‘Hang in There’: Mortgage lenders weigh real estate market’s ups and downs

Traverse City’s real estate market has been a ball of chaos for two years running.

Homes selling for way above asking price, dozens of offers on a single house, all-cash sales, sight-unseen offers, bidding wars, escalation clauses, appraisal gaps, skyrocketing home values and dwindling inventory: These trends have all become commonplace in local real estate since the start of the pandemic.

If there’s an under-examined side to this story, though, it’s what all the chaos has done to the mortgage lending side of the market.

Certainly, the preponderance of cash offers in the current market has cut lenders out of many transactions entirely. According to real estate brokerage Redfin, 30% of United States home purchases in 2021 were paid for with cash – the highest rate since 2014. But lenders have also had front-row seats to the market’s stratospheric rise, and to the significant challenges that upheaval has posed for countless would-be buyers.

As northern Michigan’s housing market finally begins to slow – the five-county region (Antrim, Benzie, Grand Traverse, Kalkaska and Leelanau) saw 182 home sales in April 2022, compared to 261 in April 2021 – the TCBN spoke with three local mortgage lenders to get the inside scoop on interest rates, buying power, loan preapprovals and what’s coming next. Here are three key takeaways.

Real estate investors and deep-pocketed buyers are skewing the market – for now

In a recent New York Times article, journalist Sophie Kasakove examined a growing market trend where investors and corporations are buying up houses – especially ones “at the lower end of the market” – and turning them into rentals.


While Kasakove’s article looked specifically at how this trend of real estate investments was affecting the housing market in Charlotte, North Carolina, local mortgage broker Mike Nagy said the issue is a universal one that’s hitting virtually every desirable market in the U.S. – including northern Michigan.

“There are lots of news stories right now talking about these investment companies nationwide going into single-family residential communities,” said Nagy, who is the vice president of mortgage lending for State Savings Bank. “All of a sudden, the houses get swept up by investors, who then start putting tenants in that they haven’t even fully vetted.”

Nagy says that the shortage of inventory would continue to drive prices up until such time that there is a bubble burst, where nobody sees (real estate) any longer as a great investment.

Right now, you can sell people on real estate as a great investment, because you can say, ‘Last year, (this home) got 20% value appreciation,’” he said. “Those days will go away, and when that ceases, even the people who bought up all the investment houses will have to start lowering their prices, because they’ll typically have to sell to the end customers and the end customers are not going to pay those inflated prices.”

Nagy sees rising interest rates as the thing that eventually slows real estate activity and puts an end to the current “anomaly” of home values appreciating by double digits year-over-year. As the Federal Reserve seeks to get inflation under control, he said, the days of cheap money lending are likely over.

For example, the average 30-year fixed APR rate at the end of 2021 was 3.069%. By mid-May, it was up to 5.321%. For Nagy, who has been involved in mortgage lending since the days of 20% lending rates in the late 1970s, the rising rates are a clear sign that the market is about to get a wake-up call.

“I can just see the writing on the wall right now,” Nagy told the TCBN. “These rates are going to keep going up until the economy slacks off and people stop overpaying for cars and stop overpaying for houses.”

Nagy points to the job market, layoffs and unemployment following suit.

“…(T)hey’ll start to lose jobs because prime rates will go up, and the cost to do business will go up, and businesses will have to look at themselves and say, ‘Can we afford that new piece of machinery that would add three new workers?’ And when they can’t, business slows down even more, and maybe they have to start laying some people off,” he said.

“Curing” inflation, Nagy says, comes with these markers.

“Then you get job layoffs, and you get unemployment growing, and you get a situation where, yes, you’ve cured inflation,” he said. “And perhaps this happens over a long period of time; I’m not saying this is going to play out in the next year.

“But that’s where I see things going.”

Rising mortgage rates are killing the purchasing power of first-time homebuyers

On a long enough timeline, rising mortgage rates could be enough to get the real estate market back to “normal.” In the interim, the people getting hit hardest by rising rates aren’t the investors or the wealthy all-cash buyers, but the first-time homebuyers.


Just ask Bill Holmes, vice president of northern Michigan sales for Front Street Mortgage. Between rising rates and climbing house prices throughout the Grand Traverse region, Holmes said the average mortgage payment for his clients has doubled in the past year. The result is a sweeping affordability issue that is hitting many buyers.

“I think the main thing that we’ve seen lately is that borrowers that were preapproved a month ago – or two, three, four, five months ago – many of them still haven’t found anything,” Holmes said. “But the problem is, those buyers are still out there under the impression that they can afford a certain price of home. Perhaps they haven’t gone back to their lender and talked about rising interest rates.

“They probably need to come back in and get re-preapproved.”

Mortgage preapprovals, Holmes continued, have become one of the most baffling parts of the process for new buyers. On the one hand, because of local market trend, many buyers are finding that their preapproval amounts don’t give them enough leeway to be competitive. On the other hand, because buyers often aren’t meeting with success quickly – and because rates are rising in the meantime – many people searching for homes are finding that their purchasing power has diminished significantly since they started searching.


According to Randy Brown, broker and owner of Traverse City’s Versatile Mortgage LLC, it used to be rare to write more than one or two preapproval letters for a client.

“Now, clients want approval letters specific to a property and specific to a price,” he said. “So we’re writing a dozen approval letters for each client.”

Brown says a recent challenge has emerged because of rising interest rates: Purchasing power has diminished by 25%.

“I’ve never seen that happen before,” he said.

Realtors doing searches for properties in the $300,000 range since the first of the year now have preapproval letters on hand that are essentially “worthless,” he said.

“Now, you’ve got to ratchet your price range down to $225,000,” he said. “And if you thought the housing search was tough at $300,000 – well, pack your lunch.”

Despite the challenges, it’s not all doom and gloom

It’s not an easy time to be a buyer in northern Michigan; Nagy, Holmes and Brown all agree on that point. But while prices, interest rates and competition in the marketplace are all posing big challenges, our panel of mortgage lenders did have a few positive things to say – either about where the market could go next or what buyers can do to stay in the game.

For Brown, a big focus lately has been watching the bond market, which he said is often a good indicator of where inflation is going and what mortgage rates might do next. As inflation hits major public companies and affects their earnings reports, stock prices are falling.

“When that happens, investors are looking for other places to put their money,” Brown explained. “Where do they put it? They put it in bonds. What does that do to yields? It causes them to fall. When that happens, rates get better.”

Brown’s prediction, based on the bond market and some tentative drops in mortgage rates in mid-to-late May, is that relief is coming on the mortgage rate front, likely sometime in the final quarter of 2022. That bounce-back would, ideally, offer a happy medium – giving struggling buyers their purchasing power back, but still chilling the market for long enough to replenish housing inventory, temper appreciation rates, and slow investment activity.

“We’re not going to see 20% appreciation for the third year in a row,” Brown predicted. “It started out that way, but we’re already starting to see a little more inventory and the market is starting to turn.”

In the meantime, Holmes is giving some simple advice to clients who have burned through a dozen preapproval letters and found themselves outbid at every corner.

“Save what you can,” he said. “Reduce your overall debt load; pay down some of the credit cards; don’t buy the RV or boat if you don’t need it; pay all your bills on time so that you can have a higher credit score and get the best rates; and maybe check with family members to see about the availability of a monetary gift (to help with a down payment).

“Just hang in there; something will happen.”