Rising mortgage rates have made for a less frenzied housing market in metro Detroit this summer compared with last year, although a still-tight inventory of available properties is so far keeping things from returning to what real estate agents consider a more “normal” market.
Many sellers are still getting multiple offers and selling above asking price, agents say, yet they are generally having to be more conservative in pricing their house than before interest rates began marching up, as well as more open to making price concessions.
Last summer, the typical negotiation was for how much over the seller’s asking price. Today, buyers have a bit more leverage and can sometimes knock 5% or so off a listing.
“So I’m able to negotiate for my buyers right now,” said agent Abe Taleb of RE/MAX Leading Edge in Dearborn Heights. “A year ago, you were negotiating up, not down.”
There also has been a modest increase in the number of available for-sale homes, although not yet enough inventory to fully satiate buyer demand.
Agents report that bidding wars still happen. They just are less intense, and happening at somewhat lower price levels than before.
“So if you had a pool of buyers that were looking at, say, $400,000 homes, the rates increasing adjusted them down to $350,000,” said Nathan Boji, an associate broker with RE/MAX Classic in Farmington Hills. “It’s the same pool of buyers but there’s not that many more additional houses, so they are all still kind of fighting over them.”
Home sales numbers for June are not out yet. In May, the median home sale price was $260,000 in metro Detroit, or 5% higher than a year earlier, according to the Realcomp multiple-listing service. Sales were down 7% and the number of listings was up 14%.
Mortgage rates have been on the rise this year, up from the historic lows that arrived early on in the COVID-19 pandemic with the Federal Reserve’s massive bond-buying initiative.
A year ago, the average interest rate on a 30-year, fixed-rate mortgage was 2.9%, according to federally backed mortgage giant Freddie Mac. Last week, the average was 5.7%.
That difference in rates would add more than $300 to the monthly mortgage payments — including estimated taxes and insurance — on a $250,000 house bought with a 20% down payment, according to a leading online mortgage calculator.
And the prospect of higher payments is impacting would-be buyers’ budgets.
Accordingly, many recent sellers have had to lower expectations compared with 2021 and 2020, when sellers of average properties often fielded offers $15,000 to $20,000 over asking price — and sometimes much more.
“With higher interest rates, buyers are less willing in some cases to overbid and do an appraisal shortfall,” said Teri Spiro, president of the Greater Metropolitan Association of Realtors. “But a buyer today probably has a little better chance of getting the home.”
An appraisal shortfall is when the appraised value of a house comes in below the price that the seller and would-be buyer agree to.
Because mortgage lenders do not lend above the appraisal, either the buyer must cover the gap with cash or the seller agrees to lower the price.
It was common last year for buyers to cover appraisal gaps to boost their offers.
Sometimes, however, even that isn’t enough to get the house.
“I was talking to one of my agents last week,” Boji said. “They submitted an offer, $30,000 over asking price, they guaranteed $15,000 of an appraisal gap, and they got beat by someone that offered $45,000 and guaranteed all of (the appraisal shortfall).”
Few new houses
The strong demand for housing these last few years has so far not resulted in any surge in building activity for new houses in metro Detroit.
The Home Builders Association of Southeastern Michigan recently reported that the 308 new single-family home permits issued in May in Wayne, Oakland, Macomb and St. Clair counties was 35% fewer than May of last year.
However, the average permit value was up 17% year-over-year to $352,575. That roughly translates to a $493,000 purchase price for such a new house.
Sold and bought
Norman Alsahoury, 32, recently experienced what it is like to sell and buy a home amid today’s higher mortgage rates.
Last month, he and his wife sold their brick three-bedroom ranch house in Dearborn Heights for $670,000 after receiving more than a dozen offers on it.
They had bought the house for $490,000 in August 2020, seeing it as a good investment. Their interest rate on the mortgage was around 3%.
Because that Dearborn Heights neighborhood is highly desirable, his plan to sell the house this spring was less impacted by rising mortgage rates.
Working with his agent, Taleb of RE/MAX Leading Edge, Alsahoury succeeded in getting full asking price — plus two months of free occupancy in the house before he and his wife move out.
“There are still people looking for homes, but there’s no inventory at all,” he said of the area’s market.
Alsahoury and his wife will downsize later this summer to a three-bedroom condo in Livonia. They closed last month on the $280,000 sale, beating four to five competing offers by paying $20,000 over asking price.
Days on market
Spiro, the Greater Metropolitan Association of Realtors president, said that while prices are moderating with the rising mortgage rates, we are still seeing an unusually short number of days on the market for houses.
In an interview last week, she said that of the houses in Troy with pending sales in recent weeks, they were on market for an average 13 days. It was once normal to see a month on the market.
What’s more, 28 of the 41 homes sales in that Troy sample were for over the list price, Spiro said.
That shows how the market remains quite hot, with unsatisfied demand.
“Interest rates may have gone up a bit, (but) the world has not changed that much,” she said. “We still have a shortage of housing and the desire for housing is still greater than the supply.”