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.
The greater Grand Rapids area hit historically low inventory levels the last four months straight. 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 and April this year, we only had 0.5 months of housing inventory, an extreme sellers market.
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.
In September last year, the greater Grand Rapids housing inventory started an uptick and continued for four months straight. This is the first time that has happened in the last five years or so. We went from a yearly low of 1.3 months of inventory up to 1.9 months by the end of 2016. Many were predicting the market to finally level out a little. However, from December through the end of January, inventory suddenly fell back down to 1.4 months. Last spring was a crazy market with buyers sometimes competing with 10+ offers. This year we have even less inventory than last as we lead up to the spring market. Buyers will need to be diligent, patient, and put their best foot forward in the home buying competition. Sellers have the convenience of short market times and multiple offers to choose from if the house is priced right.
Earlier this year, the spring market was a house feeding frenzy. Popular homes were receiving 5, 10, sometimes as high as 20 offers. March and April saw a housing inventory of only 1.3 months. It is too early to call for sure, but I believe this was the peak of the rising prices for the Grand Rapids market.
Over the last four months or so, we have seen the inventory levels increasing. Each month we have slowly ticked up to the current level of 1.7 months. That is still a very low level of inventory, however, the day-to-day pace of the market is noticeably slower. Homes are still selling quickly and multiple offers are common, but it is not as ridiculously competitive as it was this spring. Experts have been predicting inventory levels and price increases to level off for a couple years now. It may be finally happening.
In the last few months, the inventory level has tightened again. All the way down to 1.3 months. This is a historical low for the inventory of homes for sale in the Grand Rapids market.
Although inventory was dwindling, the number of buyers increased with the spring market. The result? Feeding frenzy is probably the most accurate way to describe the competition. If a house is priced right and in good condition, it is common place to see 5-10 offers on one property within three days of hitting the market. Open houses look like assembly lines of people going in and out. It is great to be a seller right now. Unfortunately, it is very difficult to be a home buyer at the moment. The buyers who are winning in extremely competitive situations are usually cash buyers, or buyers who have large down payments if they need financing. It makes it especially tough for first-time buyers trying to enter the market.
Over the last three years of giving market updates, I am starting to sound like a broken record. The real estate story of Grand Rapids, MI in 2015 was quite similar to 2014 and 2013. The inventory of homes for sale has remained low, and prices have been steadily increasing. It has been a great market for sellers and a frustratingly competitive market among buyers. Interest rates went up and down a bit throughout the year. Right now they are sitting around 4.0% for a 30 year loan, which is still quite low when you look at the history of interest rates.
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