House Warming: Grand Traverse market stays hot into 2021

As a mortgage lender, my job is largely contingent upon the state of the real estate industry.

So, when I had conversations with real estate agents about what 2020 might look like, I was concerned too. In the early days of the pandemic, Michigan’s real estate market had ground to a relative halt – a product of considerable economic uncertainty, as well as stay-at-home orders that kept agents from showing properties.

August was a different story. Suddenly, my discussions with Realtor friends were no longer about stalled markets and slow business. Instead, they were on track to have the best year of their professional careers.

What changed? This anecdote – and 2020 as a whole – is an illustration of the power of supply and demand, of a desirable real estate market like the one we have here in Traverse City, and of historically low interest rates for mortgage lending.

On May 1, Gov. Gretchen Whitmer signed an executive order allowing Michiganders in the real estate industry to get back to work. The effect was nearly instantaneous: In Traverse City, the market took off like a rocket. Nearly two months of pent-up demand for real estate meant a huge number of buyers hitting the streets at the same time.

That surge in demand only heated up throughout the spring and summer – not just because of local buyers. The pandemic, the rise in remote work, a burst of social unrest in big cities, southern hurricanes and western wildfires became a perfect storm. The pattern of where people want to live and where they can live was reconfigured.

Traverse City, with its natural beauty, mix of urban and rural lifestyles and high quality of life continues to be uniquely positioned to grow as these exoduses occur.

The explosion in demand helped ensure a good year for real estate agents, and in turn, a busy year for mortgage lending. For buyers, historically low and stable interest rates bolstered the robust real estate activity. A 30-year mortgage loan is now hovering around 3%; a 15-year loan is at 2.625%.

In fact, our nation is at the lowest interest rate levels I’ve experienced in my 38 years as a mortgage lender. Even when rates dropped during the 2009-2010 Great Recession, they weren’t at these levels. For comparison’s sake, when I got into lending in 1983, a 15-year loan carried an interest rate of 14.5% and a 30-year was 14.75%. Imagine paying those interest rates on home loans today!

All indicators point toward another strong year for real estate and mortgage lending in 2021. The Federal Reserve has committed to keeping rates low through 2021 and perhaps even beyond. Those low rates, combined with the draw of northern Michigan living, will likely keep the local market strong even as the economy continues to weather the challenges posed by COVID-19.

If there were a drawback to this somewhat-unexpectedly healthy real estate market place, it would be that potential buyers may be priced out of the local market because of that very health. Not so long ago, it was possible for a first-time “entry-level” homebuyer to find a starter house in the Traverse City area in the $125,000 to $175,000 range. These days, even starter homes are trending into the $200,000 to $215,000 range, with prices increasing.

Support for this premise, while anecdotal, is evidenced by the rise in the price of the average home. This spring and summer, as the local real estate market reignited and Traverse City experienced a huge burst of demand, the trend dovetailed with a pre-existing housing inventory shortage in the area. This sent housing values skyrocketing.

In June, July and August, buyers watched as prices climbed and homes on the market went under contract for purchase in record time. In some parts of town, it was quite common for a house to go on the market on a Tuesday morning and have eight offers by day’s end. Bidding wars, all-cash offers, way-above-asking-price sales prices – all these phenomena were relatively commonplace in Traverse City this summer.

The real estate situation in Traverse City means a few things for the future. For homeowners selling in 2021, there will be an opportunity to make some money. As long as the local housing supply remains low and demand remains high, housing prices are going to keep going up, which means big return on investment prospects for anyone who happened to buy before the market got so hot.

For buyers looking to take advantage of low interest rates, the high demand/low supply situation could make it very difficult to find affordable houses in the area – especially for first-time home buyers.

I remain optimistic for 2021. I hope our community leaders find ways to bring more affordable, entry-level housing to the Grand Traverse area. I believe low interest rates will continue to provide valuable opportunities for smart purchases or big refinances. I trust that science will make big strides toward ending the COVID-19 pandemic, so the economy can make a full recovery.

As more people flock to Traverse City, from bright young professionals to well-connected retirees, exciting opportunities exist to expand and diversify the local business landscape as it continues to evolve into something unique and exciting.

In order for the Grand Traverse region to be a good place to work, it needs to be a good place to live. That equation begins and ends with safe, habitable and affordable housing for our workforce.

Mike Nagy is vice president of mortgage lending at State Savings Bank in Traverse City. He has nearly four decades of banking experience. State Savings Bank has been financing homes in northwestern Lower Michigan since 1901.