‘A Feeding Frenzy’: High prices, low supply define a never-seen-before real estate market

 

This Lake Charlevoix condo sold in a day. It was listed for sale at $780,000 and sold for $823,000.

By Ross Boissoneau

Strong demand and low supply. If that sounds like a recipe for a challenging real estate market, be assured it is. It’s as true in Charlevoix, Emmet and Antrim counties as it is in Grand Traverse and Leelanau.

“Demand is outstripping supply,” said Chris Christensen of Lynda’s Real Estate in Charlevoix.

Dennis Halverson of Berkshire Hathaway in Charlevoix calls the current market “a feeding frenzy.” “This is something I’ve never experienced before,” said Halverson, who also serves as the president of the Antrim/Charlevoix/Kalkaska Board of Realtors.

That feeling is echoed by others. “I’ve not seen a market like this,” said Mac McCarthy of Gaslight Group Properties in Petoskey.

With more Realtors than there are properties available (see sidebar below), properties are selling nearly as quickly as they are being offered for sale.

Evans

“There’s never been anything quite like it in my 25 years,” said Jim Evans of Pat O’Brien & Associates in Boyne City.

Why the dearth of available inventory? There are many factors – the Great Recession and the pandemic primary among them.

When the housing bubble burst in 2007, not only did home sales plummet, construction of new homes came to an almost complete halt.

Many of those in the building trades left the region seeking work or changed jobs completely. The end result was that for about a five- to 10-year period, hardly any new homes came on the market. When the economy began to recover, those who were still in the construction industry couldn’t keep up with demand. That means there are few homes for sale that are five to 15 years old.

Halverson

Couple that with the ability of so many to work remotely and their desire to leave crowded cities behind, and the demand began to crush the supply.

That “feeding frenzy,” as Halverson called it, also pushed those who might have considered retiring to the area to move up their time table to either work remotely or retire early. Some even looked to move into entirely new careers.

What segments are particularly hot? Price-wise, anything below $300,000, and as far as location, two areas: Waterfront and in-town. And it often doesn’t even matter what water or what town, especially to those coming from elsewhere.

“If it’s on the water – Walloon Lake, Lake Charlevoix, Crooked Lake – even at the higher price point it will certainly sell quickly,” said McCarthy.

McCarthy

The whole notion of walkability, to the store, church, the library, restaurants, makes homes in town particularly appealing.

“There are more buyers for in-town than out of town,” McCarthy said.

The demand means many if not most properties will see multiple offers. The cleaner the offer, the more attractive it is to the seller. That means cash offers with few or no contingencies almost always top those looking to purchase using a traditional mortage.

That has the effect of pricing many first-time buyers completely out of the market.

“If you’re a traditional purchaser, you don’t stand a chance,” said Halverson. “It’s shutting a lot of traditional buyers out of the market.”

Christensen

With the region’s continuing attraction for those who want to enjoy summer’s bounty but return to their primary homes downstate and out-of-state when temperatures plummet, those looking to buy permanent homes are often out of luck.

“First-time home buyers, young families, those moving here for retirement – they’re competing with second-home buyers,” said Christensen.

Sheela Welch of Coldwell Banker Schmidt Realtors in Petoskey said the preponderance of cash offers trumps all others.

“Sellers have so many offers, it’s hard to say yes to RD (rural development) or VA loans,” she said.

Both Welch and Halverson pointed to the prevalence of escalation clauses – which enable prospective buyers to increase their own offer and any others by a certain dollar amount or percentage – being written into contracts as a change in the marketplace.

“They’ve been around for a while, but have really gained momentum,” said Welch.

Welch

For an agent representing the seller, wading through multiple offers – many of which contain such escalation clauses – can be a real challenge.

“You have to pay attention and have math skills,” said Halverson. “We’re in uncharted territory.”

Welch said she just experienced losing a sale to another buyer even though her potential buyer had escalation clauses written into the offer. The reason? Her buyer didn’t put down enough of an earnest money deposit.

“Mine was a cash buyer, but the earnest money deposit wasn’t high enough. I’ve never had that before,” she said.

Asked to point to a specific example of how hot the market is, Evans pointed to a Sommerset Pointe condo on Lake Charlevoix he listed for sale. He listed for sale at $780,000 and sold for $823,000. There were multiple offers and it sold in a day.

He went on to point to Lake Charlevoix as another example of the dearth of homes for sale.

“It’s a big lake, and there are only 16 residential units for sale. Nine are pending, meaning only seven are really available,” he said. “A market like that means you’ve got to act and react quickly.”

While it’s undoubtedly a seller’s market, Christensen is among those cautioning against expecting a windfall when selling your home.

“You still have to recognize the value,” he said. “It’s not like it’s a blank check. Some people have that mindset.”

He said the result is that those who try to sell their home for an over-inflated price will see it languish on the market and ultimately have to drop the price to a more realistic level.

“Increasingly large price reductions make people leery,” he added.

That extends the length of time a home is on the market, which may be cause for alarm to potential buyers who think there must be something wrong with it.

When and how will the market shift? Asked to gaze into their crystal ball to see what lies ahead, most demurred.

“I don’t see anything quickly changing,” said Evans. “It’s like a ship, it takes a while to turn.”

Christensen said while in-town and waterfront properties will likely continue to receive the most attention, he thinks the continued shortage of availability will translate to other areas seeing more activity.

“In some less-traveled areas there tends to be better value or more opportunity,” said Christensen. “If the destination communities – Charlevoix, Boyne City, Harbor Springs, Petoskey – aren’t options, people start thinking they’ll go (somewhere else) instead.”

McCarthy agreed, noting that dwindling number of homes has increased the likelihood that buyers will look outside of the towns to non-waterfront.

As long as high-speed internet is available and cell signals are strong, they may look further afield than might have been the case pre-pandemic.

“That’s forced some pressure on out-of-town that used to be non-starters,” McCarthy said.

Another segment he points to: Lots and acreage.

“Vacant is also getting snapped up,” he said, though he noted the increasing cost of lumber and labor means it’s a challenge to build.

 

Statistics show low supply, increased prices

by Ross Boissoneau

Statistics from the Northern Michigan MLS underscore current home buying challenges.

In April 2021 (the most recent month for which sales data are available) there were 124 sales, up from 58 in April 2020. The average selling price for April 2020 was $300,248; for April 2021, it was $422,870. Total dollar volume in April 2019 was $17,414,386, less than a third of the $52,435,902 for April 2021.

Compare that with just five years ago: In April 2016, there were 96 sales at an average of $312,830. Total sales were $30,031,725.

Most problematic is the supply. There were 718 homes on the market in April 2020. April 2021, in contrast, saw only 445 available. And just because a property is listed as available doesn’t mean it really is.

In early June, there were 449 active listings of which 226 were pending sales.

“That means there are 223 units,” said Jim Evans of Pat O’Brien & Associates in Boyne City. “We have more agents than that in the MLS, so that’s less than one per person.”

Go back to 2015, and the change is particularly striking. In April of that year, there were 1,696 homes available.

Another example of the changes are the first-quarter results for the past four years. In 2018, there were 243 sales; 272 in 2019; 246 in 2020. This year a whopping 304 homes were sold in the first quarter.

During that time span, the average sale price rose from $282,660 to $392,211, while the median price rose from $185,000 in both 2019 and 2020 to $197,000 last year and $247,000 this year.

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