Is It Time to Invest in Detroit? Michigan Real Estate Outlook for 2022

Source: Bankrate

The global pandemic turned our world upside down and left many investors on the fence about expanding their real estate portfolios. However, the effects of COVID-19 are waning nowadays, with Michigan’s real estate market standing as a testament to the stability and near-future opportunities.

What should investors like you expect from Michigan’s real estate market? Is 2022 a good year to invest in its housing market? Let’s take a closer look.

Michigan Real Estate Market Investment Outlook 2022

Despite the pandemic, the real estate market of Michigan continues to show its resiliency. In fact, home prices are on the rise. This indicates good health in the market, with investors looking to get a slice of the pie. And as a local property management company, we can attest to the growing demand!.

To put it into perspective, the Michigan Association of Realtors reported that home sale prices grew by 13.71% versus last year and median home prices reached $257,986. Redfin also announced that Michigan property prices are increasing 11.8% year-over-year:

Source: Redfin

The market is competitive, with bidding wars popping up left and right. Nearly half (42.9%) of the properties were sold above the asking price which is a 6.7% increase year-over-year and a significant jump from last year’s 21.8%.

To give more context, consider Milwaukee’s housing market, which is another real estate investment hotspot where inventory is tight and property prices are soaring. Even here, homes are sold for only 1.22% above the asking price on average and 8% at maximum.

Source: Redfin

Investors are quick to see that Michigan is ripe for real estate gains, where the market is becoming increasingly competitive. Moreover, while interest rates have spiked since January from 3% to almost 5%, it’s still a record-hitting low. This means you’ve got a great advantage to if you’re looking to finance your acquisition plans:

Source: Riverbank Finance

But where should investors focus their research in Michigan? What areas can landlords reap famed real estate returns the most and the fastest?

Well, based on multiple data points and the current trends we’ve observed personally, these are the top 3 most competitive Michigan markets you should invest in:

• - Berkley: This upcoming suburb has plenty of working professionals flocking to it. With plenty of great schools a low rate rate, it’s getting a lot of traction. Plus, right now the Median home value is only $222,100 according to Niche.
• - Huntington Woods: A rural suburb, Huntington Woods is a popular area with a low crime rate for families to live. It’s got a lot of space to grow, but does come in a bit higher with a median home value of $372,200.
• - Grosse Pointe Farms: Finally, there’s plenty of families buying in Gross Pointe Farms, just a short distance from the city. The median home value is $357,100 and it’s a popular choice for young families as well.

As we can see from the numbers, the City of Detroit has the largest pool of properties for investors to choose from with a range of high and low property prices. Given that the City of Detroit shows the most investment potential in the state, we’ll take a closer look at this ‌city for you to see the contributing factors in more detail.

Detroit Real Estate Market Investment Forecast 2022

The City of Detroit has one of the most affordable properties in the nation. It comes with all the key factors that make a market ideal for real estate investors. Whether you’re looking for cash flow or equity gains, Michigan’s largest city has everything you seek for lucrative returns.

Let’s look at each of these factors in greater detail.

Growing Economy and Population

The City of Detroit is the most populous city in Michigan and is the seat of Wayne County. Even with its seven-decade long population decline, the city is now experiencing an influx of new people and businesses that are fueling an upward trajectory for its economy:

Source: CoStar Insight

Moreover, multiple Fortune 500 companies have their headquarters in the city, being the key drivers to the city’s employment and economic development. In fact, the unemployment rate in the City of Detroit is forecasted to bounce back to pre-pandemic levels this year:

Source: Michigan State University & Wayne State University

Increasing Home Values & Appreciation Rates

The city is famous for below-$100k properties, making it ideal for tight budgets. At the same time, these prices are rapidly increasing, where we saw a 30% increase in 2021—its fifth consecutive year of growth.

Detroit property values are expected to rise steadily in the next year at a similar rate:

Source: Norada, based on Zillow

In terms of appreciation rates, the city experienced some of the highest in the country within the last decade, where properties appreciated 75.3% in the last decade (equating to an average annual appreciation rate of 5.77%) and 12.35% in the last 12 months. This rate means that the City of Detroit is in the top 20% of all cities in the United States in terms of real estate appreciation.

NeighborhoodScout gives us a snapshot of the fastest appreciating areas in the City of Detroit:

Source: NeighborhoodScout

Monumental appreciation rates aren’t only in the city, however, as the greater area of Metro Detroit (Detroit-Warren-Dearborn MSA) saw property appreciation rates increase by a whopping 148% since 2011, and are forecasted to continue in the coming years.

Rental Property Opportunities

Plus, rent is increasing. It’s gone up to 19.5% since 2021 and is roughly 7.8% year-over-year. In other words, there is a wide range of affordable properties to rent out for strong cash flow while appreciation rates increase.

Source: Millionacres

Even with increasing rent, the amount isn’t pricing people out of the market.

Here’s why: The average income in the city is $59,597 annually which is $300 higher than the national average, and a 20% increase since 2009. This means that tenants will only reserve a measly quarter of their income for rent—perfectly meeting the industry standard that says tenants shouldn't pay more than a third of their income for rent.

In other words, tenants won’t have a problem keeping up with rent payments that you can easily increase over time. The odds are good for investors to come out ahead with consistent and improving rent income while equity gains continue to build up in the long run.

Booming Downtown Region & Tourism

The downtown region is seeing impressive progress thanks to the growing population of young professionals, effectively attracting new and returning residents. There are emerging restaurants, vibrant nightlife scenes, green environments, and sports teams with far-reaching fan bases that continue to build the city’s urban neighborhoods.

In fact, given the city’s iconic architecture, deep-rooted culture, historical museums, and unique attractions, New York Times named the City of Detroit the 9th best destination to visit, and Lonely Planet ranked it as the 2nd best city to experience.

As one can expect, there is now a growing demand for short-term rentals and similar housing alternatives to cater to these visitors and travelers. So much so, that rent prices for smaller properties are steadily increasing—unaffected, even, by the 2020 pandemic:

Source: Norada, based on Zumper

Supportive Government Initiatives

The government is also one of the core reasons for the city’s development.

It turned the city into an educational hub with higher-learning institutions, a healthcare center with over a dozen major hospitals, and a transportation point leveraging on its proximity to Canada and major airports, highways, railways, and ports.

Government budget allocation focuses on public safety and dealing with crime that the city is often judged for. This works to assure investors and future residents that the City of Detroit is taking one of its biggest pain points by the horns:

Now’s the Time to Invest in Detroit

The quality of life in the City of Detroit is increasing, magnifying all the factors that make the real estate market a great place to invest in this 2022. As you might have read in our ongoing series Deep Dive into Detroit Cities and Neighborhoods as well, the area is bursting at the seams with profitable opportunities that investors only wished they had realized earlier.