As home prices rise in Michigan, so do worries about affordability

Real-estate prices are rising and houses aren’t staying on the market for long in many areas in Michigan, exciting sellers when they realize how much they can make on their homes.

But the numbers also show ongoing issues with housing accessibility and affordability, which many experts say could be accentuated by the coronavirus pandemic.

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That has the real-estate industry and housing experts closely watching policy decisions during the COVID-19 recession, from pandemic assistance plans to housing issues like mortgage rates and funding for homebuyer assistance programs.

The concern, they said, is that still more residents will be shut out of the housing market.

“The continued appreciation of house prices has offset housing affordability for many households,” said Michael Neal, senior research associate in the Housing Finance Policy Center at the Urban Institute, a nonprofit research center in Washington, D.C.

Michigan went into the pandemic with a shortage of houses for sale, according to the Michigan State Housing Development Authority, even with 71 percent of the state’s housing owner-occupied.

“The supply of affordable homes for sale in Michigan is not meeting demand, and the share of Michigan citizens who own a home is falling as a result,” the agency wrote in a report on home ownership in the state issued in 2019.

“Homeownership continues to be a goal of many Michigan residents, but the pathways of achieving this goal are becoming more difficult.” 

It concluded: “The upward pricing trend is one of the most significant barriers to entry for households across the state.”

The average price of a home sold in Michigan as of June was $192,104, according to the Michigan Association of Realtors. That’s up from $181,235 a year earlier, representing a statewide increase of 6 percent. Many communities are seeing double-digit percentage growth and prices averaging more than $300,000, Realtors say.

At the same time, fewer new homes are being built than the market needs, experts said. With the average price of new construction at about $330,000, entry-level homes are rare in newer developments, yet homes priced at $200,000 or less are in demand.

“For a lot of lower-income or first-time buyers, that first home is going to be more expensive,” said Jung Hyun Choi, who is also a researcher at the Urban Institute.

Some fear the divide could widen along racial lines. 

Nationally, the Black homeownership gap is growing nationally, while both Asian and Latino homeownership grows. Asian home ownership is at 59.1 percent, while Latino is at 48.9 percent. Yet the Black homeownership rate was at 42 percent in 2017, a full 30 percentage points less than the rate for whites. The gap is similar in Detroit, while there was a 44.7 percentage point gap in Grand Rapids in 2017, among the highest for U.S. metro areas, according to the Urban Institute. 

“A recession tends to disproportionately hurt more vulnerable populations,” Neal said. 

Economists forecast at least two years of higher unemployment in the state due to COVID-19, prompting corresponding concerns about whether people affected by income loss will be able to keep up with mortgage payments as the economy slides this year.

“I’m having a lot of conversations with regulators,” said Patricia Herndon, executive vice president of the Michigan Bankers Association. “A lot of people are feeling a mixed bag. There are significant pressures going on, but not a full-fledged feeling of impact ... because of so much of the economic support that we’ve seen.”

Tools to help another crash

Federal Pandemic Unemployment Assistance payments of an extra $600 per week through the end of July helped keep many homeowners facing job loss on track to make their payments, Herndon said. 

Federally-backed home mortgage loans in forbearance — or late on payments, but not in foreclosure — just dropped nationally for the 14th week in a row to 4.65 percent, Herndon said. 

At the same time, the Federal Reserve is keeping interest rates low, which is expected to continue through 2023. That’s helpful for borrowers seeking to refinance homes for lower payments and fuels some of the hot buying activity, Herndon said.

Maintaining consumer access to low-interest 30-year mortgages is a priority for the Michigan Association of Realtors, said its president, Maureen Francis.

“It’s the underpinning of home ownership,” she said. “It creates wealth and intergenerational wealth.”

Cities also are stepping up to increase affordable home ownership. 

In Flint, which suffered decades of population loss and blight, about half of the 95,000 residents are renters. That’s prompted many groups, including government, nonprofits and the Genesee County Land Bank, to offer programs including low-interest gap loans to help with down payments along with credit counseling.

Now, sales are increasing in many areas of the city and the median list price has climbed to $67,900. 

“One of the bigger disparities that we have is the gap of wealth,” said Mayor Sheldon Neeley. “We know that renters don’t have the ability to monetize a home. If we create a level of home ownership, we create an opening for all of the other great things to happen for a family.”

That’s the experience of Carma Lewis, who bought her house in Flint more than 30 years ago at the insistence of her father. She’s still in that house, living now with her mother and sister. Every day, she said, she’s grateful that her dad showed her that she could buy her home, with his financial help. That’s the kind of assistance that Neeley and state officials are trying to find for other residents who may not have family resources.

Owning her own home “meant the world to me,” Lewis said. “I don’t know how to describe it. I have a place, a little section of this world that I can call my own.”

Ann Arbor tax, other ideas 

In Ann Arbor, voters will face an affordable housing millage on November’s ballot. It follows years of debate over how the city is managing affordability as prices on single family homes climb. 

In June 2015, the average sales price for a house in the Ann Arbor Public Schools was $365,511. By June 2020, that was $452,620, an increase of about 24 percent. The median household income in Ann Arbor is $61,247, while the poverty rate for the city of about 119,000 is 22.6 percent.

The millage would fund $160 million for housing acquisition and construction for people making up to 60 percent of the median income, according to the city. At 1 mill, the tax would cost the owner of a $300,000 home an extra $150 per year, and add up to 1,600 housing units to the city’s housing stock. Unclear is how many would be for-sale homes.

“It would be a game-changer in the sense of how much housing can be built at the lower-income of the spectrum,” said Jennifer Hall, executive director of the Ann Arbor Housing Commission.  Among the winners, Hall said, would be “people completely shut out of the home ownership market, or those traveling long distances to get to work.”

Opposition to the millage so far points to how it may increase housing costs for residents who can least afford increases: lower-income homeowners and renters.

Hall said two major factors are driving the housing shortage in the Ann Arbor community: the number of students that were added to the University of Michigan over many years without consideration of how they and additional support staff would impact the housing market. Also at play was job growth that exceeded housing supply.

“Both are similar,” Hall said, “if you add people without considering what’s available for housing. They cause stress on the housing market.”

Statewide, the housing shortage is prompting the Michigan State Housing Development Authority to consider launching a home rehabilitation program that would help buyers buy the fixer-uppers available in older communities like Flint and Detroit, said Mary Townley, director of home ownership for the state's housing development authority. 

Those loans would allow a buyer to roll construction costs into the purchase price. “That is our most requested and most-needed program,” she added.

MSHDA also faces the end of its Step Forward federal funding. Over 10 years, it financed $760 million in blight elimination in neighborhoods hard-hit by foreclosure, but that ended. No replacement program has been offered, but Townley said she hopes that will change so that the agency can help laid-off workers maintain their housing. 

While forbearance declines weekly, “we’re carefully watching the numbers to make sure we can advocate for additional federal funds,” Townley said. 

While Herndon points to the benefits of home values not falling during the pandemic, the housing shortage remains a problem for many across the state, said Bob Filka, CEO of the Home Builders Association of MIchigan.

“That equity doesn’t mean anything if you can’t sell and find another place that you find attractive, let alone family members and others struggling to find housing,” Filka said. “Equity doesn’t help you unless you’re sure you can move into another housing situation you want.”

Homeowners facing foreclosure can use these tips from MSHDA to find help.