David and his wife are like a lot of first-time homebuyers.
The couple, who requested to remain anonymous for this article, knew for the most part what they wanted: a moderately sized home in northwest Detroit with a yard and a driveway. They were renting a two-bedroom home on the west side and wanted more space for their growing family — their son was born just two weeks after moving in — as well as an office since David works from home.
While they ultimately found that home in September, it wasn’t easy.
“There weren’t many homes for sale where we wanted to buy,” David said. “We were putting in competitive bids, but some of these homes were getting 10 to 15 offers.” In one case, they were outbid on a home even after offering $15,000 above the asking price.
It took them four months and they paid more than they wanted to, but they ultimately managed to stay within their budget in a neighborhood that currently has listings between $135,000 to $295,000. And they’re happy with their decision to buy, even though it was during a pandemic. “We’re in our new home a lot with our new baby, and it’s been great,” David said.
The COVID-19 pandemic has created an incredible amount of uncertainty in the U.S. economy. Businesses are faltering, millions are underemployed and an eviction crisis is around the corner.
But the housing market, nationally and in Metro Detroit, has seen steady gains. Like the rest of the economy, it mostly shut down for several months starting in March. Since then, it’s continued to climb every month.
According to a housing report from real estate company RE/MAX of Southeastern Michigan, the number of homes sold in metro Detroit in October was up 14.6% from a year ago (4,893 to 5,609), the median sale price was up 16.7% ($203,250 to $237,250) and listings spent six fewer days on market (42 to 36 days).
That may sound surprising, but historically the housing market has been uncoupled from the economy at large. While there are exceptions, as in 2008 when housing was the cause of the recession, it’s such an essential need that people tend to prioritize it over other types of spending.
Low interest rates and inventory keep prices rising
During this pandemic, some unique forces have been pushing the market to unprecedented extremes. Interest rates are at historically low levels; in some cases as low as 2.5%.
“I’ve been doing this since the 1990s and I never thought we’d see rates under 3%,” said Troy Fairbanks, a branch sales manager with Level One Bank. Business at his branch has “easily doubled” from last year, with people eager to refinance or take advantage of the rates to buy a house.
Another factor driving up prices is historically low inventory. Many fewer people are selling their homes. In Detroit, there were 25.8% fewer listings on the market in November compared to last year, according to a multiple listing service analysis.
The RE/MAX report estimated that there is currently only 1.7 months of supply in Metro Detroit.
“If no other homes came on the market, we’d be completely out of inventory in a little over 30 days,” said Jeanette Schneider, executive vice president of RE/MAX of Southeastern Michigan. “Conventional wisdom says that you need a five to six months supply, which by today’s numbers seems astronomical, to be considered a balanced market.”
Schneider says that overall “people are not in a big hurry to move,” suggesting that seniors have been reconsidering their long-term plans and are putting off downsizing.
“We’re not quite seeing the same turnover we typically do,” she said. “Boomers, in particular, have been holding onto their home a little longer, even if they’ve been in it 15-plus years. That hasn’t historically been what we’ve seen.”
Low supply gives sellers an incredible advantage to set a high asking price. Even then, they’re often fielding multiple offers.
“If you’re wondering whether or not to hang on to your home until next spring, I say wrap it up and put it on the market,” Nika Jusufi, broker and owner of Detroit real estate agency Nika & Co. “While this year’s been so unpredictable, there’s such low inventory and so many hungry buyers. I’ve been in the business for six years and this is the busiest season by far.”
The pandemic effect brings uneven gains across Detroit
The pandemic has also resulted in a specific kind of motivated buyer who knows what they want and are willing to pay a premium for it. David and his wife, for example, fit the profile: middle- and upper-income working families who want more room because both parents and children are at home.
“Space is very important right now,” said Austin Black II, broker and president of City Living Detroit. “People want a place to work from home, a place to lounge and relax, a place to workout, a yard. That’s affecting what they buy.”
In Detroit, the price increases are being driven largely by sales of single-family home sales over $450,000. Homes at those upper-tier prices have seen prices increase 12.2% year-over-year. Meanwhile, the sale price for condos, which are typically smaller and rarely have private yards, have been flat.
The upwardly trending sale numbers and prices may also be masking some underlying issues. Black said that the housing market is currently “isolated by area and income brackets.” Move-in ready homes in stable Detroit neighborhoods both at the high-end (Indian Village, Corktown) and the middle (Bagley, North Rosedale Park) have been rising. Those same gains, however, haven’t taken place across the city. The average sale price for homes under $250,000 has increased by less than 3%.
This is in-line with other ways the pandemic may be affecting people’s lifestyle and home buying decisions, as they look for convenient ways to get out of the house.
“We’re seeing quality of life and walkability within an area as bigger priorities,” Black said. “People are selecting neighborhoods based on access to parks and other recreation.”
With so many unknowns about the long-term health of the economy, it’s impossible to say whether these trends will persist. But so long as people continue to prioritize home life, home sales will probably be durable.