HUD Articles

By: Lindsay Moore - MLive January 2, 2022

It’s barely been a month since the Douglass family moved in, but the Christmas tree was put up and the girls are doing homework at the kitchen table — a house is becoming a home.

Julie Douglass is happy with her new neighborhood in Kalamazoo. She see can see all the way down to the cul-de-sac where her two daughters, age six and 10, are allowed to ride bikes by themselves. They’ve been keeping an eye out for lawns with swing sets, hoping to make new friends as the neighborhood fills out.

For sale signs are popping up in the new development where the Douglass’ house is among 30 new builds — eventually they will have 150 neighbors.

New construction is on the rise in Michigan. In October, the sales of new construction single-family homes hit a six-month high, according to Michigan real estate data company RealComp.

Builder’s confidence is also ending the year on a high note. Builder sentiment for newly built single-family homes moved to 84 out of 100 in December, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The reading hasn’t been that high since February 2021.

Inventory will be key to 2022′s real estate market. After pandemic lockdown orders brought construction to a screeching halt, the real estate industry is still trying to meet a high demand with lower than average supply.

Overall housing inventory in Michigan is 54% lower than 2019, according to November data from Realcomp. Realcomp data excludes the U.P.

“If every builder was maxed out you still could not build enough homes to meet demands,” said Jim Douglass, a sales counselor at Allen Edwin Homes, one of Michigan’s largest home builders.

His family has moved into three new builds in the last 10 years. When the family decided they needed more room they opted to pick a spec layout from Allen Edwin, customize some details and have it ready in four months rather than spend that time grappling with the resale market.

This move happened in a three-week sprint from the time of closing on the old house to moving boxes into the new one. It took longer to book a U-Haul than to sell their house, he said.

The Douglass family took the first offer that met their asking price, avoiding the bidding wars that have been playing out throughout the year.

“We don’t need to make every single dime that’s out there,” Jim said. “We felt like we got blessed so let’s move.”

Since January, the median housing price has increased 18% in Michigan, according to Realcomp data. Realtors across the state agree there’s buyer fatigue as homebuyers are being priced out by competition.

Some of that burnout comes with unrealistic or outdated expectations, Portage broker Natalie Rowe said. Five years ago the median price was $160,000 when comparing the same time of year. November data shows that number has risen to $228,000 in 2021.

“The expectation of what they’re going to be able to get in the house is a little bit off from what’s available or what was available even a few years ago [compared] to today,” she said.

Steep competition has kept days on the market remarkably low throughout the year, even in the fall when real estate normally slows down. In November, the average house was on the market for 28 days. That’s not far off from July’s record of 21 days which was the lowest in 18 years.

Houses are flying off the market because the offers are still coming in at a rapid clip. Sellers have been forced to get smarter about accepting offers, too.

It’s not just the highest bidder winning the house, its whoever put together the right package. Rowe said real estate agents have started creating spreadsheets for clients so they can compare the financing, down payments and close dates side-by-side to pick the best offer.

“It’s really about being able to present the [offers] in the best way,” Rowe said. “Take all of the information and then decipher it in a way that would make sense to a seller.”

While the holiday season would usually cool down the market, in the covid era anything goes. Some buyers certainly need a mental break, but for those willing to push through they might be surprised with what they find, Ann Arbor realtor Emily Schoen said.

Think of it this way, while the competition is at the mall with Santa or headed home to visit family tenacious buyers can swoop in on the small pool of houses for sale in the winter. It’s worked for Schoen’s clients.

“Both last year and this year I’m having clients have decent luck being able to get into homes before the competition and get them under contract,” she said. “Whereas I think if the home came on [the market] at a different time, not the holidays, there would have been more competition.”

For almost two years weary buyers have been waiting for this hot market to simmer, but those in the real estate industry caution this approach.

“If prices do drop, it’s likely because interest rates will increase,” Schoen said. “[Buyers] are going to be paying a higher price on the house or paying a higher interest rate, but you could be paying the same monthly payment either way.”

The National Association of Realtors’ 2022 forecast predicts there will be two interest rate hikes next year. The expectation is for the interest rate to go from its current average of 3.25% for a 30-year fixed mortgage to 3.5%. This is still lower than the pre-pandemic rate of 4%.

Despite interest rates hitting an unprecedented low, some trends remain the same, Realcomp CEO Karen Kage said. Based on her 42 years in the industry, she predicts there will be a buying frenzy when interest rates increase.

“I’ve been doing this for a long time, and it is very strange, but this is what happens,” she said. “If interest rates start to go up then sales go up for a minute, just for a minute, because people are think ‘Oh, no. I gotta hurry up before they go up more.’”

Although it’s still a sellers market, Schoen wouldn’t advise resting on your laurels.

For sellers, the advice is to get the most out of your investment which can be as simple as buying fresh flowers or hiring a cleaning service before a showing. Other suggestions include renovations like replacing the carpet and polishing the hardwood. And don’t skip the grit work. Schoen reminds sellers to keep up with seasonal maintenance like changing the furnace filters and cleaning the gutters.

“Buyers right now are going through so many homes and everyone’s becoming very educated on what things are worth,” she said. “Being able to present your home really beautifully is really important in making it stand out among all the homes that buyers are seeing.”

For buyers, the advice is to not get swept away by the action. Buyers should treat the negotiation like a poker hand and only bet on the cards in front of them rather than against their competitors’ bluff, Rowe said. She tells clients to make their offer based on how they would feel if they didn’t get it.

“I think it’s about making sure that people are setting their boundaries initially, rather than just making crazy offers and then freaking out later,” she said.

By: Lindsay Moore - MLive January 2, 2022