Michigan Real Estate Market Trends & Analysis


The Michigan real estate market is in the same position as the rest of its nationwide counterparts. There's no shortage of demand or competition despite today's historic home values. Relatively low interest rates, pent-up demand, and years of government assistance have pushed more buyers off the fence and facilitated more activity than today's inventory levels can handle. As a result, home prices are becoming exorbitantly expensive. Though less conducive to rehabbing and flipping, today's market conditions signal a shift in investment strategies. New indicators created in the wake of the pandemic appear to favor long-term buy-and-hold strategies like rental properties.

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:

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: $225,774 (+16.1% year over year)

  • Total Sales Year-To-Date: 14,826 (-9.4% year over year)

  • Average Sales Price Year-To-Date: $238,518 (+12.9% year over year)

  • Median Rent Price: $1,093 (+10.2% year over year)

  • Price-To-Rent Ratio: 17.21

  • Average Days On Market: 78

  • Months Of Inventory: 1 (-61% year over year)

  • Unemployment Rate: 4.7% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 10,050,811 (latest estimate by the U.S. Census Bureau)

  • Median Household Income: $59,234 (latest estimate by the U.S. Census Bureau)

Michigan Median Home Prices


The median home price in the Michigan real estate market currently sits comfortably at $225,774. 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 135.2% increase over their lowest point of the last recession. In that time (since the first part of 2012), Michigan home prices have increased for ten consecutive years.

While real estate in Michigan has increased in value for more than a decade, the largest gains have occurred over the last few years. In fact, there is a direct correlation between the pandemic and today's all-time highs. Since COVID-19 was officially declared a global emergency, the Michigan real estate market has seen its median home value increase by 28.3%. To put things into perspective, the median home value in the United States increased 32.1% over the same period of time.

The increase is due largely to historic demand at a time when inventory can't keep up; there aren't enough listings to satiate years of pent-up demand and activity facilitated by low interest rates. Perhaps even more importantly, appreciation is expected to continue. The same indicators which have increased prices over the last two years are still in play. However, it is important to note that demand is expected to temper sooner than later. The Fed has already increased interest rates, and the average commitment rate on a 30-year fixed-rate mortgage is now over four percent.

The threat of higher borrowing costs will increase activity in the near term, but demand will slow once prices get too high; when that will be has yet to reveal itself, but demand will drop in the latter end of the year. As a result, the historical appreciation rates Michigan residents have grown accustomed to should slow down–albeit slightly.

Michigan Median Rent Prices


Local home values in the Michigan real estate market have significantly impacted the rental market. Testing new highs each month, home values have priced many buyers out of the market and created an unprecedented number of renters. Consequently, competition has also prevented many buyers from following through with a purchase. When all is said and done, more people are being forced to rent, even if they don't necessarily want to.

More "interest" in the Michigan rental market has increased rental rates by 10.2% year over year. As a result, the median rent in Michigan is somewhere in the neighborhood of $1,093. The latest increase in rents hasn't kept pace with home value appreciation over the last year, but the increase in renters should close the gap. As a result, renters can expect to pay the following in rent (for now):

  • Studio: $838

  • 1-Bedroom: $864

  • 2-Bedroom: $1,115

  • 3-Bedroom: $1,306

  • 4-Bedroom: $1,445



For context, the national average rent price is about $1,321, or 20.9% more than the average renter pays in the Michigan housing market. On average, U.S. rents have increased 15.2%, outpacing those in Michigan over the last year. Michigan real estate investors should expect more of the same; prices will increase, but most likely not at the same pace as the rest of the country.

Michigan Foreclosure Trends & Statistics


According to ATTOM Data Solutions’ February 2022 U.S. Foreclosure Market Report, a total of 25,833 U.S. properties received a foreclosure filing (default notices, scheduled auctions, or bank repossessions) throughout February. The same report acknowledges that foreclosures are up 1.0% from the previous month and 129.0% year over year.

“February foreclosure activity looks a lot like what we can expect to see for at least the next six months – double-digit month-over-month growth and triple-digit year-over-year increases,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “This isn’t an indication of economic turmoil, or of weakness in the housing market; it’s simply the gradual return to normal levels of foreclosure activity after two years of artificially low numbers due to government and industry efforts to protect financially impacted homeowners from defaulting.”

Foreclosures are increasing everywhere, and the Michigan real estate market is no exception. In fact, Michigan saw the seventh-largest increase in February foreclosure starts. With 645 foreclosure filings, Michigan trailed only California (1,868 foreclosure starts); Florida (1,527 foreclosure starts); Texas (1,488 foreclosure starts); Illinois (1,168 foreclosure starts); and Ohio (1,144 foreclosure starts); and Georgia (724 foreclosure starts).

The following counties within the Michigan real estate market currently have the largest distribution of distressed properties:

  • Genesee

  • Kalkaska

  • Macomb

  • Shiawassee

  • Wayne


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


The Michigan real estate investing community has done well for itself dealing in distressed inventory. If for nothing else, few markets have offered the same opportunity to capitalize on distressed homes as Michigan. With foreclosures in Michigan up slightly year over year, local investors should find that the number of distressed opportunities will increase throughout 2022. Despite the increase, however, profit margins are still prohibitive. As a result, investors will need to have a backup plan.

One strategy seems more viable in today's market than any other: long-term rental properties. Rental property investors can help offset high prices with attractive borrowing costs. As recently as the first quarter of 2022, the average commitment rate on a 30-year fixed-rate loan was 4.17%. While up year over year, today's rate is historically low and represents an excellent opportunity for Michigan investors to increase cash flow and offset higher acquisition prices. At the very least, the less money rental property owners have to pay towards their mortgage each month, the more they can pocket from incoming rent.

In addition to lower borrowing costs, Michigan's price-to-rent ratio is 17.21. At that level, it's slightly more affordable to rent in Michigan than to own real estate. The state's price-to-rent ratio will drive more people to become renters; houses are too expensive for many to even consider buying. The lack of affordability driving people to rent will increase demand, and landlords will be able to increase asking rates and mitigate the risk of vacancy.

Michigan Housing Market Predictions


Real estate investors in Michigan who can 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 real estate. 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:

  • Foreclosures Will Increase: Few states are seeing foreclosure filings increase at a faster pace than Michigan. The expiration of government aid and the state's relatively high unemployment rate suggest the trend will continue. It is too soon to tell just how high foreclosures will go, but there's a good chance they will increase incrementally over the course of 2022.

  • Prices Will Increase: The same indicators which have increased prices for a decade are still in play. Supply and demand constraints will push prices higher, but at a slower rate than Michigan residents have grown accustomed to. Higher borrowing costs will eventually decrease demand, but prices will continue rising throughout the year.

  • 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 while benefiting from appreciation.

Summary


The Michigan real estate market has been nothing less than volatile over the course of a decade. However, as the pandemic trails further into the rearview mirror, Michigan appears poised to recover. The entire state has made drastic improvements to nearly every economic indicator, and real estate is better off than in the past. Everyone involved (buyers, sellers, and investors) has reason to be excited for what’s to come.

Sources:



https://www.zillow.com/mi/home-values/
https://www.zillow.com/home-values/
https://www.freddiemac.com/pmms/pmms30
https://www.census.gov/quickfacts/fact/table/MI/PST045218
https://www.bls.gov/regions/midwest/michigan.htm#eag
https://www.apartmentlist.com/research/category/data-rent-estimates
https://www.mirealtors.com/Portals/0/Documents/Feb%2022%20stats.pdf
hhttps://www.attomdata.com/news/market-trends/foreclosures/attom-february-2022-u-s-foreclosure-market-report/
https://www.attomdata.com/news/market-trends/figuresfriday/top-10-u-s-housing-markets-with-greatest-numbers-of-foreclosure

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