TC’s Tight Home Market: Where have we been; where are we headed?
Having worked in the real estate industry for more than 20 years now, the age-old question that gets asked about once a week is, “So, how is the market?”
My initial reaction has always been, “Well, what street are you referring to?” I don’t say this to be cagey, but every local market is truly that different. I don’t think the average consumer views this as I do, so let’s discuss some of the main components that we are dealing with regarding our local market.
Traverse City’s residential listing inventory is at a 40-year low and has been for more than four years. While this is a great market in which to sell a home, the tight inventory creates reluctant sellers because they need a place to live after they sell.
So, let’s discuss how we got here, the dynamics that created this historic low inventory, and where we’re headed.
The Great Recession was a downturn that I think will be referenced for a long time. It was dramatic and changed the playing field in a prolonged manner. Locally, talent from the construction industry left for high-growth areas like Tennessee and North Carolina. Disappointingly, a lot of those skilled people never came back. Combine that with the fact that there were no spec houses built for more than six years and the result is a 40-year low of active listings on the market.
The far more interesting question is where we are headed. In the last 12 months, I think that we are seeing quantifiable evidence that the market is changing. In 2017, our off-water single family home appreciation hovered around the six-to-10 percent mark. In October of 2018, that number dropped to around four percent. It’s been dropping and slowing ever since. That number held steady for the 12 months leading up to June 2019.
Currently, our inventory is still very low, but based on these indicators, we are headed to a more balanced real estate market in 2020. A very savvy Realtor that I know who studies Michigan real estate statistics recently told me that “we are always about two to two-and-a-half years behind what is going on in southern markets like Ann Arbor.” What is going on in Ann Arbor these days? A full-blown buyers’ market. Listings at the $250,000 price point there are sitting on the market. That is the exact opposite of what we’re dealing with here. Currently our average days on the market is 2.8 months for off-water homes.
I’m always concerned about forecasting a broad trend in real estate as each market is so local, but I believe we are still in an up cycle regarding appreciation that is past its peak. The market is still strong and future changes will be closely tied to several economic factors. This softening of appreciation should lead to a slowly rising inventory. Keep an eye on interest rates as they are at a 52-week low. For every one percent reduction in 30-year mortgage rates, the same monthly payment for buyers gets you 11 percent more house. Basically, a $400,000 buyer can now afford almost a $450,000 house for the same monthly payment. This will allow savvy buyers to lock in a historically low rate.
I’ve been looking forward to a shift and some real change. We’re looking forward to seeing how the numbers shake out for the remainder of 2019. I feel that 2020 will be the year when things truly begin to shift, and we see inventory levels transform in a manner that is commensurate to the word change.
Brad Platt is one of the founders of Century 21 Northland serving northern Michigan with 12 office locations. Reach him at (231) 534-4500 or firstname.lastname@example.org.