IT’S UP. IT’S DOWN. NO, IT’S REALLY DOWN. THE GRAND RAPIDS REAL ESTATE MARKET

The GRAR (Grand Rapids Association of Realtors) reported around this time last year there was about  4,300 homes/condos for sale. Today that number is close to 12,000.

Due to a major oversupply of properties in all price ranges, values have dropped and with credit tightening up, this trend is not expected to reverse itself anytime soon.  There is about a 9-12 month inventory of homes and condos on the market at this point. For those of you not familiar with real estate trends, that is high.  You have to go back to the late 80’s or very early 90’s to see that level of inventory in place. 

Realtors, developers, builders and mortgage brokers have a hard time admitting when things are not going well and they manage to put the pretty spin on things as much as they can. That’s understandable,  it’s their bread and better. But, we still have to be honest. Since they can’t say it so easily, I’ll do it for them – it’s a bad market. Even in bad times though, some come out ahead. That would be buyers with liquid cash and solid credit histories, investors and full time agents and builders with expert knowledge, longevity in the business and strong marketing skills. Unfortunately on the flip side, things not-so-good for sellers, new and small builders and part-time realtors. Let's not leave out of the equation all the businesses that are impacted when housing doesn't move quickly - title companies, appraisal companies, home inspection companies, vendors who do home repairs, home improvement firms, advertising and marketing firms, cleaning companies and more. Nearly everyone is impacted one way or another.

Per the most recent residential sales states from the MAR (Michigan Association of Realtors), it appears that real estate adventure seekers will need to strap in as the ride continues to look bumpy.  The average price of a home in Grand Rapids in August was $149,052, a drop of over 8% from last year. The number of homes that sold in August was 3.5% lower than last year.  Year to date homes sales are down about 5.3% over-all.   According to MAR stats, the total number of sales from January thru August have all seen negative trends.  Same with the average sales price, down consistently each month as well.   No month showed a gain so far in 2007.  With a quarter of the year left, experts don’t expect this downward spiral to get much better as the months go on.

As reported in the Detroit Free Press, based upon income, the number of Michigan households that can afford homes/condos per range are as follows;

0-99,000       - 35.0%
100-174,999  - 23.3%
175-249,999  - 16.9%
250-324,999  - 10.6%
325-399,999  - 5.50%
400-549,999  - 3.90%
550-699,999  - 2.80%
700-849,999  - 1.20%
850-1 million - 0.50%
1 mill +           - 0.40%

Any way you break it down, being in the 325K range and below is the place to be, both for buyers and sellers as the income pool is there. There is still an oversupply of homes in this range, but as the market comes out of it's funk (it will in time), this will balance out once a domino process of offers, sales and closings happen again. Higher end properties will still sell, but the buyer pool is going to be much smaller, market times will be extended and buyers can ask for greater reductions and concessions to get a deal to work out.

Per the MBA (Mortgage Brokers Association) recent updates, 43 of the states in our union are doing quite well in the areas of housing and over-all economy.  On the other hand, there are seven states that aren’t doing well at all.  Three of these seven lead the nation in foreclosures – those states are Michigan (lucky us, making the news again!), Ohio and Indiana.  These three have the highest level of delinquency and foreclosures and that is mainly due to the underlying economy in these states.  Four other states are showing housing troubles, they are Arizona, California, Florida and Nevada.  Factors that are contributing to these conditions include: high adjustable rate mortgages, declining housing prices which make refinancing difficult, high share of investor loans, sub prime mortgage woes and poor economic conditions. Ohio’s foreclosure rates have showed signs of leveling off even though they remain high. Michigan’s problems continue to escalate.  Michigan leads the nation with foreclosure starts with a rate of 1% of outstanding loans. Michigan ranks second in overall delinquency rates.  And finally, Michigan ranks third in foreclosure inventory numbers. We just can’t seem to catch a break in The Great Lakes State. We are first in too many ways we shouldn’t be.

With all this data as reference from the Free Press, MBA, MAR and GRAR, we can see why so many buildings are going up and so many being offered for sale but, there has been decreased interest, limited turnover and minimal closings. Even though the numbers in Grand Rapids are not anything to crow about, they aren’t as dismal as those found on the east side of the state. We may have it rough here on the west side, but they have it much worse in the Metro Detroit region.

Fortunately, as is the norm, this cycle will pass. Real estate always has its peaks and troughs, just like the stock market. We will weather this storm and experience clear skies again. The only problem is no expert knows for certain exactly when the storm will end.  Early 2008? Late 2008? Beyond?  Most predict more turmoil  well into 08' so, bundle up and plan for rain. On the positive side, at least you won’t melt.

Regards,

Bridget Dupont-Tingley
Editor
The Local Area Watch

Comments

[R. Temmins]

Bridget, What I like best about this article is that I don't have to go to many sources to get lots of information. You cited details from four sources to give real estate details for Grand Rapids and MI too. That's a real time saver for people on the go like me. The housing stats look bad but as you said all things improve with time. It is impacting many co-workers and friends I know trying to buy a new house but can't until they sell their home. Guess they just need more time. Again like what you do here. Rachel

[Bridget Dupont-Tingley, Editor @ L.A.W.]

Hello Rachel,

Thanks for your input regarding this article.

Glad you like that I was able to compile many sources to make up this piece. Obviously, it's much easier for me to do the homework for all of you and then put together the final research data into a form of one stop shopping for current mortgage information. I thought this article was important because the housing industry impacts us all one way or another. It's very much a domino process.

As for your friends trying to sell, a few quick tips:

1) make sure they are working with an experienced and aggressive realtor and brokerage firm, if not, make a change and quick
2) make sure they re-visit their asking price so, that is it in line with the competition and what the current market is asking. If they are too high, they are not helping themselves and often helping others trying to sell too
3) make sure the house has strong curb appeal and condition, if anything doesn't work, trying minor fixing so the place shows the best it can

The market will start to turn around in time. There is a massive amount of inventory right now, it will take time for that to be reduced and a balanced market to return. Tell them to make changes every 30-45 days until it sells (reduced price, add on perks like closing cost credits, home warranty, do work to the house if any negative feedback comes in, etc.). Nothing is worse than a house that sits for 4, 5, 6 or more months with low showings, no offers and becomes market weary - even if it is a nice house. Keep the listing and house interesting, appealing and with the top price and perks and it's bound to pop.

Thanks for reading our site and all your feedback.

Regards,

[Paul]

Wood TV 8 reported at noon that foreclosures remain on the rise in MI. We have fallen to one of the top 6 states for foreclosures, they didn't say MI was #1 as you said. They did note foreclosures rose in July to August by something like 36%. No matter what, the figures are bad over-all. Add that to the possible income tax or sales tax increase we are all going to feel very soon and it's dark days ahead for everybody in this state. Paul

[Bridget Dupont-Tingley, Editor @ L.A.W.]

Hello Paul,

Yes, television news did report additional foreclosure figures yesterday. Remember that the numbers in which the major media outlets like to cite are often a bulk figure that is not well defined. Meaning, what are they referring to exactly?

Is it the rate of outstanding loans?

Is it delinquency rates?

Or is it final foreclosure inventory numbers?

Or something else altogether (as foreclosures take a number of months to process from the time that bank begins the process until the house ends up on the foreclosure real estate market). Each of these categories is important to understand and those that follow this business (mortgage companies, banks, realtors, builders, investors, general homeowners, etc.) care about each one. Thus, you will hear many numbers, figures and stats tossed around via t.v. and news print. Pay attention as they all stand for something a little different.

Unfortunately by the sound of things, our tax rate will be climbing ever higher in Michigan as of today too. What the new rate will be and exactly in what category - sales or income tax - is to be announced. Either way, the rising foreclosure numbers are going hand and hand with our rising tax levels. So sad.

On the positive side, the Fed cut interest rates by 1/2% yesterday. That's better by 1/4% than experts predicted. That will definately help out the prime rate banks offer their best customers and it can't help but domino down to everyone with credit cards, auto loans, home equity loans and home loans. It should definately help all those who are in adjustable rate mortgage loans. After a few years of only rising rates, finally a drop to help out. Let's see if another 1/4% or better comes off in mid fall, around October, when the Fed meets again. The drop in rates should help housing troubles at least a little.

Thanks for your feedback Paul! It's always appreciated.

Regards,

[S. P. Donist]

The only good thing about the current real estate environment is that it is bound to get better eventually. Until it does we need to keep a good sense of humor. You have already found it as can be seen in the housing bubble graphic you found. Very funny. I got a kick out of it.

Good piece.

Sparrow

[Bridget Dupont-Tingley, Editor @ L.A.W.]

Hello Sparrow,

Laughter can save us from nearly every bad circumstance. You got that right! Thanks for the comments.

Regards,