Recently the Grand Rapids Association of Realtors released their data for 2015 GRAR Home Sales Report and Update. This is one way to look into the future if you know what has happened in the past. If you don’t know the numbers for Grand Rapids homes for sales, sold, inventory and months of supply then it makes it very difficult to understand what could happen in the future. You may be asking yourself could the real estate bubble burst in have been predictable? We’ll take a look back at 2005-2006, when I think the bubble started to burst in Grand Rapids and West Michigan.
Ok lets start by looking at the statistics for 2015. The Average Days on the Market for residential sales were 105 days. Total units sold were up up 5.3% over 2014. Here is some really great news, the average home sale rose 8.9% over 2014. the average sales price in the Grand Rapids area is now $177,767. Remember that figure because I’ll be referring back to the figure. The biggest segment of home sales happened in the $100,000 to $179,999. That segment of sales totaled 43.2% of the 2015 sales in Grand Rapids. For 2015 the Average Months of Inventory was 2.5 months. Again this is an important figure as we move forward so keep it in mind (that’s why I highlighted it). I will attach the statistics showing what has transpired in the last 18 years.
The Number of New Listings submitted to the MLS really tells the story. Notice in 1997 the number of listings was 25,218 but when the Grand Rapids Real Estate Market hit 2005 that number jumped to 31,862. The next 2 years those numbers continued to rise. The Number of Homes Sold goes back to 1998. In 1998 there were 10,262 homes sold in Grand Rapids. Then in 2001 the housing bubble started to take shape with 11,033 sales. Notice in ’03, ’04, ’05 home sales were above 13,000. 2006 showed a drop of 2000 home sales. In 2008 and 2010 sales were under 10,000. There was a jump in 2009 but I believe that was due tho the government trying to stimulate the real estate market with a first time home buyer tax credit of $7500. When that ended in 2010 the market crashed to 9066 home sales. Those are the raw and unfortunate numbers for the number of homes that sold, now lets look how that affected the dollars involved in the Great Recession.
Let’s take a look the the Average Home Sale Price for the Grand Rapids Market. In 1997 the average home sale price was $112,125. Fast forward 9 years to 2006 and the average home sale price jumped to $163,924, that’s almost a 50% increase in appreciation in just 9 years. Between 2006 and 2007 the bottom fell out of the real estate market. The average home sale price dropped to $107,546, that is pre 1997 home sale prices. Now you can start to understand why there were so many homes underwater with their mortgages and why they couldn’t sell their homes due to the fact that it wasn’t worth what they bought it for. Look at the Average Home Sale Price for 2015, $175,562, that’s over a 68% appreciation in just 6 years.
What’s driving this massive appreciation? Hopefully the answer is simple…lack of inventory! To understand you need to understand the how the Number of New Listing Submitted to the MLS and Average Home Sales go hand in hand. In 2006 there were 34,500 homes for sale on the Grand Rapids Real Estate Market and 34,262 in 2007. By 2010 the number of homes for sale dropped to 26,374 and home prices started to go back up. Starting in 2011 there were 16,378 homes for sale and in 2015 there were only 15,872 home for sale. In the same time period home prices jumped back above the pre real estate market burst. The average home sale in 2015 was $175,562. A total of 2.5 months Average Months of Inventory in 2015 vs 13.3 months in 2008. Lastly, the Impact of Months of Inventory on Pricing will show why we were on such a wild ride for home prices appreciation and depreciation. For 5 years (2006-2010) the Grand Rapids Market showed double digit depreciation. From 2012 to 2015 we’ve enjoyed high single to double digit appreciation.
In conclusion, do I think we’re in for another housing bubble burst, hmm maybe. What caused the last burst? First things first, looking at the number of homes for sale is very low and with the new laws that were passed to prevent another real estate catastrophe. I don’t think we are headed of another melt down, at least of 2016. But look at the double digit appreciation over the last 5 years. Once people realize they can cash in on the appreciation there could be a run on increasing number of homes for sale. As for the Great Recession and what caused it, well I guess that depends on which economist/politician you listen to. It could have been the repeal of the Glass-Stegall Act of 1933, the number of exotic loan programs that were born out of the repeal of Glass-Stegall Act, the slowing of the economy, the number of fraudulent loans, ect.