Michigan’s real estate forecast is pointing to 2017 as one of the best years to buy a home. Some statistics are supporting the fact that this might be the best year of the decade to make a purchase.
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Here are the major trends that are making this happen.
Low Housing Inventory
The Macomb Daily reported in April that Michigan’s housing inventory is at a 20-year low. That means fewer homes for sale than at any time in nearly a generation. Also, new home inventory continues to be substantially lower than what it was before the last recession.
Low inventory also puts pressure on buyers. The lack of homes available for sale means that buyers have fewer choices. But it also means greater upward pressure on prices. This means that real estate should continue the recent trend of increasing prices into the foreseeable future.
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Buyers should not expect to be able to get lower prices by “waiting out the market.” Given that there is no indication that the low inventory situation will be reversed anytime soon, housing should only get more expensive.
House Prices Have Finally Recovered to Previous Peak Levels
According to Zillow.com, Michigan real estate prices have reached a median price of $134,200 for May 2017. This represents a full recovery to the $134,000 level they reached in June 2007, at the peak of the last housing boom. Meanwhile, the median listing price for the state stands at $167,000.
What’s more, the median value has increased 8.2% in the past year. Zillow is also projecting that Michigan home prices will rise 3.6% in the next 12 months.
Taken together, this means that homes will never be more affordable than they are right now. A delay in purchasing a home of just one or two years could easily result in paying a double-digit increase over current price levels.
Furthermore, higher price levels should help to bring more housing inventory online, at least partially reducing low housing inventory levels. Homeowners who have been hesitant to sell because values didn’t support the prices they paid before the last recession, will be more willing to sell going forward.
Rents are Also Rising, and that has Implications for the Purchase Market
Zillow.com also reports that the median statewide rent in Michigan is $1,095 per month. This high rent level is also increasing demand for home purchases. Since the median rent level exceeds the cost of a mortgage payment in many markets around the state, renters are finding buying to be increasingly attractive. As well, homeownership offers tax advantages that aren’t available to renters.
With the median price of a home in Michigan at $134,200, a mortgage equal to 80% of that value would be $107,400. At an average mortgage rate of 4.5% for a 30-year mortgage, the principal and interest payment would come to $544 per month. Adding the average annual real estate tax bill of $3,172 in Michigan, or about $265 per month, plus about $75 per month for homeowners insurance, you can purchase the median priced home in the state with a monthly payment of $884. That’s more than $200 less than the average rent!
The continued increase in rents around the state is likely to put upward pressure on both home sales and prices.
Mortgage Rates are Expected to Rise Slowly
The general expectation is that mortgage rates will rise slowly through the balance of the year. What’s more, with the Federal Reserve expected to continue increasing short-term interest rates, mortgage rates may continue to experience moderate upward pressure in 2018.
This means that rates are likely lower right now than they will be in the foreseeable future. That means that now is an excellent time to purchase a home and lock in your interest rate. HSH.com reports that Michigan mortgage rates are currently running at 3.96% on the 30-year fixed rate, and 3.22% on the 15-year fixed rate.
There’s no way to know for certain where interest rates will be six months or a year from now. But we do know that rates continue to be near their historic lows, and upward pressure is building. It’s a safe bet that 2017 will be a good year to secure your mortgage.
Housing Affordability is Probably Near it’s Peak
The combination of low housing inventory, rising house prices, high rents, and rising mortgage interest rates combine to indicate that housing affordability is almost certainly at a peak. Should the forces that are in play continue on their current path, affordability will gradually decline in 2018 and beyond.
All of that combines to indicate that 2017 is an excellent year to purchase a home. Should inventories continue to be tight, and property values continue to rise along with mortgage interest rates, anyone who buys now and locks in their rate, is likely to be breathing a sigh of relief in a year or two.
If you’ve been kicking around buying a home this year, contact one of our loan officers and get the ball rolling by getting your own mortgage pre-qualification. That will let you know how much home you can afford, and how the payment will compare with the rent, you’re paying now. Armed with that information, you’ll be in a good position to move forward with securing a home of your own.