Michigan Real Estate Market Trends & Analysis

The Michigan real estate market has recovered at a slower pace than the rest of the country. Due largely, in part, to the collapse of the auto industry and a relatively high unemployment rate, the Michigan economy has posed more of an obstacle to the local housing industry than anything else in recent history.

The state is in the midst of a comeback. Real estate in Michigan is expected to appreciate at a faster rate than the national average, continuing a trend that has already lasted at least one year. Employment rates have shown signs of improvement amongst a growing labor force.

Perhaps even more importantly, however, Michigan’s price-to-rent ratio suggests the recent growth in employment will translate into increased homeownership rates across the state. More buyer interest, in addition to encouraging price forecasts, suggest Michigan will be a market everyone can partake in: buyers, sellers and real estate investors.

The Top Michigan Real Estate Markets

While the best real estate market in Michigan is up for debate, here’s a list of the cities investors may want to pay special considerations to:

• Ann Arbor

• Detroit

• Flint

• Grand Rapids

• Lansing

Michigan Real Estate Fees & Regulations

Real Estate

Closing Conducted by:	Title Companies, Lenders, Real Estate Agents, Attorneys
Conveyance:	Warranty Deed

Foreclosure Procedure

Primary Foreclosure Method:	Non-Judicial
Process Period:	2 - 3 months
Notice of Sale:	Sheriff
Redemption Period:	Up to 12 Months

Taxes

Income Tax:	4.25%
Corporate Tax:	6.00%
Sales Tax:	6.00%
Estate Tax:	No
Inheritance Tax:	No
Median Property Tax:	1.62%
Property Taxes by County:	http://www.tax-rates.org/michigan/property-tax#Counties

Average Transactional Costs

Closing Cost:	$2,435.00
Transfer Fee:	Transfer fee: State 0.75%; County 0.11% - 0.15%
Origination Fee:	$1,835.00

Michigan Housing Market Overview

• Median Home Value: $153,900

• 1-Year Appreciation Rate: +5.0%

• Median Home Value (1-Year Forecast): +2.7%

• Median Rent Price: $1,200

• Price-To-Rent Ratio: 10.68

• Average Days On Market: 62

• Unemployment Rate: 4.2% (latest estimate by the Bureau Of Labor Statistics)

• Population: 9,995,915 (latest estimate by the U.S. Census Bureau)

• Median Household Income: $52,668 (latest estimate by the U.S. Census Bureau)

• Percentage Of Vacant Homes: 15.14%

• Foreclosure Rate: 1 in every 3,318

Michigan Median Home Prices

The median home price in the Michigan real estate market currently sits comfortably at $153,900. However, real estate in Michigan has come a long way. It wasn’t long ago that prices in the local housing market hit rock bottom. As recently as the first quarter of 2012, prices tumbled to their lowest point of The Great Recession. In January of that year, the state’s median home price dropped to about $96,000. For those of you keeping track, today’s home prices represent a 60.3% increase over their lowest point of the last recession. In that time (since the first part of 2012), Michigan home prices have increased for eight consecutive years.

For a better idea of where the Michigan real estate market fits in with the rest of the country, it’s worth comparing real estate in Michigan to national trends. To put things into perspective, the ascent of home values in Michigan has followed a similar trajectory of its national counterparts. However, since Michigan was hit harder than most states, local prices had a longer way to go. At the same time real estate in Michigan increased 60.3% (January 2012 to the last quarter of 2019), national home values increased about 57.6%. Today, the median home value in the United States is now $243,225. In other words, prices in Michigan are well below the national average, despite appreciating at a faster rate over the last eight years.

In the last year (October 2018 to November 2019), appreciation rates across the state of Michigan averaged about 5.0%. Appreciation rates across the United States, on the other hand, increased 3.8% over the same period of time. The difference isn’t necessarily an indictment on the national real estate market, but rather a positive indicator for Michigan. If for nothing else, real estate in Michigan simply had more ground to make up. To that end, it looks like the Michigan real estate market will continue to outpace national trends. In the next year, prices in Michigan could appreciate by as much as 2.7%, whereas the United States as a whole may only see a 2.2% increase. The modest difference may be attributed to Michigan’s relatively affordable prices. Prices in Michigan have more room to grow, as they are well below the national average.

Michigan Median Rent Prices

The median rent price in the Michigan real estate market is $1,200. Thanks, in large part, to nearly a decade’s worth of appreciation, rent prices in Michigan have also increased substantially. In fact, rental listing prices have increased (on average) 19.5% since the first quarter of 2012. It is worth noting, however, that while home prices in Michigan appreciated at a faster pace than the national average, rental increases trailed their national counterparts. In the same time average listing prices in Michigan increased 19.5%, listing prices across the United States jumped 25.9%. Today, the average listing price across the entire country is $1,650.

With a median rent of $1,200 and a median home value of $153,900, Michigan’s price-to-rent ratio is about 10.68. Anything below 15 suggests it is actually cheaper to buy a house than to rent in a respective market. Consequently, owning a home in Michigan is actually cheaper than renting at the moment; that’s in spite of eight consecutive years of appreciation. There are certainly pockets across the state that may find renting to be the cheaper alternative, but owning appears to be the consensus cheaper alternative. As a result, demand for housing has gone up, effectively driving up prices in the meantime.

Michigan Foreclosure Trends & Statistics

Data presented by RealtyTrac — an industry leader in distressed property information — suggests the state of Michigan has a relatively low foreclosure rate. With approximately one out of every 4,532 homes in Michigan in some stage of distress (default, auction or bank owned), the state’s foreclosure rate is somewhere in the neighborhood of 2.2%. At that rate, the state’s distribution of foreclosures is actually better than national averages. On a national level, one in every 2,453 homes is distressed, or 4.0% of the country’s foreclosed inventory.

It is worth pointing out, however, that Michigan has made significant improvements to its foreclosure rate in recent history. Thanks to recent improvements in the state’s economy, fewer homeowners have found themselves underwater today than in the past 12 months. As recently as November, in fact, “the number of properties that received a foreclosure filing in MI was 41% lower than the previous month and 7% lower than the same time last year,” according to RealtyTrac.

Michigan’s foreclosure numbers represent a significant improvement from several years ago. However, there are still pockets of distressed assets across the state. More specifically, the following neighborhoods have the highest distributions of foreclosures in Michigan:

• Arenac (1 in every 1,405)

• Bay (1 in every 2,193)

• Shiawassee (1 in every 2,326)

• Jackson (1 in every 2,572)

• Muskegon (1 in every 2,636)

Tax Lien Investing

• Tax Lien or Deed: Tax Deed State (used to be Tax lien State)

• Interest Rate: Now no interest anymore because of switch to Tax Deed State)

• Redemption Period:2 years up to sale (no Excess proceeds are being paid)

Michigan Real Estate Investing

Investors across the country have made a habit out of investing in distressed properties, and Michigan real estate investors are no exception. Distressed homes are the most likely assets to award investors with attractive margins; their very nature suggests higher potential earnings. At the very least, it’s more common for distressed homes to coincide with better profit margins than their traditional counterparts. Perhaps even more importantly, distressed homes are typically in the possession of owners who may be motivated to sell. Distressed real estate across the state may not only be able to be had at a discount, but at a discount, nonetheless.

Michigan real estate investors should, therefore, consider focusing marketing efforts in the direction of local auctions. Constituting 56.6% of Michigan’s entire distressed inventory, auction homes currently make up the most abundant source of distressed assets across the entire state. As their names suggest, auction homes may be bid on by anyone attending a respective auction. Locating homes at auction may award investors with the ability to buy assets from the bank at a significantly discounted price. After all, banks aren’t in the business of holding onto non-performing assets. Any inventory sitting on their books not generating revenue is actually costing them money, so they attempt to recoup the losses at auction.

The remaining 43.4% of Michigan’s distressed inventory is bank owned (otherwise known as real estate owned or REO). As its name suggests, bank-owned real estate is owned by a bank (or the loan originator responsible for funding the original homeowners purchase). In the event a delinquent homeowner is unable to come current on their mortgage in the allotted time, the bank will repossess the asset and attempt to sell it at auction. However, not all homes sell at auction. Those that fail to receive a qualifying bid are simply held in the bank’s inventory. It is worth noting, however, that banks would rather sell these homes than hold on to them; that’s where investors come in. Investors who provide these banks with attractive offers could very easily walk away with their next deal.

Finding auction homes and bank-owned properties is only part of the equation. Once said properties are identified and purchased, what should Michigan real estate investors do with them?

The Michigan real estate market is incredibly hot at the moment, which bodes well for investors across the entire state. With demand persisting in the face of appreciation, rehabbing and wholesaling each remain viable exit strategies. However, today’s higher acquisition costs may detract from the profit margins local investors have grown accustomed to. As a result, investors in Michigan should pay special considerations to the rental market. A cash-flowing rental portfolio is entirely capable of offsetting today’s higher prices with rental income for years.

Michigan Housing Market Predictions

Real estate investors in Michigan who are able to predict which housing predictions carry weight and which ones should be ignored may hold a significant advantage over the competition. Knowing what to expect in the near future is invaluable, especially in a field like real estate. That said, there’s absolutely no way to predict the real estate market without an inherent degree of error. Fortunately, today’s most successful investors don’t necessarily need to predict the market, but rather look at the most likely trends to continue.

Here are some of the most likely trends to continue in the Michigan real estate market:

• Continued optimism: Few state-wide markets across the country have made an impression with investors like Michigan. Few markets, for that matter, are more promising than Michigan at the moment. While the state’s economy still has a long way to go, recent improvements are encouraging, which bodes well for local housing.

• Appreciation will outpace national averages: Not unlike the majority of markets in the United States, Michigan has limited inventory; there simply aren’t enough listings to keep up with demand. The same lack of inventory that has driven prices up everywhere else, however, looks like it will increase the prices of Michigan homes at a faster pace than the rest of the country.

• Now is a good time to build a rental portfolio: Michigan has seen its rental listing rates increase at a fast pace. Not only that, but home values are historically high. This combination makes the prospect of rental property investing all the more attractive. Michigan real estate investors could potentially buy now and collect years of cash flow, all while benefiting from appreciation.

Summary

The Michigan real estate market has been nothing less than volatile over the course of a decade. Consequently, few states were hit harder than Michigan during the last recession. Detroit, in particular, received the brunt of the fallout. However, as the recession trails further into the rearview mirror, Michigan appears poised to recover. The economy is in a better place, homes remain relatively affordable, and demand is intact. The unique combination of these factors should serve local investors well, and just about everyone else participating in the market.

Sources:

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https://www.census.gov/quickfacts/fact/table/MI/PST045218
https://www.bls.gov/regions/midwest/michigan.htm#eag
https://www.realtytrac.com/statsandtrends/foreclosuretrends/mi/
https://www.realtytrac.com/statsandtrends/mi/
https://www.realtytrac.com/statsandtrends/foreclosuretrends/
https://www.zillow.com/mi/home-values/
https://www.zillow.com/home-values/
https://www.mirealtors.com/Portals/0/Documents/JUL19stats_.pdf
https://www.fox47news.com/news/local-news/michigans-unemployment-rate-declines-in-august