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.
The Local Area Watch