Metro Detroit's spring residential real estate market is coming in like a lion, setting a blistering pace for already frantic homebuyers who are willing to wave extra cash at any available house, a scenario where agents and brokers are working long hours to find new listings before rising interest rates serve a splash of reality in the months to come.
Paul Mruk of RE/MAX Classic in Novi has dozens of examples where homes sell over the asking price in just about any Metro Detroit community. In February, a three-bedroom, 3,000-square-foot Farmington Hills home listed for $475,000 had 94 showings its opening weekend and received 22 offers to purchase it. Mruk's buyer offered $515,000 in cash, and it was accepted.
"Buyers are hardened," Mruk said. "The challenge right now is if you don't waive the appraisal, if you don't give an inspection clause and if you don't give free occupancy, then you're not going to get these houses."
Home tours are hopping with 15-minute showings to accommodate the huge number of shoppers in hot cities like Royal Oak, Novi, Dearborn and Livonia. Homes that appeal to first-time buyers between $150,000 to $400,000 have kitchen islands stacked with dozens of business cards from agents passing through. Brokers are advising their clients to come with their best offer on the first try or be passed by someone willing to offer more than the asking price on what typically is an entry-level home.
Many real estate agents said they believe their workloads will continue at hyper speed in the next six to nine months, a shift from the start of 2020 when a global health crisis due to coronavirus led to mandated real estate pauses. In spring 2020, Gov. Gretchen Whitmer had deemed real estate as "nonessential" from March 23 through May 7, which resulted in less-than-optimal Zoom showings and limited sales.
Buyers who held off last spring got into the market during the fall and winter only to come up against a tougher-than-usual sellers' market. As a result, there are more people hungry for a home who are still searching, agents said, coming up against a market with a shrinking inventory of available homes.
"The minute (Michigan's) restrictions were lifted, things went crazy and stayed that way," said Karen Kage, CEO of Farmington-based Realcomp LTD, the largest multiple listing service in the state.
Realcomp said in its February report that days on market — or how long a home goes from listing to sold — dropped 34 percent to 44 days on average compared to 67 days during the same period in 2020. Showings per individual home also doubled from 8.5 to 15.3, its report showed.
The same is true in Detroit. Austin Black II, head of Detroit-based brokerage City Living Detroit, lives in Sherwood Forest, where there isn't a single house for sale out of about 435 homes. University District, south of his home, has about 1,400 homes with just two on the market.
"I've never seen that in these neighborhoods," Black said. "Usually, in a winter market, you'll see fewer listings but nothing like we're seeing now."
Those homes Black has on the market are selling quickly. A three-bedroom, 1,839-square-foot Colonial Victorian Park house near Detroit's Jefferson Chalmers neighborhood Black listed for $250,000 was on the market for five days and sold for $265,000 with a January closing.
Black said one reason for the buying spree is many white-collar workers never lost their jobs because of the coronavirus-related economic slowdown. They've also padded their savings from staying in and not eating out as much. Plus, with major companies such as Ford Motor Co. keeping many employees at home to work, Metro Detroiters are thinking differently about how and where they want to live, Black said.
That was true for William Kelly and Meryl Ethridge, both 30. The couple wanted more space with Kelly working from home in sales and Ethridge's variable schedule as a surgery resident at Ascension St. John Hospital. Plus, a noisy neighbor at their Brush Park apartment pushed their house hunt forward. They started looking in October and closed in February on a 2,100-square-foot, three-bedroom home in Detroit's LaSalle Gardens neighborhood.
Kelly and Ethridge saw a dozen houses in Corktown and other areas before finding their 1916 charmer with a large lot and tall windows. Drawn to its renovated interior, they put in a low offer and were rejected. After some back and forth on the original asking price of $339,000, they settled at a price only to have the appraisal come back lower. Further negotiations with the buyer resulted in a final sale at $308,000 with the seller making up the difference.
"We were told inventory was low in our price range, which was a $200,000 to $400,000 starter home. We had friends looking in Grosse Pointe but they told us it was cutthroat. They'd go to put an offer in on a house and find out there were already five cash offers in. We wouldn't have ended up buying if we were in that scenario," Kelly said.
Combine that with current homeowners focusing on renovations and holding onto their properties longer than before on average, and you have the combustible residential real estate market that has settled into Metro Detroit. Homebuyers are doing whatever they can to stand out from the competition, Black said, including waiving home inspections, bringing additional cash to offset lower appraisals and extending the time home sellers can stay after closing without charging rent.
The median duration of homeownership in the United States as well as in Metro Detroit is 13 years, according to the most recent data available from the National Association of Realtors, increasing by three years since 2008.
"Your first offer has to be your best offer," Black said. "If we don't see significant improvements in the number of homes listed, it's likely this trend we've been seeing will continue for the rest of the year."
Another reason for the buying fever is that millennials are creating a more competitive market for entry-level homes, agents said. They witnessed the heartache of the 2008-2009 housing market for their parents or relatives, and they don't want to overspend on housing as a result or they want to have a home payment that still allows them to travel or eat out as the world opens back up, Black said.
In those years, the United States and Michigan experienced what is known as the housing bubble, a drop in home values and increase in foreclosure rates that some economists say resulted in the Great Recession, which lasted from December 2007 through June 2009 but took years longer for the nation to fully recover.
"They're willing to see lots of homes and wait until they find what they love," Black said.
Homebuyers need to be clear even before they step foot in an open house or a showing about what they need and what kinds of concessions they're willing to make, said Jeanette Schneider, executive vice president for RE/MAX of Southeastern Michigan in Troy.
"You're going to have to make quick decisions, and most people are not comfortable doing that on a big financial decision. Be very clear about your budget and what you need versus what you want," Schneider said. "When that perfect house comes along, you have to be prepared to act fast. You cannot afford to wait and think."
On the plus side, agents have less pressure in terms of finding creative ways to show homes and close on purchases. Last spring, Schneider said RE/MAX agents were doing Zoom showings for buyers who wanted to look despite quarantines or travel restrictions. Agents also were conducting curbside or parking lot closings where people signed paperwork while social distancing.
"Last spring, there was a real spirit of cooperation and adaptability. We had no choice: Things were changing on a daily basis," Schneider said. "Now, we're back to closings around tables again but we still need that level of communication and working with one another."
Strong sales in December and January — two traditionally slower months — have Realcomp's Kage feeling as optimistic someone with more than 40 years of real estate experience can going into spring.
Realcomp data for February shows the median sales price increased 11.1 percent from $175,000 last year to $194,350 in February 2020. The most telling numbers were in how many homes are available for sale and how fast they're going. The month's supply of inventory in February dropped 54.2 percent from 2.4 months available to only 1.1; new listings also fell 20.8 percent from 10,570 to 8,374.
While those numbers are certainly eye opening, especially for buyers, they don't show the whole picture, Kage said. Homes that are listed and sold in the same month never get counted in these numbers. A more accurate reflection of what's happening in the market is how many new listings come in — in that case, January was down 20 percent and December was down only 5 percent.
"Yes, there's less inventory but part of the reason is they're selling so quickly," Kage said.
Longtime agents like Dan Elsea said they expect to see more houses come onto the market this spring as those who wanted to sell but held off because of coronavirus concerns finally decide to put a "For Sale" sign up. Elsea, president of brokerage services firm Real Estate One, said local governments also should work to streamline the approval process for building and renovation, which would put more inventory on the market.
"Some (homeowners) couldn't find a home to buy but also decided to wait the whole process out," Elsea said. "We only need 10% more homes on the market to make a huge difference."
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Homebuyers compete to score in Metro Detroit residential real estate frenzy - Crain's Detroit Business
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