Second homes push average prices higher
Average prices for newly-sold homes are on the rise in the Grand Traverse region even as the number of transactions decline, demonstrating the power of higher-priced second homes to help buoy the market's sagging statistics.
In a surprising mathematical quirk, the average price of all homes sold in the region rose from $173,000 to $190,000 in first quarter of 2008, compared to the same period of 2007, according to the Michigan Association of Realtors. That represented nearly a 10 percent increase.
The region, covered by the Traverse Area Association of Realtors (TAAR), was one of just five areas statewide showing an average increase in sale prices in the first quarter.
The trend seems to cut across Northern Michigan. People like Kimberly R. Pontius, executive vice president of the Traverse Area Association of Realtors, see the kernel of a potential real estate rebound in the figures.
The percentage of vacation homes being sold in the market varies from location to location, reaching a high of 75 percent in some areas and just a few percent in others. While there are no exact figures for the entire region, property tax records suggest the total percentage of existing vacation homes in the region is well under 25 percent.
Yet, their sales are about the only way to explain the rising average sales prices for northern Michigan.
The figure is an anomaly, since the sector is struggling with a slumping overall sales and rising foreclosures.
It's clear that prices aren't actually rising. Instead, more expensive second homes are both maintaining their value and selling marginally better than primary residences, skewing the overall averages, brokers say. As a result, prices appear to rise.
But the figures do allow comparison between Michigan regions. By this yardstick, the Grand Traverse region clearly has assets that most of Michigan doesn't. Michael Orden, a broker at Real Estate One in Traverse City, describes second homes as an "insulated" segment. "The owners aren't as affected by short swings in the economy."
Across all sales categories so far this year, however, the situation is bleaker. Sales of all homes in the region were down about 21 percent in the first quarter. There were just 323 homes sold in the Traverse association's region in that period, compared to 409 last year, according to the Michigan Association of Realtors. The backlog of unsold homes has risen astronomically.
Measured by the number of transactions, sales of more expensive homes have held up better in year-to-year comparisons. Many, although certainly not all, are vacation homes.
A total of 17 homes in the $400,000 to $499,000 range were sold during the first four months of 2007, according to a five-county market report from TAAR. The figure was roughly the same – 16 homes – through April of this year.
By contrast, home sales in the $100,000 to $149,000 category went from nearly 160 deals in the first four months of 2007, to 120 for the same period this year. The report covers Antrim, Benzie, Grand Traverse, Leelanau, and Kalkaska counties.
All the Michigan regions with rising average sales prices were either in northern Michigan or the Thumb area of the Lower Peninsula, all fairly strong markets for vacation homes. The Eastern U.P. Board of Realtors showed the greatest increase in average sales price in the state: about 30 percent.
In part, Pontius attributes that to a growing number of Canadians buying properties there.
The weak U.S. dollar gives Canadians and other foreigners a discount on their purchases.
"This is the first time we have ever seen a trend quite like it," Pontius said. "What that means is that foreign investors can come over here and get more for their money than they have ever been able to do."
The trend could gather momentum in the Grand Traverse region in the future, he said. Declines in home prices recently will add to the savings.
"There's been a lot of marketing downstate and across the country promoting the lifestyle choice of living in the region," Pontius said. "People with discretionary income are always looking for deals, and right now there are deals to be had. We are attracting a lot of attention right now."
This doesn't surprise Judy Levin, a broker with the Coldwell Banker Schmidt office in Suttons Bay.
"We know that Grand Traverse, Leelanau, Benzie and Antrim make up one of the most viable areas in Michigan. We are a destination," she said, noting that her client base extends into Indiana, Illinois and beyond.
Locally, owners of the high-end properties are starting to give a little on prices. But the homes are mostly holding their value, Pontius said. That could mean buyers have little to fear from depreciation.
Across the country, second homes account for an estimated one-third of all sales, according to a National Association of Realtors report. It classified both vacation and single-family investment properties as second homes.
Within the region, the proportion of second-home to primary-home sales seems to vary widely. So far this year, there has been a 50-50 split between sales of vacation homes and primary residences in Coldwell Banker Schmidt sales in the Suttons Bay area, said Judy Levin. But after May, generally, they sell more vacation homes than year-round.
"We expect to go to 70 percent vacation homes from now on."
On the other hand, Christine Stapleton, broker and owner of Stapleton Realty in Honor, Empire and Lake Ann, said interest in second-homes has declined in her business. She focuses on Benzie, Leelanau and Grand Traverse counties.
"I have seen a pretty big change in the last year and a half," she said. "I don't have as many people buying second homes right now. They don't know if it has bottomed and want to wait and see what happens."
As a result, more baby-boomers are buying vacant land, looking ahead to their retirement in seven or eight years and then planning to build on the property, she said.
Across Leelanau County in the last 30 days, about 75 percent of the home sales involved primary residences, and about 25 involved vacation homes, said Ann Marie Mitchell, a broker at the Leland office of Coldwell Banker Schmidt.
Even within Leelanau, the figures can vary greatly, however. For example, in the Leland area, 67 percent of property sales have been second-home properties and 22 percent have been primary residences since the first of the year.
"That's a pretty standard trend for us," she said. "Thankfully, people are still buying vacation properties."
The Leland statistics also include vacant land transactions: They amount to 11 percent of sales, Mitchell said. Those figures related to both completed and pending transactions. BN