After two years of record sales, homes in Northern Michigan continue to sell faster than they are being built. Demand remains high as supply dwindles, but realtors are seeing sales slow down for buyers who need financing as prices and mortgage rates soar beyond affordability for the average person.

In an effort to fight inflation, the U.S. Federal Reserve raised interest rates several times in 2022 and are considering more raises in the future, according to the minutes from its July meeting. While interest rates are working to bring down inflation, they also make it more difficult for prospective home buyers to afford mortgages.

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“It doesn't give much opportunity for first time homebuyers,” Bill Blaker of Blaker Realty in Gaylord said. “I think it's going to be a difficult road going forward for buyers until this thing turns around and I think it will. I think that we're starting to see price reductions and I think there are corrections ahead of us.”

Data from the Emmet Association of Realtors shows that realtors handled higher dollar amounts in Charlevoix and Emmet counties, but sold fewer units. In July 2021, the median sales price in Charlevoix County was $273,000, this year it shot up to $400,000. Emmet’s median sales price in July 2021 was $315,000, this year it rose to $425,000.

Blaker said in August 2021, the median sales price for a home in Otsego County was $179,000. This year, it increased to $229,000.

While demand for homes is still high, sales are slowing down for realtors as buyers begin to lose hope that they will find a home in their price range.

“I think a lot of people have given up. I just think that they've been priced out of the market,” Blaker said. “Except lakefront, that seems to be red hot and continues to be the one area that seems to be still quite active.”

Lakefront properties have always been popular in Northern Michigan, but Blaker said the cost of lakefront homes have increased dramatically.

According to CT Shuman, owner of Real Estate One of Petoskey, cash deals are still very popular and the rise in interest rates seems to be primarily impacting buyers who use mortgages to purchase a home.

“We are seeing interest rates have an effect on a certain segment of the market, (it) seems to be cooling the segment of the market where people need financing,” Shuman said. “So it seems to be taking some buyers out of the market, which ultimately, we think is going to have somewhat of an effect on demand. But things are still going very well and there's still a lot of demand here in the area.”

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Shuman said there are homeowners who want to sell their homes and buy one that better suits their needs but are locked into their 3 percent mortgage rate and are hesitant to buy another home when the interest rate for their mortgage could be as high as 6 percent.

“(Interest rates are) killing us. People can't afford the home prices and then they can't afford the mortgage on top of it. It's like a double negative. So the average person can't afford a home in Otsego County anymore,” Blaker said.

“The median price is $300,000 and we're probably less expensive than some of the other counties like Emmet and Grand Traverse and Charlevoix. Gaylord used to be reasonably affordable for the working family and just like a lot of Northern Michigan, that's not the case anymore.”

Because of high demand and low supply, buyers are forced to search for homes further away from where they want to be, meaning many will be facing long commutes to work.

“We're kind of seeing people going to wherever there's a home available that fits their needs. Buyers seem to be encompassing a larger area in their home search just because the inventory has been so low,” Shuman said.

“(Petoskey) is the largest area around the area and that's probably where the majority of the buyers want to be, but they're having to branch out a little bit further to find suitable housing.”

Blaker, who was working in real estate during the 2008 market crash, said he is seeing a lot of similarities between then and now.

“Back then, I would say (it was) looser standards for mortgage requirements and now what we're seeing is people that are getting squeezed by inflation, that are going to have a difficult time going forward and a housing market that is expensive to build, buy and mortgage,” Blaker said.

“No, it's not a matter of might, it's a matter of when and how bad we’ll crash. I've been around the block, I've lived through some recessions and I think history will repeat itself and we'll see another recession sooner than later.”

Shuman disagrees. He said demand is too high for the market to crash and that prices are not likely to drop any time soon.

“Unfortunately, I think our values aren't going to continue to rise at the rate that they have. But unfortunately, I don't think you're going to see prices go down. These prices are here to stay,” Shuman said.

“There's too much demand for this area. It's not a big enough area, it's not a large enough market that we're going to see the big swings like you might in some other areas. People still want to be in this part of the country, at least for six months of the year.”

This article originally appeared on The Petoskey News-Review: Interest rates making homes unaffordable for average person