Dear L.A.W. Readers,
Bill and I have been away for awhile due to outside business obligations. We continue to research, read, network and monitor local events as always, but you may notice our written articles and comments have slowed in recent months.
We hope to post anew in the coming year as time permits. Check in when you can and we hope to have more to share at a later date.
Merry Christmas and Happy New Year to all.
Regards,
Bridget Dupont-Tingley,
Editor
Local Area Watch
Cure Michigan is the non-profit organization promoting the November ballot proposal to legalize the embryonic stem cell research. The group has started running television promising to mercilessly reveal the "lies" of those opposed to killing embryonic human beings to harvest their stem cells. Bridget, our editor, thought this would be a good time to remind everyone of the fraudulent origins of Cure Michigan that we had reported in July.
To borrow a phrase from Larry Kudlow, “King Dollar” must be a cornerstone of U.S. economic policy. That said, let’s keep in mind what the government should or should not be doing when it comes to the economy. Its first duty is to do no harm, which means staying out of our business even when it is folly. Failure is an option, as far as the government should be concerned, when it comes to our private dealings. But that does not mean it has no role to play in the economy. That role is fundamental albeit limited.
The government must establish the rule of law that makes the free market possible. That means enforcing contracts and prosecuting fraud. This can also include basic regulations that facilitate market efficiency like standard measures and transparency in financial transactions. There is also a place for public works such as highways and ports, but only if their private construction is impractical and their benefits significantly outweigh their costs. Finally, the government must ensure the integrity of the free market’s primary medium of exchange – i.e., our currency.
A “King Dollar” policy concerns this last role of the government. A strong dollar is a constant dollar. What does that mean? Just as a foot should always measure the same length and a pound the same weight, the dollar should always measure the same amount of wealth. In this way, when the dollar price of a product changes, we know that is because it costs more or less wealth to purchase it. We know that the dollar price is signaling a change in the supply and demand for a product. This is critical information the free market needs to respond rationally to the ceaseless dynamics of the economy. The government distorts or destroys this information when it changes the measure of the dollar through inflationary or deflationary policies. The economy is then racked with booms and busts as the market responds to perverted price signals (which our greed and fear will do every so often on their own without the government making it worse).
To best understand what the government should or should not do when comes to the measure of the dollar, we first need to define inflation (and by extension its counterpart, deflation). Inflation is frequently, and not very usefully, defined as a general increase in prices. However, there is an important difference between prices increasing because demand is greater than supply and because a dollar measures a smaller amount of wealth and so more dollars are now needed to buy the same goods. Think of it this way. One day you are six-foot tall. A little while later you are six-foot-six tall. If the government changed the measure of a foot from twelve inches to eleven inches, you are in fact no taller even though more feet are needed to measure your height. In other words the government inflated the foot. Your change in height is not real; it is an artifact of manipulating the measure of height. The same with prices that are higher because the government inflated the dollar. The change in prices is not real, but so what?
Two serious problems arise out of the dollar’s dual functions as a medium of exchange and a store of wealth. Regarding the dollar as a medium of exchange, the market will initially respond as though the change is real and react as though demand is outstripping supply. This causes people to make bad decisions about what to buy and sell, how to adjust costs, and where to invest. These decisions further distort the market and waste capital in fruitless endeavors. For example, if the price of corn rises because of inflation and a farmer takes this to be a consequence of increased demand, he diverts his capital to growing corn. But then he discovers that there is no new demand. Instead he has only added to the supply, driving the price of corn down while his costs have been driven up by inflation. He suffers a loss.
Regarding the dollar as a store of wealth, inflation is a thief. A hundred dollars saved is withdrawn as a hundred inflated dollars and cheats the saver. A thousand dollars lent is paid back with a thousand inflated dollars and cheats the lender. A million dollars invested is returned as a million inflated dollars and cheats the investor. While it is true that if the saver, lender, and investor are aware of inflation, they can demand interest that compensates them for their losses to inflation. But this is much easier said than done, because inflation is insidious, and it is matter of guesswork, even for the most sophisticated, what the effects inflation on the measure of the dollar will be. Plus we need to keep in mind that it is also unjust to those who must repay the saver, lender, and investor if the rate of interest is excessive because inflation isn’t as severe as anticipated (or even worse, turns into deflation). Neither the borrower nor the lender is entitled to a windfall from the government’s manipulation of the measure of the dollar.
This is why a “King Dollar” policy must be a cornerstone of our economic policy. The dollar’s integrity as a constant measure of wealth is matter of justice in the marketplace, which in turn allows us to put more confidence in our transaction, especially long-term ones. Furthermore, King Dollar does not pervert the market into pouring money into ratholes. A current example of this has been the loose money policy of the Federal Reserve during the first part of the Bush Administration which, combined with the Clinton Administration’s pressure on banks to make home loans to marginal borrowers, led us to this month’s financial panic. With the Bush Administration’s blessing, the Fed fixed interest rates at an artificially low rate to goose the economy. The taxpayer-backed home loan giants Fannie Mae and Freddie Mac exploited their access to this cheap money to make a market for subprime home loans. The banks, under pressure from the Clinton-era Community Reinvestment Act, to make more and more of these loans went through the door Fannie and Freddie opened for them (and kept open as congressional Democrats squelched any attempts to end this dangerous practice).
But at the end of the day, the piper must be paid. The dollar inflated by the Fed’s loose money policy weakened around the world. Commodity prices climbed, the economy stumbled, and the Fed went rapidly into reverse to jack up interest rates. At the same time the government-fueled boom in home-buying stalled, and the economy stumbled again. Foreclosures rose, the value of mortgage-backed securities fell, reducing the capital reserves of lenders, and so restricting the credit they could extend to businesses and consumers. The economy stumbled even further. The financial markets panicked, drove down the value of mortgage-backed securities to fire sale levels, and wrecked the weakest of the country’s large financial institutions. Now the taxpayers are called upon to cough up one trillion dollars (don’t forget the Fannie and Freddie bail-out on top of the $700 billion that Bush and congressional Democrats are demanding for the private sector) to bring sanity back to the markets. And where do you think that money will come from? Out of nowhere from the government’s power to print as much fiat currency as it wants. In other words, more inflation.
A “King Dollar” policy will not prevent our follies as private buyers and sellers in the free market. Because of our human – and so fallen – nature, greed, fear, and ignorance will from time to time puff up markets with euphoria and bring them crashing down with panic until the end of times. But those who lose from such folly will mostly be limited to those who made bad decisions about what to buy and sell. The harm will be contained, and the steady, the prudent, and the wise will carry on with little disruption. However, a “King Dollar” policy would have prevented today’s crisis in the financial markets. The Fed would have focused on keeping the dollar, as a measure of wealth, constant instead of manipulating that measure to fix interest rates. It would have also stymied the artificial demand for new homes resulting from the forced creation of new dollars for home loans by the Community Reinvestment Act (magnified by the recklessness of Fannie and Freddie unconstrained by the discipline of market because they were backed by the taxpayers – implicitly perhaps, but everyone correctly assumed it).
There remains the important question of how the government maintains King Dollar. Gold bugs will say we need to fix the dollar to gold. Others say to a basket of commodities. The problem with these proposals is that they amount to price-fixing, which puts the measure of the dollar at the mercy of changes in supply and demand. The gold bugs usually overlook the severe inflation and deflation that the U.S. economy suffered while on the gold standard as the supply and demand for the yellow metal fluctuated. The national banking system that preceded the creation of the Federal Reserve in 1913 did a lot to ameliorate the problem with the gold standard by allowing the market’s demand for credit guide the creation of new dollars. The Fed was a nationalization of this system, which has caused us nothing but woes in the 1920-1921 depression, the Great Depression, the Great Inflation of the 1970’s, and now the current financial panic. Nevertheless, a president does have the clout to keep the Fed from engaging in policies that working against King Dollar. Even if we don’t have the best way to maintain King Dollar right now, we can get pretty close with the existing machinery of government.
Drill for oil and natural gas in ANWR. Drill out on the continental shelves, even off Santa Barbara where the lefty locals would rather have Big Bad Oil carting the stuff off instead of it naturally leaking out through the earthquake-cracked seafloor and stinking up the place. Drill in the Great Lakes. Drill in Nancy Pelosi's front yard. Drill for these fuels wherever it is reasonable to do so and private investors are willing to put up the cash to get it done. In short, end the arbitrary restraints the Beltway crowd has imposed upon the development of domestic sources of oil and natural gas – at least by letting the off-shore drilling moratorium die a long overdue death come October 1st.
Why? First, to increase supply and reduce the price of energy, which effects the price of everything else. Second, to starve rogue regimes and the jihadist states of as much oil revenue as possible (although, only indirectly, because most of the oil we import is from Canada and Mexico). That makes “Drill, baby, drill!” a program for both economic growth and national security. It is also a program for sound energy and environmental policies. Yes, there is the received wisdom, with the requisite fretting and hand-wringing, of those who declare that the continued large-scale exploitation of domestic fossil fuel reserves will only retard the development of alternative energies. If so, good.
Wind, solar, and biomass are boondoggles, sustainable only by massive taxpayer subsidies, that can never provide a significant portion of the country’s energy needs. That’s because wind and solar are intermittent generators of energy that must be plugged into a national electrical grid to be of any real use. However, that energy cannot be sporadically dumped into the grid, because the supply and demand for electricity must be kept in constant balance or you get brown-outs and black-outs. While wind and solar can be backed up with quick-start fossil-fueled generators to fill in when the wind isn’t blowing or the sun isn’t shining, there is a limit to the engineering practicality of this, let alone the cost, both financial and environmental. Usually overlooked by the alternative energy crowd are the great expanses of wilderness spoiled by wind farms and solar collection facilities.
As for biomass, it is a fuel that can be burned in a controlled manner to maintain a level output of energy, but it is inefficient as an energy source. For example, a gallon of ethanol delivers only 85% the energy a gallon of gasoline does. The inefficiency is even greater for the generation of electricity. Much worse, however, biomass leaves a huge footprint on the planet compared to fossil fuels. Coal, oil, and natural gas simply require far less of the environment for their extraction and refinement into usable fuels than biomass, which would require conversion of all our farmland (and then some) to its production – and we still have to eat. Even the greenest green who hasn’t lost his marbles can understand the environmental disaster of replacing fossil fuels with biomass.
But this is not to say all alternatives to fossil fuels are impractical and environmentally unsound. Nuclear power can realistically replace fossil fuels for the generation of electricity. Indeed, about twenty-five hundred plants, each costing about the same as one of T. Boone Picken’s wind farms, could entirely eliminate our use of coal, oil, and natural gas to produce electricity. Despite all of the NIMBY and environmentalist fear-monger, nuclear power is very safe and clean – and it can truly reduce our reliance on fossil fuels. So let’s add nuclear power to the “Drill, baby, drill!” program to really gut the cost of energy and put the hurt on the petro-tyrants who wish us nothing but ill.
Yes, I know, we shouldn't expect much in the way of intelligent discourse from grandstanding politicians on Capitol Hill and windbag pundits on cable news. But is it really too much to ask that their bloviations have at least some connection to reality, however tenuous that may be?
What is sticking in my craw is the utter stupidity of blaming speculators for the high price of oil. These blowhards are railing against traders of oil futures because their alleged speculations are bidding up the price of crude. First of all, let's get straight what a future is. It isn't a barrel of crude oil, a bushel of wheat, a head of cattle, or anything else tangible. It is a contract to buy or sell a commodity at a set price at a certain date in the future. So if oil-futures traders are pushing up the price of anything, they are pushing up the price of the contractual right to buy or sell oil, not oil itself.
Second, the oil futures market, like all futures markets, is a zero-sum game. That means for every oil futures contract sold, one has to be bought. There is nothing mysterious about this. It is as obvious as it sounds. Once a contract exists, it can be traded again and again until it expires. So that contract to buy oil at a set price has its own price that will go up and down. Thus, an oil futures contract acquires a market dynamic of its own that can closely track or wildly deviate from the actual price of oil depending upon the objectve, insight, mood, or, often, folly of traders. Whatever the case, this trading remains a zero-sum game, so that for every trader making a bet that the price will go up, there is another betting that it won't. In other words, these "evil" speculators are collectively placing as much money on one direction as the other -- and even then, it is on the direction of the oil futures contract, not oil itself.
Third, is everyone making trades in a futures market a speculator? No! Futures markets are an efficient way to trade risk for certainty. For example, a farmer wants to lock in the price he will sell his wheat for at harvest. A baker wants to lock in the price he will pay at that time to buy wheat. They both want to eliminate the uncertainty of their revenues and costs in the future. With a futures market the farmer and the baker do not need to find each other to make this transaction. The futures traders will do that for them. More importantly, they will do that when there is an imbalance between buyers and sellers of commodities. In that case, they will speculate. But their speculation comes with the risk the farmer and the baker traded away for certainty. That risk means, if they are wrong, they will either have to buy or sell the commodity contracted for at a loss or, as is usual, settle the difference in cash.
Finally, all of the above is the reason why an oil futures contract is called a "derivative". It exists only because there is a market for the real thing, crude oil. Thus, the futures market is parasitical to the actual market for oil. It can not and does not drive that market. The actual market is driven by the fundamental law of supply and demand (except for the periodic self-correcting euphoria and panic to which all markets are subject), and so the price of a futures contract for oil merely bounces up and down around the actual price for oil. For the futures market to drive the actual market would be a defiance of the law of supply and demand, a law which not even the most vociferous demogoguery from Capitol Hill and cable news can repeal.
Let's give a round of applause to Nick DeLeeuw and his fine website www.RightMichigan.com. Nick's coverage of the Michigan political scene in the run-up to yesterday's presidential primary was top notch, and even garnered the attention of the national punditry, including National Review Online. Clearly, RightMichigan is becoming the go-to place in the blogosphere if you want the latest on the machinations of Michigan politicians. Good work, Nick!
FYI, folks. I received information this morning that a prominent Democrat was urging Michiganders to vote for Senator John McCain in yesterday's Republican presidential primary. Campaigners on behalf of erstwhile presidential hopeful Joe Biden, the Democratic senator from Delaware, phoned local citizens late in the day asking them to vote for his aisle-crossing colleague McCain. Whether Biden's eleventh-hour endorsement was a peculiarity limited to Michigan because of the meaninglessness of the Democratic presidential primary or heralds something more ala Joe Lieberman, I haven't any idea. But it was an odd thing nevertheless.
Happy New Year 2008 L.A.W. Readers;
We end one year and begin another. 2007 was a busy and interesting calendar cycle. We expect 2008 to be the same, if not more so. After all, we have a partial new city commission to keep our eye upon and it is a big Presidential election year as well.
Areas we’ll continue to keep in the bullseye zone:
Grand Rapids Mayor George Heartwell
Grand Rapids City Commission (especially the two new members)
Grand Rapids Public School System
City Services
Local and regional businesses
City, county and state politicians
Those crossing the line
Periodically, we’ll provide commentary outside these areas and spotlight important books, movies, magazines and other mediums that we feel warrant your attention. And as always, we'll continue to look forward to your comments, thoughts and suggestions along the way.
We wish each of our readers a happy, healthy and faith filled year ahead.
Regards,
Bridget Dupont-Tingley
Editor
The Local Area Watch
William Q. Tingley III
Executive Director
The Local Area Watch
Have any of you driven around downtown Grand Rapids lately and noticed the plethor
a of condo complexes every direction you look? Check out the skyline, they are everywhere – north, south, east and west. You want one next to a highway, we’ve got one for you! You want one in an old renovated furniture factory, we’ve got that too! You want one in a historic area, ditto! You want a new one with options galore, have we got a condo for you! You want a river view, no problem, which side do you want - sunrise or sunset? Close to the college scene? Come on down, we’ve got one of those and bring your party shoes cause we're going dancing after the closing! You want one with Brad Pitt, Angelina Jolie and all their lovely children next door? We've got that too! Actually scratch the last one, I don't think any developer in town has that many connections yet. Bottom line...
River City is quickly becoming Condo City.
Let’s see if my memory holds…there is Park Row, Icon on Bond, Plaza Towers, Landmark Lofts, Union Square, Boardwalk Condos (the Old Berkey & Gay Factory), Monroe Terrace, City View, River House, The Fitzgerald, Front Row and the Waters Towers. That’s just a few I can remember without research. I’m not even going to mention much older complexes and those not close to downtown. Most of those mentioned above are either done being built and ready for move in, are in the process of being built or have been renovated/remodeled in recent years to compete with new builds. Prices seem to be hovering in the $150-250K range for one bedroom/one bath, up to $300-500K for two bedrooms/two baths or more. Factor in a premium price if you choose to be up high, with a river view and want the luxury of new over old construction. Over 18 units alone are currently for sale between $500,000-1,000,000. That’s a lot of expensive condo real estate for such a small market as Grand Rapids. If you reference the income availability grid noted in the last article, in the entire state of Michigan, only 8.8% of the population can afford condos in GR that are on the market between $500,000-1,000,000. This number is not what we would call a “bumper crop”.
The GR Press had an article a few weeks back noting that realtors and developers are counting on the suburbanites and young professionals all dumping their current living arrangements for the ease and joy to be found in the concrete jungle. They profiled some parents and their adult kids all giddily choosing condos and living in downtown instead of the burbs. They praised city living and all the perks that go along with it. A new day has dawned people, a new day has dawned and if you don’t buy a condo soon you will have missed it. Really???
Granted, there are certainly many positives to be found in condominium living:
no yard work
no exterior maintenance upkeep
smaller sq. ft. so, less house to clean
single level living with few to no stairs
lower buy in prices (usually, not always)
neighbors upstairs, neighbors downstairs – lots of new friends if you want them
property tax breaks in renaissance/tax free zones
community areas with pool/tennis courts/work out rooms
use of public transportation system with ease
ability to ride your bike with helmet all over city streets – please look before crossing!
the ability to walk around downtown and not need a car to visit restaurants, bars, clubs, etc.
being close to all the action – parades, festivals, fireworks shows, etc.
As in all things, there are drawbacks to condo living as well. A few are:
mandatory monthly condo association fees (often quite high)
lack of privacy and sometimes acoustical issues
access to outdoors limited to tiny balconies, small patios and often no green space
due to the box like nature of condos, often feels like glorified apartment living
dogs/cats/pets often not allowed per HOA rules & regulations
limited guaranteed and covered parking both for owners and visitors
lack of gas stations/grocery stores/convenience stores located close-by - often a car is needed just to get basic food and supplies
Whether walking or driving, congestion is growing downtown, you’ll have to deal with it
lower long term appreciation rates
reduced buyer pool when you try to sell later
Places like the Boardwalk Condos (old B & G Factory) seemed to sell in a decent amount of time per county records, but the prices are in the lower range, 70K - 250K max. I have been told by so
me that this building might be subsidized (I have not been able to confirm this yet) which makes a difference to sales and could account for the lower prices. On the other hand, the lower price could be due to the fact that the previous developers could never get straight if they actually removed toxic waste from this site illegally by the hundreds of truckloads (they deny this yet, video evidence and witness testimony shows to the contrary) or if the toxic waste is still below all the buildings in massive amounts as they claim. Perhaps this inconsistency is part of the pricing program. Keep it cheap and keep them quiet. Residents, don’t worry about the toxic waste, we say they took it out. On the other hand, the old developers say it’s still there. Time will tell for sure. By the way, you can have dogs in this complex and they have been known to use the entire back lot of the building and train track area as their massive doggie doo-doo box. Sooooo convenient. Count this building in pet lovers – it’s for you.
I drive past the Icon on Bond condos every week. Their initial occupancy dates were advertised as beginning in April. Since then, their web site has moved occupancy dates to early summer. Even with that change, the place still seems eerily quiet and empty. Their web site advertised that of the 118 condos, ½ had sold as of December. The question remains – where is everyone then? A clean transaction for a completed unit with a qualified buyer could easily be done in 3-4 weeks or less. I haven’t seen anyone moving in and nothing is recorded as closed at the county level yet either per my research. They seem like nice places, unsure what is happening over there. Is unseen interior work on delay? Is the complex too pricey? Unappealing location near the freeway, industrial corridor and across from electrical towers and power lines? Simply a victim of too many condos for sale in town? This one is a bit 
of a mystery. If any of you have wind of what is happening, do share.
The glassy blue modern marvel known as the River House continues to rise over the western Grand River, but prices seem a bit steep. It costs a buyer about 250K to get in lower level and smaller units, and prices skyrocket to the 500-650K range for higher locations, water views, cityscapes and more amenities. This will prove to be the hot place for young as well as older professionals who probably want a status location and one of the better condo views of the small, but appealing Grand Rapids skyline. How popular it proves to be on the other side of the river is still to be determined. I imagine for those with money and good walking shoes, the location will be just right.
Park Row is coming along fine over on Michigan Street. Developers noted awhile back to the media they have sold something like well over ¼ of the units as of the construction phase begun earlier this year. The complex itself seems to be appealing with dedicated entrance/exits, central boulevards, landscaping and green spaces. It does face the freeway and busy Michigan Street so, the views won’t be nearly as appealing as those "down by the river" (anyone thinking Chris Farley of Saturday Night Live with that last line? You know…I live in a van, down by the river!). Anyway, the draw at this complex is it is close to GVSU and the medical buildings on Pill Hill.
The Fitzgerald in the old renovated YMCA building is small and boutique like. The units that are finished appear to be well done and appealing, but they have been pricey and somewhat slow to sell. This complex is more for the upscale buyer from what I have seen.
Good old Plaza Towers is always the big contender in town. It’s a fine mixture of lower priced condos, medium priced and high end – it would be perfect for Goldielocks and her three bears. The best thing going for this place is location – and in real estate – we all know how prized that can be. It sits off the Grand River and has great views from three sides of the building. It is right next door to Van Andel Arena, The Bob, TGI Fridays, the new JW Marriott 5 star hotel, multiple banks, office complexes and has a great riverwalk area. All units get guaranteed parking of at least one up to four spaces and the place has tennis/basketball courts, exercise room and pool/hot tub area. Don’t forget there are also apartments in this building and The Marriott Courtyard Hotel with restaurant. It’s an older building, but always being updated in terms of landscaping, exterior repairs and interior upkeep. With all the competition in town, it may need to remodel it’s entrance and lobby to the condo tower and common hallways as time goes on to not look dated and remain one of the premier condo addresses in town. It’s not big city great, but it’s one of the better choices for Grand Rapids.
That’s enough individual condo complex commentary for now.
I have seen a handful of complexes in person, others via pamphlets/flyers, web sites, personal photos and on line. I would call most fairly standard and nothing too exciting (think Chicago, Miami, New York, Paris here). All the looks are definitely the Midwest at their best and there is nothing wrong with that. The majority offer the standard white box interior, a little bit of woodworking and exposed brick walls, open ceilings with duct work showing through in the renovated buildings, hardwood floors, a few windows in each room, upgraded kitchens, appealing bathroom, but everything else is remarkably apartment like. If you can get a great river view or great skyline view do it, these things will help with extra enjoyment now and better resale value later.
The GRAR MLS (multiple listing service) shows all single family homes, condos and multi-units available on the market, but only those properties that are listed by licensed realtors or those working with licensed realtors (builders/developers) show up. Builders or developers selling FSBO without licensed representation are not typically found in the MLS system. Thus, the availability of active units and closed stats developers quote to the media is hard to confirm. They rarely want to admit a complex is proving hard to sell or slow to sell so, numbers could easily be inflated to help move units along. It takes hard research at the city and county level to verify their numbers if you want exact data as to what is available, what is under option, what is sold and what has closed. So, for now, most of us take the builders/developers at their word what has moved off the books. Hope they are as honest as they look :-)
I'm all for condos and ample building provided the market can support it. I certainly want rising housing values. What I don't want is for supply to outweigh demand and then cause prices to drop and problems to domino in terms of lower appraised values, depreciation, distress sales and the like. Although I feel there is a need for this type of living in a growing urban area like G.R., especially with all the medical, research and education related jobs coming to the area in the next 1-2 years, I remain a bit uneasy at the supply and demand ratio. I worry builders/developers got a wee bit too excited at the prospect of doing new brick and mortar work and didn’t plan for mortgage issues, credit tightening and an unstable economy throughout the region and state. My guess is even if units are slow to sell, in time prices might come down to bring in those necessary
buyers and get the properties off the books. Some may offer closing cost concessions, hoa credits, home warranty plans and more if things gets really tight and slow. Eventually, all should be liquidated, but at what price and how long might it take? Perhaps some of these condo complexes should have been developed into newer and more appealing higher end apartment options instead. A more balanced mixture of both - condos and apartments - might have proven just the ticket.
Of course all this leads to the biggest question of all, what happens when todays condo buyer becomes tomorrows condo seller? Traditional buyers will move less frequently into the condo market whereas the condo market buyer transitions easily into the single family market. Historically, in nearly every region across the U.S., condos do not perform as well as single family homes. That means they typically don’t sell as fast, the buyer pool isn’t as big and values don’t seem to rise as quickly. The American Dream remains owning your own home. Owning your own condo is still a great achievement, but it just isn't quite the same.
I think condo living has its plus and minus points as you can see. With that said, I remind readers as always, buyers should beware. Today’s condo bargain may be tomorrow’s financial loss. Definitely consider buying a condo if it’s right for you but, may I simply suggest, buy wisely.
At least you have lots to choose from in Condo City, I mean Grand Rapids :-).
Bridget Dupont-Tingley
Editor
The Local Area Watch
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
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