If you haven’t heard recently, Michigan is going through a change in its economy. While that’s stating the obvious, what might not be immediately obvious is the impact on the housing market this changing economy is having.
This article points to Michigan’s current foreclosure statistics as being double the national average, with 8,200 homes currently in foreclosure in our state.
How did Michigan get to this point? What will this do to the Michigan housing market? Is it still a good time to buy?
In the past few years, with low interest rates, we’ve seen many new loan options come on the market. These new loan options made it very easy for someone to afford that home with all the bells and whistles they could ever want and buy it for nearly, and in some cases, no money down. From my perspective, that means the person buying the home has invested little, if anything, of value into the purchase of this home. There is no equity in the home to be an incentive to continue to meet the mortgage payments. With bankruptcy laws only recently becoming more strict, there was no real hard stigma attached to walking away from that home purchased with little or no money down.
Couple this mindset with manufacturers in the state first, reducing overtime (which many folks needed just to afford the monthly bills) and second, laying off large numbers of employees and the reasons for the jump in foreclosures become apparent.
What about the Michigan housing market?
Foreclosed homes on the active market will cause buyers to pause before buying a resale home. The question comes down to, “How much work do I want to do for instant equity?” In many cases the buyer never even thinks about doing work on the home. The buyer may be under pressure to make the move, no matter what, and fixing a home just isn’t in the cards. But for those handy buyers out there, a foreclosed home in need of minor repair, but priced below the local market average will cause them to consider the cost and time versus equity.
Will these foreclosure add to the perception that prices are declining in an area? I believe that initially, yes, the perception will be that prices are declining. However, that’s perception, not reality. The reality is, that when an appraisal is done on a home for the bank, the appraiser is to look for homes that are as similar as possible to the subject home and to then justify differences in each property. So the fact that a home was a foreclosure sale will be noted and then adjusted accordingly on the appraisal report.
Is it still a good time to buy?
Yes! Emphatically, yes! Just like the advice my father gave me about stocks, “Buy low, sell high,” this is the time to consider buying. Be it a first home, a new home, a second home, or an investment property, there are a lot of properties on the market and buyers have a decent amount of leverage when it comes to negotiating price. In addition, mortgage interest rates are still low, even though there is some speculation that they will rise.