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RapidBlog: Buy, buy buy! Sell, sell, sell!

There might not be a better time to buy real estate in West Michigan than right now.

"There's never been a better time than right now.." - Get Up Outta The Dirt by Butterfingers

I’m sure you’ve heard the mantra before: If you’re an adult in your 30s or 40s, you’ve been through the time periods when everyone was saying “Now is the time to buy a home! Now is the time to get a mortgage! Rates are at historic lows! Housing prices never go down!” It was Barbara Corcoran's calling card for years on all the cable channels.

Well we all know how many of those predictions turned out.

We spend a lot of our energy at Rapid Growth talking about investments: in neighborhoods, in businesses, in empty storefronts long abandoned being brought back to life, investments in our community. Like most investing, there are ups and downs. In Michigan and in Grand Rapids, the ups are fun, the downs are usually long and never seem to end; dragging from one year into the next until it becomes the new normal. But the ups are indeed fun, right?

But I’m here to tell you, now is the best time in a long time to own a home in the Grand Rapids area. It also might be the best time in a long time to build a home. We are in the ups.

But first a little background info.

Part of my role at Rapid Growth is sales, or as I like to explain it “Educating people and organizations on the value of being branded with West Michigan’s #1 source for positive growth, development and innovation news.” I’ve also spent a lot of my time in the last 12+ years advising builders and home buyers on the market trends of housing in the West Michigan area.

The ups of 2005 and 2006 were fun. There was so much real estate business to go around that many people I knew in the business were making $150,000+ a year in earnings. You could easily work 60 hours a week and on weekends, and barely keep up with the volume. But the money was great. If you bought during that period, probably not so great. I’m sorry. Just being affiliated with the real estate industry, I may have been part of the problem.

Then like falling off a cliff (not even a slowdown) it all stopped. 6 months, 9 months, a year would go by and not one sale; not even a bite.

Builders were dealing with buyers walking away from houses under construction. Real estate closings began to fall apart because appraisals were dropping. Houses were staying on the market for 6 months, 9 months, over a year. Sellers were getting anxious to sell because they had to move. Tempers ran hot, lawsuits began to fly around, banks began to "call in" development loans, houses started to be foreclosed on, assessed values (and the subsequent property tax revenues) began to drop like a rock.

It seems like it was yesterday but much of this ended back in 2009 and 2010. But it made everyone raw to the home owning experience, and the buying and selling experience, and the building experience. Hard to believe it’s been 4 years since the market bottomed out. But it did bottom out and it’s been trending upward ever since.

So what has changed?

Homes are selling at a breakneck pace. According to the Grand Rapids Association of Realtors, the number of homes sold in West Michigan (the GRAR’s MLS market area) has skyrocketed. It went from about 9000 homes sold in 2010 to almost 12,000 homes sold in 2013. That’s a 30%+ increase in 3 years.

Average home sale prices are way up. They peaked in 2006 at $163,000, troughed in 2009 at $107,000 (remember what I said about that “cliff” earlier?), and now they’re back up again at $151,000. That’s a 40%+ increase in 4 years. But it’s still far below the U.S. median home price of around $200,000.

Average months of inventory are at an all-time low in the Grand Rapids area. “Inventory” is what the real estate industry considers “houses on the shelf for sale,” just like your local Meijer store. If Meijer has a shortage of a certain product that is in demand, what usually happens to the price? That’s right, the price goes up. Right now in the beginning of 2014, there’s about 3 months of inventory on the market. A normal market is about 5 – 6 months. The store shelves are running bare; not a bad problem to have if you're the one sitting on the inventory (homeowners who are reading this).

At the peak of the crash, builders collectively throughout the United States had about 18 – 20 months of homes to get rid of. The shelves were overflowing into the streets, with no buyers. It took them years and years to get rid of that inventory, even while selling at huge discounts and huge losses. It was a bad problem to have. But much of that inventory is now gone.

Why are there NOT signs of a returning bubble? In my humble but educated opinion?

Builders are having a tough time keeping up. The only way to release pressure on the “housing demand valve” is to physically add more inventory to the market (build homes, condos and apartments). Population in the U.S. is still growing strong, particularly from international immigration, and there is a demand for more “decent” homes than builders can keep up with. Builders around the country are only building less than half the volume they built in the early 2000’s. In fact, the running average for number of new single family homes built from 2001 – 2006 was well over 1.2 Million a year. Let me repeat that, 1.2 Million homes built every year.

I recall the days when the top ten builders in the country (Pulte, Lennar, etc) were building 20, 30, even 50,000 homes a year around the country. Those times have changed drastically.

In 2013, according to the Census Bureau and the National Association of Home Builders, the number of new single family homes completed in the U.S. was about 762,000 (which had grown from previous years). That’s the antithesis of a bubble. That’s anemic. Thankfully lenders are beginning to wade back into the water, providing more construction loan financing for builders.

Jobs are on the rise. A colleague of mine in the real estate business used to say that “jobs, marriage, babies and divorce were the 4 biggest reasons for home buying and selling.” If you think about your own experiences, those probably ring true for you as well. Hopefully not the divorce part but you get the gist.

In the Grand Rapids metro area, according to the Bureau of Labor Statistics, raw employment growth has taken on a new life. We’re going on 4 straight years (16 straight quarters) of back to back job growth. There are now 50,000 more people working full-time (employed, as defined by the federal government) in the Grand Rapids area than in 2009. Wages are also up across all of Michigan for the first time in years. Job security makes people anxious to make a change, many times to find a new home.

Population is on the rise. Again according to Census estimates, just in Kent County (I’ll skip the MSA numbers because they tend to draw people into debates about boundaries and definitions), the population has grown by about 35,000 people in the last 10 years, and not just by people having more babies. The last two years saw an area first: more people moved into the area than left the area. Add in Ottawa County and the number is around 55,000. Those Ryder Truck rankings of putting Michigan on the bottom of the pile have now gone by the wayside. Where are all those new people to the area going to live?

Interest rates are still at historic lows. According to Freddie Mac, the lending giant, rates are hovering around 4.43% in this first part of 2014. “Money is cheap” right now. I recall a time when we bought our first house in the late 90s and rates were around 7.25%. We were really excited 4 years later to get our second house in the 5.25% range. We’ve since refinanced and are in the low 4’s. Every 1% drop in interest rate gives you quite a bit more buying power.

So why is now a good time to buy or own a home in Grand Rapids? I don’t want to sound like a salesperson. I really don’t care if you use my services or invest in Rapid Growth. But I can tell you as a real estate investor myself, now is almost a “perfect storm” to buy or build a home or condo in West Michigan; obviously if you have the means. Don't buy a house on a credit card.

Local businesses are optimistic about more hiring in 2014, more large-scale institutional and business investments are on their way for downtown (try to find a building downtown that is not recently renovated or being renovated), population is growing exponentially, more and more people are discovering West Michigan and deciding to call it home, and buying power is at historic highs.

Good luck and God Speed West Michiganders.

Jeff Hill is the Publisher of Rapid Growth Media and is a partner at Third Coast Real Estate/Builders Advantage Group. He has worked in the residential construction, real estate and development industry for over 12 years. He holds a degree in Communications and Economic from Western Michigan University. He also occasionally can be found dishing out and taking business advice at Founders over pints.

Sources: Bureau of Labor Statistics - At A Glance Tables; Census Bureau (Census.gov) Historical Data - New Residential Construction; Census Bureau - Population Components of Change; Grand Rapids Association of Realtors - Market Reports;
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