Here in the Midwest, we live in a home-buyers paradise compared to much of the rest of the world. Realtor Jack Lane (who hosts a real estate show on WTCM-AM) notes that the median price for a home in Grand Traverse County in 2010 was $145,000. The regions high is Leelanau County, where the median price was $205,000 last year. In Kalkaska County, however, the median price was just $65,000. The median price for a home in Petoskey is reportedly $169,000.
By contrast, the median price for a home in San Diego County last year was $305,000. It was $225,000 in Denver and $205,549 in Fort Lauderdale.
So weve got some bargains in Northern Michigan (Leelanau County notwithstanding) and youd think there would be something of a land rush on here in the region.
Whats holding people back?
History will show you that most people will wait and wait, hesitant to act before the entire crowd acts, Lane says. Therefore, not until interest rates begin to rise and headlines begin to say Housing recovers! will you see the market kick back to the levels of ten years ago. Most buyers need the psychological permission of the masses. The really smart people are either already wading into the water or are donning their hip-waders as youre reading this.
He adds that banks have largely returned to the practice of requiring 20% as a down payment on a mortgage (although the federal government is already backing 3% down loans). Banks are also dishing out the tough love for people with bad credit.
So, imagine a young family trying to come up with a 20% down payment on a $145,000 median-priced home -- thats $29,000 -- a lot of loot if youve got kids and an iffy job situation, not to mention the closing costs. Or, imagine the well-off couple in the $100,000-$175,000 income range, who (as Lane notes) tend to have typically less than stellar credit.
Both parties may be out of luck in their hunt for a home for the time being.
Heres what Lane says is the problem with todays home-buying market, in order of importance:
1. Consumer confidence in real estate remains low. Until people again believe buying real estate is a wealth builder, the market will not flourish.
2. Banks have eliminated a big chunk of the potential buying market with their new (or shall we say old) requirements of a 20% down payment.
3. Low appraisals (referencing distress sales) are coming in below purchase prices and thus killing deals.
4. High-end speculators, who pushed the 1990-2005 real estate craze -- have also disappeared from the buyer pool, further exacerbating the home supply problem.
We overbuilt and underfunded for a long, long period. In 2005, 26% of all sales were second home sales, Lane says. An absurd number! When we were kids, you could count on about two hands all of the people in town who had two homes; 26% was a preposterous level. My guess is that maybe 7-10% of all people are economically fit to own more than one home. So, now we have to wait until all that overbuilt supply is sold/foreclosed on or torn down and markets adjust, price-wise, before whats left of the demand side of the market gets anywhere near back in line with the supply.
“This means construction isnt about to come back any time soon, absent some wildly innovative government program that doesnt appear to be on the horizon. Were building less housing units in America, today (300,000) than at any time since 1960. And there are 135 million more people now than there were then.
Real estate certainly isnt dead in the water in Northern Michigan, however. The five-county area including Grand Traverse, Leelanau, Benzie, Antrim and Kalkaska accounted for 2,045 homes sold last year, with more than half of them (1,087) sold in Grand Traverse County.
If youve watched the real estate listings over the past year, you cant help but notice there are a lot of bargains on the market Up North and in Michigan in general (in Detroit, HUD homes are going for as little as $1,200).
My wife and I enjoy watching the HGTV home & garden channel at night, with shows such as House Hunters and Property Virgins depicting the search for housing all over the world -- Cairo, Copenhagen, Toronto, northern France, the Seychelle Islands -- you name it. We can‘t believe the insane prices for homes elsewhere, even for properties that look like dumps. Often, you see couples on these shows shelling out $500,000 or so for homes that would go for one-quarter of that here in Northern Michigan -- still a home-buyers paradise.