Detroit-area real estate market shaken to foundation by COVID-19 outbreak
Candace Kettner did something she never would have dreamed of doing before the coronavirus pandemic shook the real estate market to its very foundations: She made an offer on a house without ever setting foot inside.
"I'm basically putting an offer in blind because I can't go into the house," Kettner said of the Ferndale investment property.
Kettner is among home buyers, sellers and real estate agents trying to find their bearings at this uncertain time when residents in Michigan and three-quarters of the nation have been told to stay home except to meet essential needs such as grocery shopping.
Buying or selling a house is generally not considered an essential activity under the stay-at-home order imposed last week by Michigan Gov. Gretchen Whitmer.
Real estate activity is not considered essential unless it provides "food, shelter, and other necessities of life for economically disadvantaged or otherwise needy individuals, individuals who need assistance as a result of this emergency, and people with disabilities," according to the order.
Just a month ago, housing activity was humming with numerous new listings and showings throughout Metro Detroit. Record-low mortgage rates helped fuel that surge.
As the pandemic hit home with a growing number of confirmed cases, buyers and sellers became more cautious about showings – if they decided to keep their homes on the market at all.
To cope, some agents are emphasising "virtual" home tours. And special precautions have been taken during closings, like one deal on a high-end property two weeks ago.
"It was an interesting closing because everybody was six feet apart, and the pens were thrown out at the end of the closing," said James Cristbrook, president of the Southfield-based Greater Metropolitan Association of Realtors. "They threw everything away. It was quite unique."
Home listings fade
Even after the first two confirmed coronavirus cases in Michigan in early March, seller and buyer activity initially remained strong.
“People kept looking at houses,” said Cristbrook. “I don’t think the fear was a reality at that point. We saw new listings continuing.”
As time went on and coronavirus cases and fears grew, new listings faded, he said, and many were taken off the market.
Here's a snapshot of what happened: During the week ending March 9-10 there were 367 new listings and 132 listings that went off the market for various reasons, including closings, according to the local Realtors association. Last week only 229 new listings were recorded and 210 properties went off the market, including numerous properties that were withdrawn.
Reginald Perryman, an agent with Keller Williams Metro, said he has a client who was preparing to list her home on April 13, but will instead use that date to reassess when she'll list in the future.
As for closings, Perryman said he's experienced some holdups, but doesn't expect deals already in the pipeline to come to a complete stop.
"There have been some delays getting paperwork processed," he said. "I did have a closing with a client overseas. It took an extra week for documents."
Mortgage applications fall
In early March, Michigan lenders worked hard to meet a surge in mortgage demand as rates for 30-year fixed-rate loans fell below 3.5%, while rates on 15-year fixed mortgages were below 3%. Detroit-based Quicken Loans and Pontiac-based United Shore reported high call volumes.
By this week, the average rate for a 30-year loan was down to 3.33%. Despite that, applications for purchase loans dropped 10.8% in the week through March 27 after tumbling 14.6% the week before. That's the worst two weeks in nearly a decade, according to the Mortgage Bankers Association.
"The current environment is a disruption to both buyers and sellers," said Robert Dye, senior vice president and chief economist for Comerica Bank. "Low mortgage rates will help, but buyers need to feel confident about their incomes."
And with continuing layoffs — more than 300,000 Michiganians applied for unemployment benefits last week, part of the 6.6 million Americans who did so — that's unlikely to fuel confidence anytime soon.
Adding to the misery, those who planned on selling off mutual funds or borrowing from a 401(k) for a down payment have seen their investments plunge with the rest of the stock market.
Some existing deals have fallen through.
"There have been a few people under contract that have since been furloughed or laid off, so they're no longer going to be able to make their purchases," said Christina Gennari, an agent with Keller Williams Domain in Birmingham. "We've had to back out on those."
As Metro Detroiters adhere to the stay-at-home order, agents are handling business through conference calls and video chats with clients and fellow agents from their homes.
For showings, they’re doing virtual showings, giving potential buyers as much information as they can without them being able to see the inside the houses in person.
Gennari said she has several home listings ready to go.
“We’ll put them on the market once we’re able to show because right now we’re restricted,” she said. “We can have virtual tours, we can have video tours for people so you can’t visit the homes in person."
Lance Tinsley of Auburn Hills just recently had his offer accepted to purchase a four-bedroom home while also recently accepting an offer on his two-bedroom condo. He said that there is an agreement among the parties that if needed, the closing could be pushed back for another month.
"They're understanding this is something different and there's flexibility to push it back another 30 days if you have to," he said. "I signed off on it and so did the seller, so everybody is in a good place."
Home values may dip temporarily as the pandemic stretches on, with the full impact being delayed a few months, agents predict.
“If the first-time homebuyer isn’t coming into the market, then as you could imagine the second-time homebuyer and the third-time homebuyer, that all slows down because we really have to be pushing that market up from the bottom,” Cristbrook said. “So it will have a pretty significant residual effect.”
Agents say they are optimistic the impact won't be long-lasting.
"When we come out, there will be a volume of inventory," said Gennari, the Birmingham agent. "People not moving today that will need to move in that time — even taking into consideration layoffs and other shifts."
Kettner, the woman who bought the house unseen, plans to close next week on the property, a purchase funded from the sale of a previous rental property. She was able to have an inspection and says she'll see the inside for the first time during a final walk-through.
"On one hand I’m happy because I think I’m closing in on what I was trying to accomplish," she said. "But there’s certainly an aspect of nerves around putting in an offer and buying a house site unseen at this point."