If you have been something that has been glued to the headlines these past couple of years, it was no secret that sellers had the upper hand and then some, the question today is, is that shift coming… or not?
Michigan Real Estate
To understand what defines a market as a sellers market or a buyers market, it all comes down to that economy class you took in high school that you slept through where there was a graph with a few arrows, and as a refresher, we call it supply and demand. When supply is low and demand is high, the sellers are winning, when the supply is higher and the demand is lower, buyers are winning, then there’s the areas in between that make a slight pull in either direction.
One question that branches off this is, what drives demand?
Well, as of late its been the mortgage rates. As soon as we see a slight dip we see more buyers coming out of nowhere to begin their home searches, then they increase a little bit and buyers jump on the sidelines, it’s been this teeter-totter of a a situation for quite some time, especially since we saw the reality of 2-3% interest rates over the pandemic. Despite this conversation creating this spectrum of supply and demand, the most ideal position to be is balanced, right at that point where the supply and demand arrows intersect and there’s some equilibrium.
A Balanced Michigan Real Estate Market
A balanced market in real estate outside of these graphs and arrows that don’t drive the point home is having a 5 to 7 month supply of homes, which is a measure of how long it would take to sell the homes on the market now based on the current sales rate. A buyers market being greater than a 7 months supply and a sellers market being less than 5 months of supply.
In a balanced market, there’s no perfect advantage or leverage over one another, prices will stabilize and there becomes more inventory that you can choose from without having to bid your first born child on to get the keys. The answer to fixing the housing market is by getting supply and demand on the same field, unfortunately a lot of the government intervention is just trying to dish out more and more incentives for buyers without realizing that those incentives are just creating more demand. Yes, it would be amazing for the government to hand us a $25,000 credit to use toward a house, but all it’s going to do is make homes $25,000 more expensive.
It’s a double edged sword in a sense, because you’d think the answer would be to incentivize sellers, maybe give them a credit to sell their home to increase supply, but at the same time it’s adding them to the demand pile as well with more buying power to drive prices. If we could just snap our fingers and watch an endless supply of new construction home communities pop up that would be helpful, but unfortunately it’s not that quick and easy.
The question today that I mentioned is is a shift coming? And where is the market headed?
The national association of Realtors dished out some information showing the inventory of homes for sale all the way back from 1999 to present time, and where the buyers market peaked in 2008 and 2010, as well as where the sellers market peaked in 2019, 2020. For now, we are still sitting in the sellers market territory, but the trajectory from 2020 is trending it’s way up to what we can hope for, a balanced housing market.
As Mark Fleming said, who is a chief economist at First American, "the faster housing supply increases, the more affordability improves and the strength of a sellers market wanes”.
Lawrence Yun who is the chief economist at NAR talked about how, “homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitely rising on a national basis.”
Whereas during the peak sellers market time, buyers were waiving their inspections, and getting waivers for their appraisals if their financial situations allowed for it, but now, people are pickier, they’re asking for more, they’re pushing back, and if the seller isn’t willing to cooperate, the deal falls apart and the home goes back on the market, and that’s why you’re seeing an uptick of homes jumping back on the market, that and buyers still getting a little cold feet in a bidding war situation realizing that they are paying too much.
Michigan Housing Market Shift
This market shift which shows homes are sitting on the market longer, as July 2023 to July 2024 data shows the median days on market increased 5 days, sellers are receiving less offers on homes throughout that same time span, and fewer buyers are waiving inspections jumping down from 26% in 2023 to 20% in 2024. With homes sitting on the market longer it has buyers becoming more aggressive, and it’s something I advise my buyers about too, if the home is sitting past the 7 day mark, we have an opportunity to undercut the price, “but Andrew don’t you think it’s too soon to low ball”. The answer to that is, it’s never too soon, you never know the situation that the seller is going through.
Many sellers in this market understand how hard it is to be a buyer, and most sellers have an interest rate we may never see in our lifetimes again, but they are selling, why is that? Because they have to, whether it’s a probate or estate situation, work is forcing them, or a family crisis, these people need to move and they are willing to take less if it means less headaches and quickness. All that to say, this ball is slowly rolling into the buyers court or a more balanced court I should say, and that’s why it’s important as a buyer to not have the sellers market mentality that you have to waive inspections, offer a million dollars over asking price, pay for post close occupancy for the seller and buy them a nice steak dinner on top of it.
Are there situations like that still in this market? Of course, but that overspending mentality needs to start getting swept under the rug, and realize this market is different than it was even last year, and that’s where this housing market is yielding more opportunities, one being, there’s a growing number of homes on the market which is 36.6% higher than it was last year at this time, the median sale price of newly built homes dropped $8,100 on average, which shows they are motivated to sell and may even throw some additional incentives your way too. Then of course the mortgage rates have dropped from nearly 7.8% last year to right around 6.5% now.
All of this data supports that we are heading in a better direction, the market is flattening, it’s stabilizing and getting closer to where we need it to be. Is it there yet? No, but we are getting there slowly but surely.
2025 Housing Market Projections
As far as 2025 projections, Fannie Mae, Mortgage Bankers association, the national association of realtors and wells Fargo had all their data thrown together by Keeping current matters to give you an at-a-glance perspective, and in terms of mortgage rate projections when averaged altogether, we have 6.46% at the end of quarter 4 of 2024, and 5.98% at the end of quarter 4 in 2025.
Despite all the projections being different, they all project that rates will be lower than they are now. As far as the total home sale forecasts, in 2023 for reference there were 4.8 million homes sold, and in 2024 there is an expectation of around 4.5 million. The average of all the associations and banks I mentioned earlier stated the total homes sold for 2025 would be about 5.4 million. The thought is, if these rates drop to where they are forecasted to, sellers will think, that’s not too bad and sell, creating more inventory, but there would be an uptick in competition for the buyers wanting to buy these homes too. So yes inventory will increase, but so will demand. The next forecast I am sure you’ve been dying to hear about is the home price forecast. With 10 different projections ranging from 0.3% to 4.4%, the average of all 10 brings the percent of home appreciation to 2.6%. So to summarize these projections state mortgage rates will drop, supply and demand will increase and so will home prices.
Based on everything I’ve thrown at you from the balancing of the market to the 2025 projections, what are your thoughts? Comment them below.
If you’re thinking about moving to Michigan in 1 day or a million, feel free to reach out anytime, I also have a link to the Living in Michigan newsletter to give you insight on all things Michigan, so be sure to subscribe so you never miss out! Thanks for reading, 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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