Headlines emerged the last few days with statistics, different perspectives, and forecasts about how Metro Detroit is the most overvalued housing market in the United states. I'm going to break down what the headlines aren’t telling you.
Just to take a step back, and shed light on how these headlines came to be. Researchers at Florida Atlantic University and Florida International university have been doing research on the nation’s housing market and came to the conclusion that after years of Atlantic dominating the charts, Detroit has bypassed the front runner.
Metro Detroit's Housing Market Is OVERVALUED!
According to the data collected, homes in Metro Detroit are 40.79% overvalued compared to the long-term pricing trends and forecasts based on the figures gathered at the end of May 2024 in the University’s Top 100 U.S Housing Markets data, while Atlanta is sitting at 40.37%.
The question is why? Why is Detroit’s housing market so overvalued based on the data?
Ken H Johnson, who is a real estate economist with FAU’s college of Business. His perspective is the population growth is stagnant and people are just leaving their current homes to form new ones which has put a lot more pressure on a market that doesn’t have enough homes to support this level of demand, and it’s true, the housing market is incredibly unbalanced right now, you think back to your economy classes in high school where they talked about supply and demand constantly and the point where there’s equilibrium when the two intersect. Well, supply is so low and the demand is off the charts, and what I have been saying in several of my housing market videos over the years, especially post-covid is how this market is in desperate need of more inventory and it holds true years later.
The data collected for this study was taken from Zillow, where they would examine the difference in actual average selling price in a particular city and the city’s statistically modeled average selling price to calculate whether the inventory in the city is being purchased at a premium or a discount. And out of 100 of the researched housing markets, 98 of them are at a premium and just 2 are not: Honolulu and New Orleans.
There has been a lot of perspectives on these headlines form mortgage professionals, real estate professionals, economists, etc. and despite the boom that has happened to metro Detroit home prices, there’s 2 things I am hearing most commonly:
1 - The market must not be that overvalued if there are still bidding wars and the willingness to purchase homes well over asking price, and
2 - Home values are going to continue to rise for the foreseeable future, and forecasts theorize maybe 3 years, maybe 5, maybe 10, and the truth is no one knows the answer to that.
The researchers simply say that home prices will fall back to where the long term trends “should be”, but the concern is how will those prices get there, will there be a housing crash? Will prices just drop slowly? Should sellers be given an incentive to sell just as buyers have been given every program under the sun to purchase a home with as little as 0% down, just to try and balance out the inventory?
Most sellers would say it would have to be one heck of an incentive to sell a home while they are sitting on a mortgage rate that could be at or lower than 3%. While digging deeper in this study I thought to myself, okay, there’s a lot of housing markets that are in different cycles right now, is there one that can be learned from? And sure enough, The research brought up Austin Texas, and how they are re-stabilizing, not crashing by any means, but slowly wiggling it’s way back as the area was 11.72% overvalued compared to when it was peaking at 46.70% in June 2022.
What’s unfortunate is in a data sense, covid has completely obliterated any long term trend or forecast of the housing market, and the demand is getting stronger and stronger as the largest generation of homebuyers is trying to jump into the housing market with both feet, while the inventory is at historical lows.
With all that being said, what does that mean for someone who is actually trying to purchase a home in metro Detroit today?
Is it the end of the world? Are you going to purchase and the 2008 recession is going to come back and swallow the state whole? Not likely, but the headlines sure do a good job of portraying that. I work with several people all over the world to relocate to Michigan and I have actually had a few clients I was working with say they no longer want to move to Michigan because newsweek came out with an article that Detroit’s housing market is crashing. And of course I would never downplay a buyer or seller's concern in this housing market with the election coming, inflation being off the charts these days, buyers affordability getting tighter and tighter by the day.
It’s tough out there and I empathize with everyone who is in the trenches right now just trying to get by and secure a home that should be a million times easier than it has been. I tell this story quite a bit to clients as someone who started in real estate in late 2017, it was a different time then. You could go on a showing, bring your parents by the next day, and your aunt and cousin Billy the next, sleep on the decision some more then throw in an offer well below asking price. There were no appraisal guarantees, bidding wars, waiving inspections, selling limbs, buying the sellers a steak dinner and helping them move just so your offer is accepted. The Limbs thing is an over exaggeration, but unfortunately the steak dinner and helping with moving is not, I did offer that on several occasions where it was hot and heavy.
Weigh Your Options, Wants And Needs
All jokes aside, it’s important to sit down and fully weigh your options and what you want out of life. Yes I am a realtor, yes I make money helping people buy and sell their homes, but I would never push someone to do either one of those things, especially if it didn’t align with their goals. It’s no secret that renting in this housing market is cheaper than purchasing a home, but there are still bidding wars and overly priced homes for rent out there in Metro Detroit.
Do you rent? Do you buy before homes get even more expensive? Do you live with a friend or family member and just bank money for years and years and try to time the market?
I’m all for banking money but that last option about trying to time the market is something you shouldn’t do, because no one knows what will happen tomorrow. So my advice for you is to get some trusted professionals in your corner, a mortgage professional, a real estate professional, and discuss your goals and aspirations with homeownership. Figure out how much you would need to save to feel as comfortable as possible to purchase a home. Be sure that your job and your partners, if you have one, are stable and consistent. Make a plan that you’re comfortable with in a worse case scenario and hope for the best, because having more money saved than you intended is never a bad thing of course.
The most important thing in this housing market is making sure that you can afford a home at that price, with that down payment and at that mortgage rate.
Don’t bank on, “okay I can afford this 8% rate but it would need to go down to 4% in one year so I can have the ability to afford my mortgage still, and the mortgage person I’m working with says it’s likely and I saw someone post something like that in a facebook group too so I am good to go” no no no. Purchase a home based on what the rates and fees are NOW, not what they are projected to be. I have talked about marrying the house and dating the rate, it’s a gross saying, and despite that, it holds true because the rate changes and your house doesn’t, BUT you still need to be able to afford the home right now. There’s an abundance of conflicting information when it comes to the housing market, you have headlines and articles saying this, your uncle Jim is saying that, a Realtor you know says something else, and a guy on Youtube says something even more different, it’s exhausting, BUT the decision for you to move forward, stay put or do a complete 180, doesn’t need to be complicated, just take a little bit and think it out.
There’s no perfect time to buy a home, it’s about making sure you’re ready for a home, not only financially, but mentally. Your finances are stable and consistent to some extent, I'm self employed so I feel for you people in that situation too. And try and stay within your budget, I know that can be hard ask based on what the offers are that are getting accepted, so make sure if you do go over your intended budget, understand what that does to your payment, and if you need to do an appraisal guarantee, make sure you have extra funds to make that happen before letting your emotions takeover and push you to making a bad decision.
Home Budgeting Is Hard... BUT It Doesn't Have To Be!
Budgeting takes a lot of discipline I know, so if you’re someone who could be better with it, I have linked a home budget template I created in the HERE to help you do just that.
I know this topic took a wild turn from the beginning, but the truth is, 98 out of 100 housing markets are being purchased in at a premium, metro Detroit isn’t the only market where homes are expensive and if you’re onto something that is just going to hold tight and try to time the market which is a bad idea like i said, you need to make sure you’re fully equipped and ready to purchase a home. As realtors, we talk about how we help people with the biggest financial decision in their lifetime, that saying has such a deeper meaning in today’s housing market, because a lot of people have debt to income ratios that are nearing 50%, which makes getting a mortgage an even bigger financial decision than before.
You will lose offers, you will get knocked down a few times, but the truth is there’s a great benefit to being a buyer in the market today, and constantly viewing homes, you get a sense of what is worth this and what is worth that, you develop an a standard when walking a home that is priceless, and if you’re serious about buying a home, never stop looking until you get one, because it will tip in your favor, I see it every single day.
Referring to the article, are you surprised about the headlines about metro Detroit, why or why not? Drop your thoughts below.
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Thank you as always for reading, if you’re ever looking to buy, sell or invest, don’t hesitate to reach out. I'm happy to be your go to resource. Until next time!
Cheers,
Andrew
Andrew McManamon is a Michigan REALTOR® with Signature Sotheby’s International Realty and provides real estate services to Buyers, Sellers and Investors throughout SE Michigan including Livingston County, Oakland County, Washtenaw County, Genesee County & beyond. Andrew has become one of the pillars of Michigan real estate. Prior to his real estate career Andrew was responsible for managing a senior living facility in Brighton, Michigan as a dining supervisor and an activities assistant. Andrew’s passion to help people is unlike any other, and he continues to strive to be the best resource he can be. Andrew graduated from Cleary University in Howell, Michigan with a double major in business and marketing, and currently resides in Brighton, Michigan.
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