Real Estate Up North: The Real Story
After years of incredible growth, real estate in the Grand Traverse region has experienced a dramatic reversal of fortune, and no one is predicting an easy road back. A once vibrant industry has been hit with a one-two punch of the financial crisis and an enfeebled state economy. If there is hope on the horizon, experts say, it rests with job growth and the continued migration of people and businesses into northern Michigan.
The Region is Awash in Homes
There is at least a two-year supply of homes for sale in the region, says Michael Tarnow, co-owner of Northern Michigan Real Estate Consultants. "Our studies show a huge supply of homes in most every segment."
The various segments aren't all moving in lockstep, however. In 2009, the typical condominium was on the market 290 days before it sold, compared to 179 days for homes in general, according to Tarnow's analysis and figures from the Traverse Area Association of Realtors (TAAR).
The selling prices for condos fell about 2 percent between 2007 and 2009, while the price per square foot actually rose about 3 percent during that period.
But the increase followed declines of 10 percent in overall prices and 5 percent in prices per square foot between 2006 and 2007. By contrast, the selling prices for all homes fell more steeply – about 20 percent between 2006 and 2009.
Whatever the segment, the current picture is grim. But Ken Schmidt, CEO of Coldwell Banker Schmidt, does see signs of a slow, halting recovery in the making. Sales activity at Coldwell Banker Schmidt was about 10 percent higher in 2009 than 2008, although revenue was down due to sharply lower home prices.
He also points to continuing low interest rates as a positive factor for home sales.
Foreclosures Continue to Weaken Market
Grand Traverse County had 602 foreclosures filed in 2009, dragging down prices. "It's the oversupply and the large number of foreclosures that are the primary factors" creating the weak market, says Tarnow, who is an appraiser.
Foreclosed homes represented about 1.5 percent – or about one home in 66 within Grand Traverse County. That's a substantially better percentage than the number for Michigan as a whole: 2.6 percent.
But Tarnow says buyers are proceeding under the assumption that all sellers are distressed, "or why else would they be selling?" As a result, they are showing homeowners no mercy in negotiations.
With unemployment topping 13 percent in the region, the foreclosure problem won't disappear soon. "I would say a growing number of foreclosures are coming onto the market, though probably not a huge burst," Schmidt says. "That is a factor of the unemployment rate."
Schmidt sees reason for optimism in some recent foreclosure sales. A number of bank-owned properties are attracting fairly competitive bids. In some cases, the bidding is driving the price beyond the asking price.
New Homes are Hostages to
Residential construction has generally been trending downward since mid-decade. Permits for 727 single family units were issued in Grand Traverse County in 2005. The figure fell to 560 units in 2006, 299 units in 2007, and 203 in 2008. In 2009, it plunged to 157. With the soft economy and the foreclosures driving down the prices of existing homes, it hardly makes sense to buy or build a new one, Tarnow says.
Thus, any improvement in home construction is closely tied to a recovery for existing homes. The best hope for the region: Retirees and others continue to relocate to northern Michigan, and new industries will begin to offset job losses in manufacturing.
"The one thing we are all hoping for is an investment in the health sciences," says Rick Deneweth, managing member of Three West LLC, a real estate development firm.
It would be ideal if Munson Health Care's proposed alliance with Spectrum Health increased health-related activities, added jobs, and bolstered the local residential market, he says. An influx of entrepreneurs and their businesses would be welcome as well.
Scaled-back Businesses are Requiring Less Space
The smart money is betting the recovery will be slower for the commercial real estate industry than for the residential market. With credit tighter, businesses aren't investing as aggressively as they did five or 10 years ago. At this point, they need less space, making the commercial sector "the most threatened part of the real estate market," Schmidt says.
Bank regulators are especially wary of commercial real estate lending. At their bidding, banks are limiting the percentage of real estate loans they make, based on their level of equity, Deneweth says.
"There is plenty of existing inventory out there, and there is no financing available for new buildings," though loans for owner-occupied projects may be the exception, he adds.
Given the lower returns and financing problems, commercial construction has slowed across the region. In Garfield Township, for example, the annual number of commercial projects went from 24 in 2005 to four in 2009.
Commercial buildings have lower occupancies than in the past, and landlords have made significant rent concessions to tenants, Tarnow says. For example, rates are down about one-third for the office space that his company owns in its Logan Valley development.
"We are slowly getting our occupancy up after losing a number of tenants one to three years ago," he says. "But our occupancy is coming back up at a greatly reduced rental rate," he says.
It's a Buyer's Market for Land
The ravages of the recession haven't spared the market for vacant land either. The number of transactions has fallen from 595 in 2007 to 306 in 2009 in the five-county region, according to TAAR figures.
Leelanau County appeared especially hard-hit. Pam DePuy, a broker with The John Martin Co. in Glen Arbor, says a glut of land is available in the county – everything from small lots to extremely large tracts.
A total of 58 vacant parcels were sold in Leelanau County in 2009, compared to 83 in 2008, says Ann Marie Mitchell, a broker with Coldwell Banker Schmidt in Leland. Benzie County fared somewhat better: The number of vacant land transactions went from 50 to 45 in that period.
"The number of transactions is way down – about a third of the peak about six or seven years ago," says Matt Case, a broker with Coldwell Banker Schmidt based in Benzonia.
"There is quite an inventory of land out there, but I don't think we are flooded either." In any case, he says, prices are holding up fairly