The Grand Rapids real estate market has been incredibly resilient to the change in interest rates. According to Redfin, Grand Rapids placed second in September among the fastest moving metro markets with an average sale time of only 9 days on market. While relative inventory has increased and the pace of the market is not as frenzied as it was the prior two years, inventory still remains low. Prices continue to increase, albeit at a much slower pace. Even though some things have changed, the greater Grand Rapids real estate market still strongly favors sellers.
The speed at which interest rates increased over the last year and a half was shocking. At the end of 2021, interest rates were sitting a little above 3%. In 2022, they started increasing and didn't stop until they hit 8% about a month ago. As rates kept increasing, many buyers fell out of the market and a fear of recession started to permeate the real estate landscape.
Reading real estate headlines over the last few months, I've seen many click-bait titles that pander to people's fears about a huge housing crash and global recession. However, if you actually read the articles, it doesn't say anything close to what the headline implies. While the market has cooled this year, there is still high demand for housing and short supply.
As of stats compiled through the end of November, the greater Grand Rapids area is currently sitting at 1.6 months of inventory. See the chart below for the monthly inventory numbers since 2014. Inventory is a measure of whether the market is a buyer or seller's market. This number is determined by figuring how long it would take to sell through the current number of homes on the market at the current rate they are selling, assuming no new houses hit the market. 5-6 months of inventory is considered a balanced market. Although 1.6 months is three times the amount we had last year at the same time, this number still represents low inventory and a market that favors sellers. Homes under $300k are in especially high demand.
Many economists were speculating the market shift to take place last fall. However, interest rates remained low and demand for housing was still ridiculously high at the beginning of 2022. Starting in January, interest rates started to creep up quickly and didn't stop. After hovering around 3.0% for most of 2021, rates went all the way up to almost 6% in the matter of a few months. 4% interest rates didn't seem to faze buyers, but once rates got over 5%, they took notice. Some buyers fell out of the market that were only motivated by super low rates. Others adjusted their budgets to account for the rate hikes. The result has been a slowing of the real estate market over the last couple of months.
The spring real estate market of 2021 combined a frenzy of demand with an already low inventory of homes for sale. Never had the competition to buy a home been more fierce. So what has the greater Grand Rapids real estate market been doing since this past spring? Slowly, but surely, inventory has been notching upward. It is still very much a seller's market, but not the same crazy frenzy this spring brought.
The current inventory level at the end of September was 0.8 months. Refer to the chart below to see the changes in inventory levels over the last seven years. Inventory is a measure of whether the market is a buyer or seller's market. This number is determined by figuring how long it would take to sell through the current number of homes on the market at the current rate they are selling, assuming no new houses hit the market. 5-6 months of inventory is considered a balanced market. In March, April, and May this year, we only had 0.5 months of housing inventory, an extreme sellers market.
Real estate has been all over the news the last couple of months. Due to the pandemic, people spent more time than ever in their homes over the last year. They've had to adapt to working from home and physical distance to work became less important. Many people are wanting more space and privacy. Combine that with super low interest rates, and there is huge demand for housing right now. The Covid policy of mortgage forbearance caused even less homes to hit the market than normal. Mortgage forbearance means payments are temporarily suspended for anyone who cannot pay their mortgage with no threat of foreclosure. We've already been facing inventory issues the last few years, so these factors have only exacerbated our problem.
For the last three years, the real estate market has held steady with almost identical monthly inventory levels. In true 2020 fashion, this year isn't following suit. While 2020 continues to be a hot seller's market, the monthly inventory levels have been quite different this year.
Before getting into the nitty gritty of inventory numbers, let's look at some general information first. The number of sales is actually down 5.2% compared to last year, but volume is up slightly by 0.6%. High demand for housing and lack of inventory continue to drive up prices. The average sale price so far this year is $263,338, an 8.3% increase above last year. Interest rates have helped keep demand high. Rates are at an all-time low, and are currently about 2.9% for 30-year loans and 2.5% for a 15 year.
**Update: As of Thursday, May 7th, 2020 real estate is back to work with new safety restrictions**
Since the governor extended the stay at home order, it will be a while before we get back to functioning normally. If you were planning to buy or sell soon, you are probably curious about how the Coronavirus pandemic has affected real estate.
Real estate agents are not allowed to travel for work and can only work remotely. Buyers looking at homes is considered non-essential travel. This means no meeting clients in person and no looking at houses. The good news is that inspectors, lenders, and title companies are still functioning normally, aside from modifications for proper social distancing. Transactions in process had minimal interruptions as long as buyers were still working. Layoffs have caused some problems though.
So how's the market? It appears to be holding steady right now. The inventory of homes for sale is a little higher this year versus last, mainly due to softened buyer demand as prices have risen. It is still a seller's market and very competitive among buyers, but not quite to the extent of last year's spring market. I still regularly have buyers running into competitive situations with 10+ offers. Especially, in the $150-250k price range which has extremely high demand.
Interest rates also crept up over the last year to around 5%, but surprisingly, they came back down and are currently sitting around 4%. The number of new residential listings hitting the market is down by about 5% so far in 2019. Until this number starts to increase, our inventory will stay relatively low. Check out the chart below that illustrates the monthly inventory levels over the last five years.
Real estate was a wild ride this spring. Inventory hit an all time low at 0.9 months of inventory this past March. There was extreme competition among buyers in the $120-250k price ranges. Most of my home buyers searched for at least a few months and wrote multiple offers. I educate my buyers on the different criteria the seller will use to evaluate the offer, and we worked to their strong points as best as possible. For example, some people were flexible in their timing, so they offered sellers longer time to occupy the home after closing. Some were tight on timing, but could offer larger down payments and earnest money. All of my buyers were well prepared and writing strong offers.
It has been a whole year since I wrote a real estate market update for the greater Grand Rapids area. Why? It has been the same story for the last two years straight. How many different ways can you say "we have extremely low inventory!"?
As a refresher, inventory is measured by months of supply. Months of supply is the measure of how many months it would take for the current inventory of homes on the market to sell, given the current pace of home sales. Months of supply is a good indicator of whether a particular real estate market is favoring buyers or sellers. Our local market has strongly favored sellers the last few years. Although the market has been great for sellers, it has been extremely difficult for buyers trying to purchase, especially first-time buyers who generally have lower down payments.
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