Patrick Sullivan – May 21st, 2016
Real estate is hot in northern Michigan right now, especially near walkable, vibrant downtowns.
After years of low prices and stagnant activity, prices are headed up, and buyers are looking to make a move. That’s a welcome change for real estate brokers, but it’s made a challenging environment for people looking to buy a home.
BEST MARKET EVER
Real estate appraiser Robert Reamer said he’s optimistic the real estate boom is not a blip.
“It’s definitely very good right now, and I think it will continue to be very good in the near future,” Reamer said, pointing to a strong economy and historically low interest rates.
Reamer started selling real estate in Traverse City in 1978, but with additional experience as a builder and an appraiser, he knows all too well the ups and downs of the region’s market. He said the only thing he’s certain of is that the ups are always followed by downs.
So how long will this wave continue to rise? When is the next downturn coming?
“No one could have predicted the last one,” he said. “Just like today: If we try to predict when the next down cycle’s coming, it’s just not possible, nor could we predict the depth of it.”
While Reamer said he doesn’t see people taking the same kind of bold risks that led up to the last recession, he’s seeing some potentially perilous behavior — most commonly, when people make decisions on the assumption that the future will remain as strong as the present. For example, today’s construction costs are outpacing the rise in market value, so a big renovation project today likely won’t deliver a better return down the line. It will, however, pay personal dividends if it improves the the homeowner’s quality of life.
“I like to tell people, as long as you think of your home as a lifestyle, and not an investment, I totally agree [with doing renovations],” he said. “That’s how I purchased the home that I live in.”
HIGH SEASON IS NOW
Traverse City’s real estate market always looks best in the spring, and it looks especially good this spring, said Ken Kleinrichert, an associate broker with Coldwell Banker Schmidt Traverse City.
He said that, in early May, the lack of supply of homes in downtown Traverse City made for a market where properties sold nearly the instant they appeared for sale. In many cases, buyers didn’t have the luxury of taking a day or two to think about making an offer; if they hesitated, the house was gone.
There have been real estate booms in Traverse City before, but something that makes this one notable is how hot in-town properties are, Kleinrichert said. At the same time, waterfront property sales are sluggish.
“On the water right now, we’ve got 12 to 15 months of inventory,” Kleinrichert said.
Downtown Traverse City, Suttons Bay, and Glen Arbor, however … ? Different stories. Reamer attributes part of the downtown draw to the quality of residential and retail district renovations in these areas. “They’ve all done a great job of staying a nice, attractive community,” he said.
One up and comer is Frankfort, whose quaint beachside downtown has come alive in recent years, helping to drive up the price of homes nearby, said Christine Stapleton of Stapleton Realty.
“It’s being able to walk to the beach, walk to the post office, walk to the restaurant — all those things are appealing,” Stapleton said.
BABY BOOMERS AND MILLENNIALS
So who are all of these people trying to move into houses near the hearts of Traverse City, Suttons Bay, and Petoskey?
A lot of them are baby boomers and millennials, Kleinrichert said. They’re coming here to retire or to start careers, and they want to be near the action.
“We’ve got the baby boomers coming to town, we’ve got the second home buyers having trouble finding a safe place for their money, and they know Traverse City real estate is a safe place,” Kleinrichert said. “And then you’ve got the millennials.”
Kleinrichert knows of one recently opened downtown business that just hired 50 employees under the age of 35.
He expects to see more construction, increased prices for in-town houses, and shrinking prices for mini-mansions in suburban developments.
“The next two years, we’re going to be in full swing,” Kleinrichert said. “The building industry is going to be back. The market will look like 2001. It’s the millennials coming into the market.”
Traverse City realtor Bob Brick believes hype is snowballing Traverse City’s popularity. As it’s named in list after list of great places, word of the pretty little city by the bay is spreading far and wide, and its notoriety as a place to be is building up.
Stapleton echoes Brick’s observation, noting that a similar phenomenon is happening to the west: Every time the Sleeping Bear Dunes National Lakeshore is named to a national list of places to visit, she said, the nearby Benzie and Leelanau communities are flooded with visitors. Monthly rentals get turned into short-term rentals, and the supply of housing shrinks, Stapleton said. “When we got in that Good Morning America’s ‘Most Beautiful Places 2013,’ all the businesses have seen a pretty substantial increase,” Stapleton said. “Last year was a banner year for seasonal rentals, and the canoe liveries, and the little stores.”
A BOOM WITHOUT CONSTRUCTION
A tight construction industry is putting more pressure on housing prices. The recession was so deep and long-lasting that many in the industry got out, said Kleinrichert. That’s left a vacuum where a lineup of subcontractors should be.
At the same time, the bad economy generated waves of foreclosures, creating a surplus of homes that need work.
That means there are fewer spec homes on the market than buyers would expect, given the demand. Kleinrichert said this absence is especially felt at the low end of the market, in houses priced under $200,000.
The dearth of labor supply also has made it tough on people who want to buy a fixerupper and can’t do the work themselves.
Kleinrichert saw one recent client walk away from a home because, even though the client had the cash, no contractors were available to do the work that needed to be done,.
“We got [the clients] a construction loan; the banks had approved it,” Kleinrichert said. “We just had to find them a builder. And we couldn’t find them a builder.”
MEANWHILE, TWO DOZEN MILES AWAY
Just down the highway, the real estate turnaround looks different.
Stapleton, who specializes in Benzie County, said home sales there are strong, but not like Traverse City.
“It’s good,” Stapleton said. “We’re up from last year. We had a good April. But we’re not like Traverse City. I know Traverse City is absolutely crazy right now.”
She said Benzie County depends on vacation home sales, and those aren’t as strong as the primary home sales that are driving Traverse City’s market.
In the last year or so, vacation home sales have rekindled a bit, she said.
“People are feeling a little bit better, but I don’t know if people are just feeling better about the economy or they’re just sick of waiting,” Stapleton said.
Stapleton said there is a shortage of entry-level homes in Benzie County. Inventory below $200,000 is scarce — though the jury’s still out on whether that low inventory is a symptom or a cause of the county’s shortage of rental housing for the working class.
Gary Roberts, an agent with Re/Max Bayshore Properties in Kalkaska, said he’s been watching the real estate boom in Traverse City from a distance. Things look good in Kalkaska, but prices aren’t rising as fast, and that’s okay with him. He would rather see prices rise slowly and steadily.
“I’m always fearful if it spikes up too quick, we’re going to have a dive,” he said.
He said the Kalkaska market has benefited from the Traverse City boom. As prices rise in Traverse City, Kalkaska gets more and more attractive to buyers. Roberts said in the past seven or eight months he’s started to see a steady stream of real estate agents from Traverse City bringing clients to Kalkaska to look at houses.
“I think the market, in the last two years, has been on the rise, but the problem is, it’s on the rise from an all-time low,” Roberts said.