Across Realcomp in April, 75 more homes — both single-family and condominiums — were available than in 2021. And the number of showings per home fell from 19 to 15. Both are small changes that suggest the buying frenzy is shifting.
Realtors now are watching to see if price increases could slow as more buyer options become available.
Another sign of market change is that the data doesn’t yet show some of the listings, Kage said, because many homes are sold in the same month they were listed. In April that drove the average number of days a home is on the market down to 31.
“It’s a very fast-paced market,” Kage said.
Nationally, the average home price shot up 21 percent in March, compared to a year earlier, according to national data company CoreLogic. That was a record-setting increase, but one that can’t be sustained: The gains are projected to slow to just under 6 percent by March 2023.
The reason, projects CoreLogic, is “due in part to rising mortgage rates and higher home prices hampering affordability for some home shoppers.”
Rethinking what’s affordable
The average interest rate on a 30-year mortgage topped 5 percent in April, the highest since 2011.
Average 30-year conventional loans reached 5.53 percent this week, up from 5.36 percent a week earlier. While that weekly change wouldn’t mean much of a monthly mortgage increase, the average rate is up from 2.96 in early May 2021.
For a $350,000 home bought with a 20-percent down payment, this year’s mortgage rate increase represents another $400 in monthly mortgage payments.
The increase isn’t slowing lending on the buying side, data shows, though some buyers may be reconfiguring what they can afford.
“Prospective buyers are showing some resiliency to higher rates,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, in a recent statement.
However, as CoreLogic says, unclear is whether that will continue if rates for mortgages and other consumer borrowing climb further, taking more people out of the market for a home.
The Fed has signaled that it could raise the federal fund rate — the interest that banks charge each other — by 3 percentage points this year. That, in turn, influences consumer mortgage rates, which also could climb.
In Michigan, the increase may mean prospective homeowners are competing with fewer investment buyers, said David Hall, president and CEO of Hall Financial in Troy.
“We’re getting back to a normalized market,” Hall said.
Part of that involves more potential financing options for buyers — most of whom have to shop long and carefully due to limited inventory. Even amid many cash buyers in the market, lenders are still willing to lend with a 5 percent down payment, or even 3 percent on loan insured by the U.S. Federal Housing Administration.
Adjustable rate mortgages also are back in play as rates increase, Hall said. They now represent 11 percent of loans, according to the MBA.
“Folks who may have been shopping for homes and thought they would pay 3 percent (for mortgages) are now looking at fixed-rate loans at 5 percent,” Hall said.
For those people, ARMs are not as tainted as they became during The Great Recession, when teaser interest rates on the adjustable rate loans meant that many homebuyers went “underwater” on their loans when the home lost value as the payments barely reduced the principal balance.
Today, Hall said, finding “something in the 4 percent range could make sense if they won’t be in the home for a long time.”
Changes for mortgage companies, too
The mortgage industry also is making changes this year.
Lenders are doing fewer refinancings of single family homes as interest rates increase, with the number of homeowners seeking to refinance falling 72 percent this month compared to a year ago, according to the Washington, D.C.-based Mortgage Bankers Association.
The situation is rippling across the industry, leaving many companies laying off workers or offering buyouts to cut costs, an option facing an estimated 1,000 workers at The Rocket Companies based in Detroit.
Hall Financial, a private mortgage brokerage that originated about $1 billion in loans over the last year, normally operates with 60 to 80 employees, Hall said. The company is at 70 now and it plans no reductions as the industry adjusts from what Hall called the “boom times” of the last two years.
Guessing sales trends
In communities where prices are changing rapidly, Hall said, it can be difficult for a buyer to know whether today’s peak will be followed by yet another increase.
In southeast Michigan, the highest median sales prices in April were in the Grosse Pointe communities, at $398,000, and Washtenaw County, at $382,500.
High percentage increases in places where more than 100 homes were sold were found in Lenawee County (37.1 percent), Dearborn and Dearborn Heights (25.7 percent) and Monroe County (16.9 percent).
“We will see it leveling off,” Hall said. But predicting that timing is “incredibly difficult.”
“Lot of folks thought we were at the top of the market two years ago and clearly we weren’t even close,” Hall said.
While many eventually expect higher interest rates to slow sales and home value increases, Paarlberg said the still-hot second-home market in Michigan could keep the pressure on.
Many people are still buying second homes, possibly to turn them into at least part-time vacation rentals. That financial model means a buyer can withstand further price increases, particularly if they’re buying with cash.
One benefit of the number of cash offers, Paarlberg said, is many deals have equity in them. Unlike the Great Recession, buyers are not borrowing most of the money. In April, about 20 percent of all deals in Kent County were cash, according to Realcomp.
Making offers with a higher down payment, 20 percent or more, will still give a buyer who can’t pay all-cash an edge over other buyers, he added.
“Cash is king these days, and that doesn’t necessarily mean an offer has to be all-cash,” Paarlberg said. “Some component of either a cash offer or a good percentage down payment just seems to be a vital component to winning offers these days.”