Aug. 11, 2016
Hardly a day goes by when, in my work as a Realtor, I don’t get asked this question: “Are we looking at another real estate bubble?”. I’m mostly a residential Realtor, and have decent experience as a commercial agent. I’m definitely not an economist, though I do enjoy reading the work of some economists, and I don’t work in a real estate finance job dealing with interest rates and other complex lending information.
These last 4 years, specifically, I’ve been in a “boots on the ground” role, nearly 7 days a week, helping individuals and families make very real decisions on their housing needs. I get to watch human behavior, not all the charts. I supply accurate market data from the very recent past on very specific markets, but myself and the client are left to project the future into their decisions.
The many hours I spend helping people make these decisions leave me with some strong opinions on ‘the bubble question’. Timely to this conversation is a very recent piece published in Real Trends, summarizing recent comments from Dr Lawrence Yun, Chief Economist at the National Association of Realtors. I have enjoyed seeing Dr Yun speak locally, and will take a minute here to add my own comments to his opinions. Dr Yun does not see a bubble on the near horizon.
#1 “ A shortage of supply in both new and resale housing. Bubbles are usually the result of oversupply”. It doesn’t take an economist, a PhD, or an expert of any type to observe this. We are in a state of historically low supply. You have heard this before, you’ll hear it again, and it’s real. This is great for sellers. (See below for some options on getting an idea of your current home’s value)
#2 “Interest rates are lower now than in the bubble years of the mid-2000s resulting in better affordability”. I’m blown away by the low rates at which buyers are locking in long term mortgages. My own mortgage rate is very, very comfortable for the long haul, whether I decide to stay put for 2 years or 20 years. That “move up house” might look really really affordable if you’re willing to make a call to some of the loan officers I recommend.
Those two aspects seem somewhat elementary to me. I was thrilled to read Dr Yun then close with the following comment, because it mirrors and validates what I have been observing for quite some time. This brings me to:
#3 “There is no sub-prime lending causing people who are unqualified to buy housing and then default.” THIS!!!! Those who know me best know I have some rough-around-the-edges tendencies, and I’ve been known to say that I’m very encouraged about the fact that “there aren’t a bunch of sh!$%*ty loans out there”. I attend closings with nearly every buyer, and typically become aware of the solid, conservative loan products being presented by highly capable local lenders, and I’m glad to see the smart choices most buyers make in accepting those mortgages at very low interest rates. This aspect of things gives me optimism for West Michigan’s near future in its housing markets, above any other available information.
There are other comments in the Real Trends piece that deserve further exploration, such as “ real estate markets are local and cyclical - A local market can experience a bubble while the national market is cruising along just fine”. I tend towards optimism, but also believe to my core that West Michigan specifically is in a bit of renaissance stage. We have great housing fundamentals (from the Real Trends article: employment, appreciation, affordability, and supply and demand ratios) and there is a real interest from newcomers interested in settling down in Grand Rapids or its near suburbs or the lakeshore. Nationwide real estate markets could go into a period of adjustment or correction that just might not impact us here.
I was born here in Grand Rapids in the mid-70s, left in the mid-90s, and got observe firsthand the housing market in Chicago, both as an owner and a residential and commercial Realtor. I have seen bubbles, and 2007 basically wiped me out. In 2008, I made my way home to Grand Rapids, and it’s likely I’ll never leave in any permanent way.
In 2008, I would have described West Michigan as an extraordinarily cheap place to live. Housing was cheap. There weren’t the choices there are now, but there were still choices. Since then, we have seen this city grow, and become rich with amenities and opportunities, some of which qualify as world class (Medical Mile, ArtPrize, etc). In 2011 we started seeing a run up in values of residential property which continues to this day. But 5 years later, interest rates make it possible to afford a property that may be selling more than ever before.
I’ll leave you with my two cents on Grand Rapids and West Michigan: we have transitioned from a “cheap place to live” in to a regional center of culture and commerce with costs of living much more in line with a city that has more to offer than the GR of 10-15 years ago. It’s a wonderful time to be in Grand Rapids, and the nature of markets and cycles has left us with a number of good options that we can afford.
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