Impact of rising inflation, interest rates
It’s hard for the average person to see the market shift after record home prices were announced in June, when the national median sale for a single-family home hit $416,000, up 13.4 percent from a year earlier. In Michigan, the median home price was $284,466, up 17 percent from the same month in 2021.
“It’s difficult for sellers to reach the high level that we’ve had,” Smith said. “But having a buyer who can sleep on (whether they want to make an offer) is a much healthier environment than what we went through.”
So far, says Elsea, “it’s still a seller’s market,” but higher lending rates seem to be having an impact.
A typical 30-year mortgage would have an interest rate of around 5.9 percent this week, up from 3.5 percent last year, adding $144 to the monthly cost of a loan for every $100,000. Borrowers with top credit ratings and 20 percent down payments pay slightly less, around 5.4 percent. The high this year was 6.18 percent and was set in June.
The real estate industry claims that ultra-low interest rates were an anomaly that lasted for years, due in part to the pandemic and federal efforts to encourage borrowing.
Now mortgage rates are rising because the Federal Reserve is raising the federal funds rate (the rate lenders pay to lend each other money). It rose by ¾ percentage point in July and is expected to rise again in September after warnings that inflation had not cooled sufficiently.
The increase in federal funding, in turn, will affect many consumer loan interest rates, e.g. B. those associated with credit cards and home equity lines of credit, although the interest rate is not directly tied to mortgage increases.
Those costs are rising as inflation continues to put pressure on most other consumer prices, including groceries, which continued to rise in July, despite the month’s annualized inflation rate remaining steady at 8.5 percent.
The Fed warned this month of another possible rate hike in September.
Home buyers are feeling the changes, many realtors said.
“There’s less traffic, phone calls and walk-in customers,” said Craig Hinkle, agent/owner of RE/MAX of Grayling.
“I sense buyers are extremely frustrated,” he said. “They would look at something and make an offer and multiple bids would come in. … If they find anything now, interest rates have doubled. So we’re noticing a pullback.”
Real Estate One officials are also tracking the number of new listings. More homes priced at $750,000 or more are coming onto the market in Southeast Michigan than a year ago.
Listings of homes priced under $500,000 — including the sub-$250,000 starter range — have declined.
The higher-priced houses are also selling better than a year ago.
“The smaller price declines reflect the increased cost of home ownership, a combination of increased interest rates and higher prices,” Elsea said. “The top end (sales) will be less impacted by higher interest rates.”
Rural markets slow down faster
Statewide, if a home is priced right and looks moveable, sellers in major cities can still expect an offer soon after listing, Smith said.
But sales in rural communities are slowing.
“My colleagues are talking about a slightly grimmer situation, I think, especially in less aggressive markets,” Smith said.
One example, Smith said, was a builder of a new home in the northeastern Lower Peninsula who planned to list it soon for about $250,000 and worried about whether the time lag would hurt his profits as sales in the region declined.
“I think there’s still a digital divide,” Smith added. “If people have decent internet access and can sit by the lake shore, they will do that all day. If you don’t have that access, you’re going to take a big hit.”
Through June, the lowest rate increases in the state were in the Branch County and Clare-Gladwin areas, followed by Shiawassee County and the Thumb area.
The highest year-to-date average selling prices in June were in the Traverse City area ($457,262) and the greater Ann Arbor area ($436,045), two communities with far more buyers than homes on the market, raising affordability concerns accordingly.
In Grand Rapids, where buyers still far outstrip supply, prices have not yet come down, said Edward Pinto, director of the AEI Housing Center, a Washington, DC-based policy think tank. More homes need to reach the market for prices to drop, he added.
Grand Rapids “is still very far from a price drop,” Pinto told the audience at the Grand Rapids Policy Conference hosted Aug. 17 by the Grand Rapids Area Chamber of Commerce.
Some Michigan waterfront properties also continue to rise due to extreme demand. “Our shelves are empty,” says Hinkle, the Grayling broker when it comes to lake-front or river-front homes.
That’s not the case for all properties in the greater Grayling area, Hinkle added. A home with obvious defects or in need of renovation will not fetch a top price or, if it is at the top of the market, will linger when potential buyers turn it down.
“Buyers don’t want to buy properties that need work,” Hinkle said.
Smith said she saw that in the greater Ann Arbor area through her brokerage and nationally in her role as an officer at MAR.
She advises seller agents to consider a price drop if she hasn’t received an offer in the first 10 days on the market.
It’s a mindset change for agents and sellers, said Elsea of Real Estate One.
“If you’re used to a house selling at above asking price in a week and it changing to slightly below asking price in four weeks, then you think that’s a big change.
“But we’re moving towards normality, which is healthy because the pace we were at before wasn’t.”