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Is it a Good Time to Buy a Home in Southwest Michigan?

Is it a Good Time to Buy a Home in Southwest Michigan?

Is it a Good Time to Buy a Home in Southwest Michigan?

To anyone following the real estate market over the last year, it likely comes as no surprise that rising prices and rising interest rates are producing a strain on housing affordability for many American families. On June 15, the Federal Reserve announced an additional 0.75% rate hike to combat inflation, making it the highest rate increase since 1994. According to NBC News, “The three-quarter-point hike brings the federal funds rate to between 1.5% and 1.75%. The federal funds rate dictates what it costs for banks to borrow money from each other. And, generally, higher interest rates mean it's more expensive for consumers to get a mortgage, obtain a loan to buy a vehicle, and carry a balance on a credit card.”

Given the current market landscape, is now a good time to purchase a home in Southwest Michigan?

We put this question to Sturgis Bank Retail Loan Originator, Aaron Miller, an expert mortgage advisor in the Sturgis area, and Mike Himes, an experienced Realtor for RE/MAX Elite Group.

Historical Perspective and Cyclical Rates

To Miller, the answer starts with perspective. Pointing to double-digit mortgage rates in the 1980s for historical reference, Miller reassures clients that while rates are often cyclical, home ownership remains a good investment. According to Miller, “Loan rates are relatively high compared to the previous two years and will likely remain higher for some time. However, our parents were dealing with interest rates in the low to mid-teens, which makes a 6% rate seem quite mild by comparison. To put off buying a home because of current rates is not necessarily a good strategy. In addition to filling a need for yourself and your family, homeownership is a good long-term investment. There’s a fear of buying high, and I understand that fear. Still, this type of investment will always perform well over the roller-coaster of time and qualified borrowers can always refinance when rates decrease and put themselves in better payment and interest situations.”

Himes agrees that a historical viewpoint is advantageous in this market, saying, “Even with current rates hovering around the 6% mark, historically speaking that is still a good rate. When rates were dropping from 7 and 8% years ago, buyers were thrilled to see 6%. A buyer’s personal perspective will determine their comfort level with today’s market, but overall I believe it is still a great time to buy a home.”

Regional Affordability

According to the S&P U.S. National Home Price Index, U.S. home prices are up 19.8% over the past 12 months. And while rising interest rates and rising prices are fueling an overvalued housing market, some areas of the country have been hit harder than others.

According to a chart produced by real estate research firm CoreLogic, and shared in a recent article by Fortune magazine, 65% of housing markets are rated as “overvalued” (meaning above what local incomes can support). However, a closer look reveals the Southwest region of the state is rated as “normal” while the surrounding market is actually rated as “undervalued.” So while housing prices continue to increase across the map, the rate at which they are becoming increasingly unaffordable for average buyers appears to be slower in Southwest Michigan.

From Himes’ perspective, demand remains high in Southwest Michigan and buyers continue to purchase homes despite the uptick in interest rates, indicating that affordability issues haven’t yet impacted this region as negatively as elsewhere in the country. According to Himes, “Based on year-to-date sales, the first half of 2022 closely mirrors the first half of 2021. And while my sales numbers are significantly higher than a year ago, I do expect the second half of this year to slow down a bit. Buyers that were prequalified for a $200,000 mortgage now can’t afford as much house with a higher rate, so that will influence housing prices somewhat. However, low inventory is expected to keep prices up as compared to 2008 when the market had an overabundance of inventory.”

Preparation is Key

As local demand remains high for interested buyers in this region of the state, Miller advocates a four-step approach to put his clients in the best situation possible when looking for a home. According to Miller, the best advice for any borrower is to:

  1. Build and maintain good credit history by making payments on time and keeping low to no debt on hand,
  2. Save money diligently ahead of buying time to be ready for a down payment and to give yourself more options,
  3. Get pre-qualified for a purchase with your local lender if you’re ready to start actively looking, and
  4. Ask questions of your lender, Realtor, financial advisor, or other professionals in tune with the economy and the housing market.

As Miller reiterates, “There are no ‘dumb questions,’ and it’s my job to help you navigate the market as it relates to your situation.”

A Personal Decision

Ultimately, the question of timing is a personal one, and many factors go into making this important decision. Historically speaking, mortgage interest rates are still relatively low (compared to previous generations) and demand still outweighs supply in this competitive market. The purchase of a home is a long-term investment that will likely end up as a net positive regardless of market cycles. And the best decision is an informed decision, assisted by mortgage and real estate partners with your best interest in mind.

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