Housing market squeezes buyers grappling with rising mortgage rates and closing costs – The Oakland Press

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We are in crisis.

That’s what homebuilders and homebuyers are saying as 30-year fixed mortgage rates hit 12-year highs and closing costs needed to complete a home purchase have risen by more than 40. % compared to the same period last year. Both further squeeze buyers in a market already hampered by historically low inventory and record selling prices.

Sarah Brunais from Livonia has been scouring the market for a few months hoping to find her first home at the right price and in a desired community, especially Royal Oak or Farmington Hills which are centrally located for work. Earlier this week she was in Royal Oak looking for a $199,000 home near Crooks Road.

Right now, she’s renting an apartment in Livonia, but plans to move back in with her parents until she finds the right home. As a first-time home buyer with little money to offer relative to the asking price, she knows she won’t be able to get everything she wants at the price she can afford.

This home, located along Crooks Road in Royal Oak, Michigan, is listed at $199,000. (Mark Cavitt/Oakland Press)

“It’s hard when you want certain things, but house prices are higher,” she said. She looks at homes that could use some work, acknowledging that it “would be nice” to move into a more turnkey home. That’s just one of the adjustments she makes, especially for those who don’t have the ability to compete with other buyers and go to pay above the asking price or offer money.

The combination of rising house prices, the fastest rising mortgage rates in over forty years, and rising borrowing and closing costs has affected demand as the market cools.

Compared to early January, 30-year fixed mortgage rates have risen from 3.22% to 5.1%, according to data from Freddie Mac. That’s a 58% increase in a few months and the highest rate since April 2012. Average closing costs rose 13.4% in 2021, with buyers paying an average of $6,905, an increase of about $818 from a year earlier, according to an April report from CoreLogic. ClosingCorp.

Closing costs include fees for essentials such as home lender appraisals, surveys, transfer taxes, and registration fees that provide official documentation of the change in ownership. These fees also typically include title policies and may also include property and school taxes.

Although rising interest rates are making home ownership more expensive, it is also helping to reduce the intense competition for housing over the past year.

“While spring is typically the busiest season for buying a home, rising rates have caused some volatility in demand,” said Sam Khater, chief economist at Freddie Mac. “It continues to be a seller’s market, but buyers who remain interested in buying a home may find that the competition has softened moderately.”

Teri Spiro, president of the Greater Metropolitan Realtors Association, said rising mortgage rates and closing costs will impact the market, but added there was still plenty of pent-up demand from buyers.

“I think what we’re going to see is some people will be shut out of the market,” she said. “Maybe there won’t be six offers for a house, but there’s always demand. We are seeing more cash offers than we have ever seen. Yes the interest rates are (high) but we also see people trying to make their offer more attractive by doing things that I don’t recommend including savings, retirement funds and borrowing from their relatives to enter a house with purchase money.”

While there are many creditworthy homebuyers with more than enough income to fund a home purchase, she added that many buyers simply don’t have the cash reserves to be able to pay down. a large down payment and reduce monthly payments. mortgage payment despite higher rates.

Buyers are starting to back off or delay home purchases, Mortgage Bankers Association says

Although rising costs have had an impact on the home buying market, they are also affecting the home building market. Until March, there was a decrease of almost 20% in the number of single-family residence permits issued compared to the same period last year.

In Oakland, Macomb and Wayne counties, a total of 957 single-family residence permits were issued this year. This represents a decrease of 4% from March 2021. In Mount Pleasant, a total of 43 permits were issued this year, a decrease of 39% from the same time last year, when 71 permits were issued. single-family residence had been issued throughout the city.

Bob Filka, president of the Michigan Home Builders Association, said there has been an easing in the market with interest rates and closing costs hitting levels not seen in years.

“We are seeing a slowdown for new permits,” he said. “Even though we are seeing this slowdown, most of these permits over the past few years have been at the high end of the market. I’m not saying that’s a good thing, but there’s always lemonade to be made with lemons.

In order for the average house price to fall, everyone agrees that the number of houses available for sale must first be increased.

With labor and material costs escalating, developers were forced to build high-end homes in order to make money and stay in business. Building more affordable homes near the middle of the market isn’t financially viable for developers, Filka said.

“I think as … the high-end market cools down, you’re going to see more attention and focus on how builders can work with local governments to build homes in that price range” , did he declare. “I think local governments are starting to understand the need for housing options for citizens at different price points, especially in the middle. The absence of this mid-range housing stock has pushed and strained every other aspect of the housing market across the rest of the spectrum.

To get more homes built at average prices, Filka said local governments need to start creating incentives for developers to build at the price. For him, it’s about how the private sector can work with the public sector to improve the community by building more affordable homes.

The Housing Michigan Coalition, formed in 2021, advocates for state policy changes that would create or expand tools and incentives for local governments to support rehabilitation development of the reachable housing supply, which represents up to 60% of market demand.

The coalition, made up of community, business and government organizations, worked with a bipartisan group of state lawmakers to develop and introduce a set of bills, called the Accessible Housing and Rehabilitation Act, aimed at increasing l providing affordable housing by allowing governments to create “accessible housing neighborhoods, expanding neighborhood enterprise zones across the state, and removing state and federal funding requirements when a builder wants to work with a local government on a PILOT (payment in lieu of taxes) project.

These bills target household incomes up to 120% of the area’s median income, which would be around $96,000 for Macomb, Oakland, and Wayne counties, but around $75,000 for Oakland County. Isabella, $58,000 for Clare County and $70,000 for Gratiot County.

“I think it’s perhaps surprising to hear about an association leader who represents very conservative business people,” he said. “But, I think it’s an expression of market dysfunction. You have business people saying that I would like to help this community by building more housing of this nature, but they cannot make money.

According to a recent study by the National Association of Home Builders, for every thousand dollar increase in the cost of a new home in Michigan, more than 5,400 households are deprived of their ability to purchase one. There are more than 4.6 million existing homes in Michigan that, on average, are over 50 years old

Conversely, about 16,000 new homes are built each year. Filka said the lack of production has resulted in a statewide shortage of 200,000 homes, adding, “We would have to build 25,000 homes a year just to keep up with the demand.”

Numbers

Soaring borrowing costs, combined with high home prices in all markets, are driving more potential buyers away. The figures follow a separate report last week showing sales of previously owned U.S. homes fell in March to the lowest level since June 2020 amid growing affordability concerns.

As demand shows more and more signs of flagging, the residential construction pipeline remains buoyant. The number of homes sold in March and waiting for construction to begin – a measure of backlogs – rose from a month earlier to 255,000, the most in nearly a year.

In March, a total of 1,131 foreclosed home sales were recorded in Oakland County, 818 in Macomb County and 1,340 in Wayne County. All represent decreases from the previous year of 8%, 5.2% and 8.3% respectively.

Average sale prices were $422,501 in Oakland County, $260,410 in Macomb County, and $213,326 in Wayne County. These represent increases of 11.1%, 6.3% and 6.1% from March 2021, with the average percentage of list price received exceeding 100% in all three counties as competition from buyers remains strong in a low inventory.

In a balanced market, months supply of home inventory for sale hovers around six months. In March, monthly inventory supply totaled 1-2 months in Macomb, Oakland and Wayne counties.

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