The spread of the novel coronavirus (COVID-19) pandemic has cast a shadow of uncertainty over most economic sectors across the globe, including real estate. Prior to COVID-19’s arrival, the Michigan housing market, for example, had experienced an unprecedented growth period. But as the number of confirmed coronavirus cases continues to rise in the state and more lives are affected daily, this is set to take a toll on the housing market in Michigan. How exactly? Keep reading this as we explain the effect of the coronavirus and present the new Michigan housing market forecast 2020.
#1 Real Estate Deemed Not an Essential Business in Michigan
Since the COVID-19 outbreak, states have developed strategies to slow its spread. And as coronavirus cases grew exponentially in March 2020, the number and extent of these strategies accelerated. Many states implemented restrictions on public gatherings and some went as far as placing limits on commerce except for a few businesses and services which were declared “essential”. Not all states have taken the same approach. Therefore, there are state-by-state differences in the kinds of businesses permitted to operate normally and those under restriction. And the real estate industry appears to be straddling this dividing line – deemed as an essential business in most states, but not all.
For example, states like Connecticut, Illinois, and Ohio declared that real estate is an essential business and that real estate agents and other professionals in the industry may continue serving the public during the COVID-19 pandemic. Others like New York, Washington, Vermont and Pennsylvania decided that real estate activities are non-essential. Meaning, real estate activities that involve face-to-face contact with others should temporarily be ceased for public health purposes. Michigan is another state that does not consider buying and selling properties an essential activity during this time.
Related: Real Estate Deemed Essential Business During COVID-19 Pandemic
On March 23rd, Michigan Governor Gretchen Whitmer issued executive order No. 2020-21 which directs residents to stay at home unless they’re part of the critical infrastructure workforce. And according to the order, real estate is not considered an essential business unless it provides “food, shelter, and other necessities of life for economically disadvantaged or otherwise needy individuals, individuals who need assistance as a result of this emergency, and people with disabilities.” This is the first effect of the coronavirus on the Michigan housing market – and one that will impact other Michigan real estate market trends in 2020.
#2 Michigan Home Listings Are Down
In early March, seller and buyer activity remained strong as fear of COVID-19 wasn’t a reality at that point. However, as time went on and confirmed coronavirus cases in Michigan grew, new listings and home sales faded as many sellers started to take their homes off the market according to local real estate agents. We can see this trend especially in the Detroit real estate market where the pandemic has caused a “virtual pause”. Very few homes have been listed in Detroit and only transactions with a purchase agreement in place prior to the outbreak have closed. According to data from the Detroit News:
“During the week ending March 9-10 there were 367 new listings and 132 listings that went off the market for various reasons, including closings, according to the local Realtors association. Last week only 229 new listings were recorded and 210 properties went off the market, including numerous properties that were withdrawn”
In addition, data in a recent report by Redfin shows that Detroit and Philadelphia saw the biggest impact of the coronavirus with new listings in both markets dropped 63% year-over-year. This is almost twice the national decline. Uncertainties surrounding COVID-19 has made it hard to know how this is going to affect the Michigan housing market on long-term. Because the market has been put on pause, there hasn’t been any noticeable change in property values yet. But a few experts predict that if the pandemic stretches on, the drop in listings and housing inventory may cause Michigan property values to dip temporarily in 2020.
#3 Mortgage Applications Are Falling
Michigan lenders worked hard in early March to meet a surge in demand for mortgage loans as interest rates fell below 3.5% for the 30-year fixed mortgage and below 3% for the 15-year fixed mortgage. As of this writing, the average rate for a 30-year fixed mortgage is down to 3.3% and continues to hover near all-time lows for the third straight week according to Freddie Mac. And while this encouraged refinance activity, home purchase demand remains weak due to economic tightening and unemployment surge. According to the Mortgage Bankers Association, the volume of mortgage loan applications dropped decreased 18% in the US housing market despite lower interest rates.
This is another real estate market trend that seems to be apparent in Michigan. The drop came as business shutdowns, job losses, and unemployment benefit claims increased in the state. All of this naturally brings out caution among buyers. According to local real estate agents, it’s not that buyers are not interesting – it’s just that the current environment in Michigan housing market caused by the coronavirus pandemic is disrupting to both buyers and sellers. Robert Dye, senior vice president and chief economist for Comerica Bank, said:
“Low mortgage rates will help, but buyers need to feel confident about their incomes. And with continuing layoffs — more than 300,000 Michiganians applied for unemployment benefits last week, part of the 6.6 million Americans who did so — that’s unlikely to fuel confidence anytime soon.”
Related: What the Pandemic Is Teaching Us about Real Estate
What Should Michigan Real Estate Investors Do?
The potential for the coronavirus to make major changes in the economy and housing market in Michigan could be huge, particularly for tenants. And with the uncertainty behind the COVID-19 pandemic, some landlords and owners of rental properties might opt to sell their assets. However, experts believe the crisis is actually presenting good investment opportunities for the savvy investors. Seeing that the Michigan housing market is a competitive one, any additional supply will immediately be absorbed by cash-strong real estate investors and at slightly lower home prices. Meaning, if you’re willing to take the risk, then this is an amazing time to get a competitive price on a property from extremely motivated sellers.
Even if you don’t have the cash for buying rental property, you still have a good chance to get a mortgage loan to finance the investment. The aforementioned decrease in mortgage applications means investors face less competitors and banks will have a higher incentive to lend them. Moreover, if you own a rental property in Michigan, the $2 trillion coronavirus stimulus package will play a key role on your real estate business. This money will help many tenants pay their rent despite a job loss. Real estate investors may also benefit from the mortgage payment deferral portion of the CARES Act aimed at small business. For more information on this, read: COVID-19: Mortgage Relief Programs for Real Estate Investors.
Of course, the long-term health of the Michigan housing market and economy depends on how long the state is on lockdown due to the coronavirus pandemic. How fast people and businesses can recover from this unexpected crisis and utilize the assistance given to them by the CARES Act also plays a role in how the housing market in Michigan (and the US housing market as a whole) develops. So it’s best for real estate investors to stay updated on Coronavirus real estate trends in the US in 2020 before making an investment decision.
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