Inflation, mortgage rate hikes, and high prices spurred by the pandemic’s homebuying frenzy have cooled the housing market, locally and nationally, over the past year. Affordability challenges continue to limit purchasing, with pending and existing home sales down month-over-month
Yet, real estate agents in Detroit say due to low inventory, move-in ready houses near the city’s historic neighborhoods and thriving commercial corridors are still a hot buy.
Southeast Michigan, like much of the U.S., saw a 33% decrease in closed sales of residential homes and condos last year compared to 2021, according to Realcomp
. In December, closed sales in the region were down 12.4% year-over-year. Detroit sales fell 11.1% that month (after slipping nearly 26% in November). The Median Sale Price for the City of Detroit decreased to $69,500, down by 17.5% over last December (before mortgage rates hit record lows during the pandemic, the average median sale price of homes was $46,750 in 2019).
Increased buying power provoked the rise of house prices, multiple offers, cash offers, and contingency waving that were unheard of, real estate agent Gordon Hawkins told Model D last year
. But conditions sobered last summer as mortgage rates doubled from the new year, and homebuyers continued to face inflation across markets.
Austin Black II. Courtesy of City Living Detroit.
Today, it's still a seller's market because the inventory is low, says Austin Black II, founder of City Living Detroit
. Black II has been practicing real estate for 17 years, specializing in lofts, condos, historic homes, and luxury real estate. “Nationwide, since the Great Recession, the reality is we don't have enough housing," he says. "So people are staying in their homes a lot longer.”
He says low inventory and higher mortgage rates make it difficult to pinpoint how things have changed in the last year.
“The kind of staple neighborhoods in the city are still doing really well. In these, if we're lucky, a handful of homes are on the market at any given time, and most of those homes are still moving fairly quickly," he says. "You can see two or three offers on a property that checks all the right boxes in terms of its presentation, pricing, and location.”
Rather than a stretched dollar, his current clients are motivated by specific lifestyle or family changes — they’re getting married, having kids, becoming empty nesters, or working remotely and wanting more space. He says that higher interest rates may pull some people out of the market based on affordability, but they’ll likely choose a lower price bracket over not moving.
“Honestly, I think it's very unlikely for us to go down to 2% interest rates anytime soon," he says. "And then the question is, how much lower will they get? Or will they rise, and at what point?”
Homes in the Bagley neighborhood. Photo: Nick Hagen.
Bagley and beyond
Situated just west of the University District
, Sherwood Forest
, Green Acres
, and Palmer Woods
, the Bagley
neighborhood is where Black II has seen the most significant shift in recent years. A previously stable neighborhood hit hard in the 2008 recession, Bagley has seen increased interest, rising home prices, and renovations throughout COVID-19.
As the cost of living in Ferndale and Oak Park rises, residents have pushed into Bagley from Oakland County because of its nearness and affordability, Black II says. The neighborhood boasts brick homes with historical features and proximity to four neighborhoods that have been stable and thriving for a long time. He's seen houses in the neighborhood range from about $100,000 for a real fixer-upper to low $300,000s for an updated home. He credits this to the city’s investment in the nearby Livernois and McNichols Corridors, which have brought in retail, restaurants, and bars.
Clients with budgets of $200,000 to $300,000 tend to look at the different neighborhoods simultaneously, he says, including the Grandmont Rosedale
communities, East English Village
, and the North End
, which is close to downtown but still offers single-family homes. Those with a budget of $400,000 to $500,000 are looking at Boston Edison
, the University District, Sherwood Forest, and, depending on the size of the home, possibly Indian Village
, he says.
His advice, especially to first-time homebuyers, is to work with a recommended lender to get a clear picture of where you stand in terms of affordability and then start searching for a home. Also, try to stay flexible in neighborhood choice, he says, because it’s still a competitive market in certain situations.
Bagley's various styles of brick houses range from $100,000 to low $300,000s. Photo: Nick Hagen.
Practicing real estate since 2005, Jan Dijkers is the managing broker and president at Berkshire Hathaway HomeServices The Loft Warehouse
. She's lived in the Woodbridge neighborhood for 20 years and has experience selling historic homes, condominiums, and investment property. Dijkers has a particular interest in emerging neighborhoods.
Like Bagley, these are less populated neighborhoods on the edge of established communities. Dijkers points out that property costs less in an emerging neighborhood, yet residents can take advantage of the adjacent neighborhood's growth and amenities. This is a trend she's been watching happen in Detroit over the past few years.
She notes the well-established neighborhoods of West Village
and Indian Village
with higher home price tags and very little inventory. They've promoted interest and development in the nearby communities of Islandview
, Pingree Park
, East Village
, and what's becoming known as North Village. These neighborhoods offer more inventory and affordability, she says, and residents can still benefit from the businesses and development happening along Kercheval and Van Dyke.
For a community to gain establishment, it needs both individuals and government to buy into it, she says. But when you see infrastructure invested along a commercial corridor in a neighborhood, “it sends a signal that the city is putting money somewhere and that other people should be putting money there too.”
Jan Dijkers. Photo: Nick Hagen.
Dijkers favors Jefferson Chalmers
because of its unique access to the Detroit River, canals, and the many amenities and shopping residents can access nearby in The Pointes. She sees a lot of growth happening in places like Woodward Village
(west of Woodward, south of Highland Park) and Piety Hill
because of their proximity to New Center,
the North End, and Boston Edison. All of these neighborhoods still have properties accessible in the $100,000 to $200,000 range, Dijkers says. She recommends homebuyers consider the development happening in and around New Center, the North End, and Milwaukee Junction
“There are a lot of great restaurants and retail places and bars that have opened up," she says. "It's become quite a little district. It’s really exciting to me that so many things are happening in such a small area.”
Dijkers and Black II say condos and lofts are slow to sell these days. During COVID-19, people shied away from shared entrances, elevators, and corridors. Many working from home want more space and don’t need to live near a downtown office. Clients are instead choosing townhouses with backyards, garages, and private entrances. Dijkers says she’s also seeing rising interest in duplexes among owner-occupant buyers.
“As interest rates went up, it became a really good solution for buyers who wanted to take the edge off that increased mortgage payment by having a tenant in the other unit,” she says. “I'm starting to see more buyers come into the market looking for that experience who maybe would not have considered that before.”
Duplexes are pretty accessible in New Center and Virginia Park
as far as price point, she says. West Village and Islandview also have good options when they’re available. She says duplexes in Woodbridge are very popular when they come on the market, but buyers should expect to pay a higher price tag.
Dijkers recommends First Merchants Bank’s Next Horizon
mortgage program for people purchasing a primary residence in Detroit. It offers low to no down payment on home purchases under $400,000, with no Private Mortgage Insurance (PMI), up to $7500 in grant funds, and interest rates of about a percent lower than the conventional. Potential homebuyers should reach out to a community home lender
for more information.
Dijkers also recommends that homebuyers learn about potential tax benefits in districts designated Neighborhood Enterprise Zones
, as these can help homeowners reduce property taxes.
Livernois commercial corridor at West Outer Drive. Photo: Nick Hagen.
Understand your property taxes; make sure there’s a bar you can walk to
Randall Fogelman, a senior real estate agent at O’Connor Real Estate
, generally dislikes the term “up-and-coming” in Detroit. All neighborhoods have their pros and cons, he says.
But, he’s been selling many houses in the North End over the last couple of years, where the stock is nice, and the neighborhood is “pretty happening," he says.
“A lot of people have done flips there, some good flips and some not-so-good. If you are able to go through the flip, make sure to have an agent who can help you discern what was done well or wasn't.”
Though interest rates are slowing sales, Fogelman says, historically speaking, they aren't extremely high. When he purchased his Detroit loft in 2000, his rate was about 6.5%, which he considered a great deal. What's been difficult for homebuyers is how fast rates have climbed.
It's crazy that buyers could get an interest rate of 3% early last year, and now they're closer to 7%, he says. "I think we set high expectations with low-interest rates for so long, and then we decreased buying power, basically in half. I feel like sellers don't really understand the market has shifted, and they need to be a little more flexible in their pricing."
Still, people are continuing to move, especially into single-family houses. Updated homes in historic neighborhoods go fast whenever they come on the market, he says, pointing to Indian Village, Boston Edison, and the University District, which has never been more vital, he says, with the activity on Livernois between Six and Eight Mile Roads.
“You can live up there and have a life where you can bike to a bar or restaurant and do your shopping,” he says, “It’s pretty great.”
The general theory he likes to tell his customers is that you should always live within walking distance of at least one bar.
“So when you want to just get out of the house and go have a glass of wine or beer, you can do that,” he says. “The Congregation
did that for Boston Edison. It provided that one bar that people could walk to.”
No matter where you’re buying in Detroit, Fogelman says it's essential to find an agent who understands Michigan property taxes. As the first owner of his Canfield loft in Midtown, where he’s lived for 22 years, he has a unique perspective on lofts and condos in Detroit, specifically the Neighborhood Enterprise Zone. Because of the uncapping that happens through Proposal A
, property taxes are likely to rise significantly the year after you purchase your home, he points out.
“If someone’s been living there a long time, most likely they’re paying very little in property taxes. It could be a real shocker.”