Trending Strong: Realtors Share Thoughts on Northern Michigan Real Estate Market
Northern Michigan Realtors talk trends in lakefront, small towns and countryside living. Real Estate 2017 is featured in the April 2017 issue of Traverse, Northern Michigan’s Magazine.
Everyone knew the real estate bubble couldn’t last forever, and when it burst, the force hit hard. But that was then, 2008, and this—new sales records for the past several years and a friendly forecast for 2017—is now. That’s right, sales for the past few years have eclipsed the high-water marks of the early 2000s. And area real estate professionals look for 2017 to continue the trend as another record year across northwestern Lower Michigan.
“The numbers reflect a new historical highpoint for our regional real estate market,” says Kim Pontius, the executive vice president of the Traverse Area Association of Realtors (TAAR). “We surpassed the top-of-the-bubble numbers in 2012. This (2016) makes the fourth year of new high records.”
While he and others anticipate that trend will continue, he warns that outside factors always have the potential to slow things down. “Like any commodity there is always a chance that the market could turn the other way based on a plethora of variables. Right now projections say that we’re hitting a period of stabilization in activity because of inventory shortages and the lack of lower-priced housing stock,” Pontius says.
The shortage of homes, particularly the so-called affordable homes, and the increasing cost of borrowing money are potential pitfalls for the market in 2017. While interest rates remain historically low, they are rising. Those are the factors cited by the National Association of Realtors (NAR) as reasons for a projected slowdown in growth for the real estate market. But a shrinking inventory is also a sign of a strong market, as it means people are buying. That desire and consumer confidence lead many in the real estate industry to believe the rest of 2017 holds great promise. “I’m real optimistic. I think it’s going to be a good year,” says Pat O’Brien, of Pat O’Brien and Associates, in Boyne City.
Optimism is echoed by Perry Pentiuk, of Venture Properties. “I’m thinking the recovery is continuing,” says Pentiuk, who works mostly in Grand Traverse and Leelanau Counties. “I don’t see it slowing down. This will be another really good year.”
Another reason for the rosy outlook is that things didn’t slow down the last two quarters of 2016, an election year. Realtors say the buying public typically waits until after the election to pull the trigger on buying, regardless of who the candidates are or who the winner is. “In my 28 years in real estate, during an election year [the market] gets real soft. This [past] year it never did that,” says Jim Richardson, who manages the Coldwell Banker Schmidt offices in downtown Bellaire and at Shanty Creek Resort. And even though the market always slows down in the winter, Richardson says his office remained busy. “We’ve started out good. Our showings are up and the phones are ringing. I think it’s going to be a good year.”
“It’s all moving in the right direction,” agrees Rik Lobenherz of Real Estate One in Charlevoix. He says the sales numbers in the areas he deals with—Antrim, Charlevoix and Emmet Counties—are all up, in both the number of properties sold and the average price. Another positive number is the one number that is down—the average days a property stays on the market before it sells. Plus: “There’s a higher percentage (of properties) selling,” he says.
Where People Want to Be
So what segments of the market are most desirable? The mantra these days is “walkable communities.” Regardless of age, people want to be where the action is. People want to be able to walk to restaurants, shopping, bars, movies, the beach, the park. The appeal of lakefront property used to be explained by the saying, “They aren’t building any more lakes.” Today, that could be changed to, “They aren’t building any more classic, authentic downtowns.”
“For people buying into a community, they embrace everything the community has to offer,” says Wally Kidd, of Kidd and Leavy Real Estate, Petoskey. “They want to be a part of everything and often become very significant assets of the community.” Kidd’s in-town customers tend to be established professionals looking for move-in ready homes. “Buffed, polished, ready to live in. Not the fixer-upper as much,” Kidd says.
“Convenience is most important,” adds O’Brien, of Pat O’Brien and Associates. “It used to be, ‘I want a lot of privacy.’ But, if you’re halfway between 131 and Boyne City and you need to go somewhere for milk, you’re driving five or six miles.” Still, O’Brien says his area remains a resort market. He estimates 60 to 70 percent of his sales are second homes or recreational property.
Studies have shown that the move to downtowns is a nationwide trend. “Boomers want to be in active areas, and millennials do, too,” says Grand Traverse County Planner John Sych. While they may not be building any more downtowns, there are options to make areas on the fringes more appealing. “Sidewalks, curbs and gutters are a great investment,” he says. “That’s what builds that walkability. Public infrastructure is critical to that.”
“I see people wanting to be in the villages and cities,” Pentiuk, of Venture Properties, says. He points to downtown Traverse City in particular. “It has got such a great food, wine, brewery scene. I wrote up a condo for a couple from Leland. They want to go to a movie or play, have dinner”—and not have to drive 45 minutes to home at the end of the evening. Pentiuk calls it “the golden envelope—one mile outside the downtown,” whether that downtown is Traverse City, Glen Arbor, Frankfort or Charlevoix.
There are some exceptions. Richardson, of Coldwell Banker Schmidt, says most of his Antrim buyers are interested in either being near Shanty Creek or somewhere in the woods or waters—not in the village of Bellaire. “We’re not downtown-centric in Antrim County. I just got an email from a customer of many years ago. They want a small cottage with lots of privacy. With Shanty Creek, you can have a place at the resort and you’re only 45 minutes from Charlevoix, Gaylord, Traverse City. You’ve got lakes, skiing, golf courses. And we still get people who want to live in the countryside outside Bellaire.”
But by and large, the trend toward urbanization is going to continue. Judy Porter of Real Estate One in Traverse City says that makes for some challenges as the demand for downtown living continues to outpace the number of existing options. “Look at all the people who want to be there. Downtown is either brand new expensive condos or old homes,” she says.
Supply and Demand
“We struggled with inventory last year, whether it was a second home or a primary home,” O’Brien, of Pat O’Brien and Associates, says. However, he warns that sellers trying to “push the envelope” may see their property go unsold. Buyers now have more listings at their fingertips than ever before. “If you’re a seller there’s a lot of good information on values. If it’s priced right, it’s going to sell,” he says. Though he warned, “You’re not going to get a buyer to overpay.”
Kidd, of Kidd and Leavy Real Estate, is sensing an interesting dynamic setting up in this market. Sellers see a reason to sell soon to take advantage of less competition, and buyers are hearing predictions of rising interest rates and feel an urge to buy ahead of an uptick.
If you are a buyer, however, your choices are limited. The number of desirable homes, particularly in the $100,000-to-$250,000 range, so-called “affordable homes,” is low. “For our primary home market in Boyne City, $150,000 to $300,000, the inventory is negligible,” says O’Brien. “For second homes, condos start around $375,000, and a home on the lake is $500,000 and up. Those are pretty remarkable numbers.”
Realtors and those who study markets see the slowly rising prices as a positive, much better than when the glut of repossessed homes and short sales drove prices down. “Low inventories shows the market is pretty healthy,” says Jeff Rabidoux, a Realtor at Crystal Mountain Resort who works in Benzie, Leelanau and northern Manistee Counties.
“We’re seeing 2 to 3 percent annual increases in valuation,” Kidd says. “I know some people like to see more than that for luxury real estate, but it brings some nice long-term stability to our market.” One market force that Kidd feels contributes to the low inventories, most notably for lakefront, is the strong desire to keep what he calls “generational homes” passing down through the family.
Pentiuk, of Venture Properties, says the perception of the entire region has changed over the past few years. He ascribes it to the impact of the Pure Michigan campaign, as well as exposure such as the Sleeping Bear Dunes National Lakeshore being voted the most beautiful place in the country by Good Morning America viewers in 2011. In the past, “No matter where you’d go in the United States, when you’d mention Michigan, people would think of the Rust Belt. Now they see these ads and go, ‘Wow, you’ve got some water,’” Pentiuk says.
Buy or Build
When the recession hit, many builders downsized or went out of business. Those in the building trades saw few opportunities, and a number of the tradespeople moved out of state or left the business altogether. That means that for nearly a decade, developers weren’t building spec homes, so today there’s a dearth of five- to ten-year-old homes on the market. Not only that, but now with the market going strong, builders can’t keep up, as those skilled workers aren’t here anymore. “In 2007, we (everyone) just stopped building. It took until 2013, 2014 to really get going again,” says Porter, of Real Estate One, who also works with Eastwood Custom Homes. “There was a big gap in building homes.”
Lobenherez, of Real Estate One, says the lack of spec homes over the last decade has put pressure on everything else. As the inventory shrinks, homes appreciate in value. Demand is up and builders are constructing homes for individual customers, rather than building in hopes customers will come.
The benefit for the construction firms is that the shortage of homes, especially in the affordable range, is making new construction more appealing. “My phone has been ringing off the hook,” says Porter. And with new houses, buyers don’t have to be concerned about needing to repair or replace roofs, HVAC systems, water heaters or the like.
“We’ve certainly seen a huge increase in new construction for residential,” says Stephanie Baldwin, owner of Edgewater Design Group in Petoskey and president of the Home Builders Association of Northern Michigan, representing Charlevoix, Cheboygan, Otsego and Emmet Counties. While Porter and Eastwood Custom Homes focus on affordable homes, Baldwin works with many looking for lakefront or second homes. One change she’s seeing is a demand for design that maximizes lakefront views. “We’re seeing more contemporary architecture. More streamlined and more glass, natural wood. People want to bring the outside in,” she says.
The trend toward more construction is also impacting a segment that had seen little growth in the past decade: Vacant land. In Benzie County, Randy Dye of ReMAX Bayshore Realty says he is seeing much more activity in vacant lots. “Prices are getting close to where people will build.”
What about Condos?
The condominium market has grown in concert with the region’s appeal as a resort area and with the graying of the market. The ability to live in an appealing area close to everything (there’s that downtown thing again) and not have to worry about a yard or plowing is resonating with buyers. Bob Rieck from Coldwell Banker Schmidt Realtors has had success with several developments, such as Crystal Cove and North Wind, and is currently working with Radio Centre III, a five-story mixed-use building on Park Street across from Sorellina restaurant in Traverse City.
Rieck says there is always a demand for condos in the $250,000-to-$400,000 price range, calling that a “sweet spot” for buyers. That’s made problematic for developers, however, with a lack of land suitable for development and the voter-passed moratorium on buildings taller than 60 feet in downtown Traverse City.
Mike Wills has represented many developments over the course of his career. Currently he’s overseeing sales at Uptown Condos in Traverse City.
Uptown features units facing the Boardman River and others facing the street. The former are nearly all sold out, at prices exceeding $1,000,000. The city-side townhomes run $350,000 to $600,000.
Wills says one important consideration is whether the project is a shared building or a site condo development, like Uptown. “Site condos are more like single family living,” he says. For example, at Uptown, there are no shared elevators or stairwells, and each owner has and is responsible for their own mechanical system.
Both Wills and Rieck agree that the downtown or near-downtown locations of developments they’ve represented is a key component to their appeal. In-town condos are also ideal second homes, be it a summer home for snowbirds or a winter home for those who have a lakefront residence in the area but want to be closer to amenities in the winter.
TAAR’s Pontius says the area typically outpaces the national averages in terms of market health and vitality, and this year looks to be no exception. He believes one reason for that is the regional cooperative MLS operation. “We are one of the hotspots in the state for real estate sales performance. One reason we’re doing well I’d credit to the regional MLS (multiple listing service) operation,” says Pontius. Popular sites such as Zillow, Trulia, Realtor.com and Homes.com, which list properties for sale, are all populated by the local MLS—hundreds of portals rely on the MLS for the data, and that all helps drive sales.
ReMax’s Dye sums it up: “There’s an optimistic attitude. The business climate is turning very positive.”
Tempered Optimism on the Commercial Side
Residential and commercial real estate do not work in lockstep, but many of the same variables are driving both sectors, from a stronger economy to a lack of skilled workers and a lack of properties for sale. So while Realtors are predicting a good year for residential sales in 2017, with the caveat that the inventory is down, much the same is true on the commercial side. “Overall, the numbers are pointing up,” says Dan Stiebel of Coldwell Banker Schmidt Commercial. “People are positive about the economy.” Then in the same breath, he mentions the downturn in inventory.
Rik Lobenherz of Real Estate One in Charlevoix says part of the upturn is that investors looking for alternatives to the stock market are turning again to real estate. “A lot of people with a lot of cash don’t know what to do other than put it in the stock market. They look for alternatives. Income property is tangible. It gives them a sense of security. It won’t just disappear,” he says. He says those looking to purchase income property have also lowered their expectations for what they see as a good return. “Investors used to see ten percent; now four, five, six percent is respectable,” Lobenherz says.
Kevin Endres, a commercial Realtor with ThreeWest in Traverse City, says last year was an outstanding year. Like Stiebel, he believes the interest and optimism are strong among potential buyers. He just hopes the inventory will stand up. “Last year took off,” he says, noting the number of properties sold in Grand Traverse County increased by 45 percent. The square footage sold increased by 66 percent, and the total dollar volume by a whopping 80 percent. Statistics provided by Stiebel showed that for the five-county TAAR area, commercial sales were up 20 percent from the prior year.
Another similarity between residential and commercial real estate is the focus on downtowns. In Traverse City, the lack of available commercial opportunities north of South Airport Road forces those interested to look elsewhere. According to Realtors like Endres and Jim Schmuckal, who represent numerous properties around Chum’s Corner, that area is ripe for expansion and development. The same is true of Acme, especially with the new Meijer, where the Grand Traverse Band has purchased interest in the surrounding property. Endres also cited Gaylord, Petoskey and Charlevoix as locales where commercial opportunity exists. “There’s more activity in Acme (and) the M-72 corridor. The Grayling/Gaylord corridor is very active,” he says, pointing in particular to the ARAUCO North America pressboard plant in Grayling and heavy retail growth in Gaylord.
Lobenherz isn’t so sure. He says other commercial activity is lacking north of Traverse City, again because of the lingering effects of the recession. “There may be some pent-up demand, you may see a new gas station or other business being built, because we haven’t seen (such development) for 10 years. Residential has to come before commercial—it’s about traffic counts and people,” he says.
One change Stiebel says he’s noticed is that commercial buyers have become more willing to purchase vacant land or to buy land with old buildings and raze them to completely redevelop a site. From 2008 to ’13 or ’14 purchasers were not buying land, so sellers kept it off the market. Today, though, land sellers are drawn to the rising prices and more development sites are coming into the market. He also cautioned that potential protectionist policies espoused by the new Trump administration could have far-reaching impacts if they result in any sort of trade wars. “It could hurt if we have retail trade embargoes. Down the road there are a lot of unknowns,” he says.