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Interest Rate Challenges + Opportunities for Southeast Michigan

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The past few years have seen dramatic market shifts with extraordinarily low supplies combined with high demand, which became extreme when the pandemic instantly changed our housing needs by having us working and schooling from home. Over the past few months, we’ve been experiencing our newest sharp market turn—the jump in interest rates. Rates continue to yo-yo but have nearly doubled— jumping from roughly three percent the beginning of the year to the five-to-six percent range. The historic low rates we’ve enjoyed and have taken for granted may have permanently passed back into history. Higher rates affect buyers and sellers equally. They cut directly into the prices buyers can afford to pay. Having fewer qualified buyers for a given price cuts demand for that property. Most sellers are also buyers somewhere in the process as they obtain their replacement home. Higher rates affect everyone in the process.

Purchasing Power

Currently the average sales price across Southeast Michigan is roughly $300,000. With a 30-year mortgage, the principle and  interest would be:

$1,011 at 3%

$1,145 at 4%

$1,288 at 5%, and

$1,438 at 6%.

A small jump in interest rate affects purchasing power as much as a large jump in price. Over the past couple of years, many of our housing needs have changed and we all must live somewhere. Year-to-date sales are down just 4% (from last year’s incredible sales levels), but average price is up 7%.

Although the balance is shifting, demand remains high in proportion to supply, and there’s a huge pool of buyers still waiting to jump on the right home the minute it hits the market. While rising rates will knock some buyers out of the batter’s box, most are motivated enough that a return to more historically normal interest rates won’t deter them.

Buyer Opportunities

1. Less Competition: Higher interest rates have taken some of the sharp edge off buyer competition. Less extreme competition increases a buyers chance of landing the deal.

2. Rising Prices: So long as there is a shortage of affordable homes (there will be for the next few years), long-run prices will rise. Although today’s buyers may have missed the boat with interest rates, it still makes sense to lock in on price.

3. Ratcheting in Rates: With uncertainty about rising interest rates, buying today ensures you are locked in if future rates rise. If future rates fall, simply refinance. Either way, you eliminate the risk of higher future rates you’d have if you were to wait.

Seller Opportunities

Despite recent market challenges, there have never been more people living in the wrong home for their needs. Demand remains high. While the pandemic has financially challenged many, others have benefitted with increased savings. There remains an extreme shortage of nice move-in-ready homes and a big surplus of hungry buyers looking for them. Market times remain extremely low for new move-in-ready listings.

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