strategically about how to prospect for new seller and buyer leads. Less productive agents, on the other hand, tend to wait for the market to change and then react out of fear that their income might decrease.
As the great professional hockey player, Wayne Gretzky, once said, “Skate to where the puck is going, not to where it is.” When great real estate agents keep their eyes on the market and where it is headed, they can adjust their marketing and selling approach accordingly. All it takes is an open mind and a willingness to keep a disciplined eye trained on current housing data.
The housing market in Michigan is relatively stable, competitive, and fluid. According to several industry reports, overall prices for homes in many markets are expected to increase modestly in 2023. Some regions are expected to experience slightly higher gains than others. Also, interest rates are expected to stabilize. This should provide some comfort to sellers, buyers, and real estate professionals alike.
The goal of staying abreast of economic changes and their impact on housing is simple: Better awareness leads to better financial outcomes for real estate professionals. Those real estate professionals who are members of the National Association of REALTORS® have an advantage. Their membership gives them access to a treasure trove of current, accurate, and targeted economic housing data.
And, always remember the following: Regardless of the economy, sellers will continue to sell, buyers will continue to buy, and both will need (and benefit from) the services of a knowledgeable real estate professional.
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