Is tight real estate market the 'new normal' for West Michigan?

The Home Builders Association of Michigan and the Home Builders Association of Greater Grand Rapids held a news conference on Wednesday, June 7, at a new home built by Jim Tibbe Homes in the Hidden Ridge subdivision. (Jim Harger | Mlive Media Group)(Jim Harger | Mlive Media Group)

GRAND RAPIDS, MI - Home buyers continue to face challenges  in West Michigan this fall as fewer homes went up for sale and prices continued to shoot up at a near double-digit rate.

Adam Paarlberg, president of the Grand Rapids Association of Realtors (GRAR), says the tight housing market for buyers may be the "new normal" as the region's economy continues to grow and attract millennials who are entering the housing market.

"Very fortunately, the economical fundamentals are strong for us and low interest rates continue to be part of our narrative," Paarlberg said on Monday, Oct. 16.

Meanwhile, home builders reported continued growth in housing starts. But they were nowhere close to production rates they enjoyed during their heyday prior to the Great Recession.

Through the first nine months of 2017, GRAR members reported landed 9,437 new residential listings, down 4.3 percent from the previous year. That's down sharply from 10 years earlier, when more than 34,000 new listings were posted during the collapse of the housing market and the market regularly produced 25,000 new listings a year.

Meanwhile, prices for homes sold this year have shot up about 10 percent in Kent and Ottawa County. The average price of a home sold in Kent County this year was $211,911, up 9.9 percent from 2016. In Ottawa County, the average home sold for $244,918, a 10.1 percent increase the first nine months of 2016.

According GRAR statistics, houses were on the market for an average of 29 days. The market now carries about 1.4 months of inventory - a historic low.

On the construction side, homebuilders continued to report increases in housing starts throughout West Michigan, according to Builder Tracks, which follows residential construction activity in Grand Rapids, the lakeshore region and Kalamazoo.

In Kent County, builders pulled permits for 866 new single family homes during the first nine months of 2017, a 3.5 percent increase over 2016. About 900 new apartment units were started, a sharp decline from 2016, when construction activity spiked with 2,106 new units under construction.

In Ottawa County, builders reported 742 new housing starts, a 5.4 percent increase over the first nine months of 2016. Builders started 427 new apartment units, down from 610 new units that commence construction in the first nine months of 2016.

In Allegan County, home builders reported 270 new housing starts, a 15.8 percent increase over the first nine months of 2016. In Barry County, housing starts were flat for the first three quarters while in Kalamazoo County, single family housing starts were down 11.2 percent.

Despite the healthy increase housing starts, West Michigan home builders are still well below the average of 3,500 starts per year they enjoyed prior to the Great Recession the 5,000 starts per year they enjoyed in the late 1990s and early 2000s, said Andy Lofgren, executive officer for the Home Buildings Association of Greater Grand Rapids.

The biggest impediment to more growth is a labor shortage in the home building industry and a lack of availability for housing sites, Lofgren said.

"Given our strong employment and population growth, it is surprising to many that we have not returned to our long-term average," Lofgren said.

"Some of this is based on demographics with millennials just beginning to get to the age when a new house might be an option for them." Lofgren said he expects the demand for new housing to grow as millennials start raising families.

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