Real Estate Corner with Rick Seese: November Edition

In this edition Rick shares information about Looking Ahead 2022: Keep Your Eyes on the I’s and the Latest Area Market Statistics.

Looking Ahead 2022: Keep Your Eyes on the I’s

 Inflation, Interest Rates, and Inventory are key ingredients as to what our short-term and longer-term real estate market predictions might reveal.  Let’s start with Inflation.

INFLATION: We have all recently experienced the inflationary rise in the cost of groceries, gas prices, utility costs, etc.  The increase in inflation has been progressing over the past year or so and is now impacting us economically.  The combination of a heating up economy, increased consumer spending, and the bottleneck effect of low supplies of many goods and services is causing a steeper increase in prices.  Wages are on the rise to influence more employees back into the work sector, which is also having an impact on producer prices.  Eventually, all those increases reach us individually in the form of a higher cost of living.  What economists have learned over the years, is that controlling inflation is tied to controlling spending and demand.  That remedy will come in the form of increasing interest rates to dampen credit and dampen the rate of consumer spending.  It’s all part of the cycle within an economic recovery, as we have witnessed after many previous recessions.

The most recent Consumer Price Index (CPI) increased 6.2% from October 2020, according to the Labor Department data released this past Wednesday.  The CPI rose 0.9% from September, the largest gain in four months.  Some economists believe that once the supply chains have settled toward normalcy, inflationary pressures will subside.  However, high inflation is not a friend of a smooth-running economic engine, even though rising inflation is a normal occurrence in a recovering economy.

INTEREST RATES:  I spoke with veteran Loan Officer Rachelle Gumowski, with Lake Michigan Credit Union in Lowell.  Rachelle shared with me the Mortgage Bankers Association (MBA) interest rate forecast for 2022 and 2023.  The MBA forecast for 30-year fixed interest rates during 2022 is a gradual rise from around 3.3% to 4.0%.  The same report shows 2023 with rates rising from 4.0% toward 4.3%.  Rachelle reminded me that those same rates were around 2.9% earlier this year and are currently hovering in the lower 3% range.  It appears that the mortgage industry mind set is predicting that the governmental inflation medicine is about to begin.  With increases from 3% to 4% or more over the next 12 to 18 months, mortgage payments may reach an unaffordability level for many first-time homebuyers, especially with the continuance of rising Average Sale Prices.  Could rising rates slow overall demand?  Supply and demand could change within the real estate market picture, especially if the supply of available homes begins to rise.

HOUSING INVENTORY:  Housing Inventory may be the most important statistic going forward. On the home front, if you take a close look at the Market Inventory chart below, Homes Currently for Sale have been decreasing.  Months of Supply is averaging around 1.0 month, which is much lower than a normal supply and demand balance of 6.0 months.  Additionally, New Listings have reduced greatly in most of our focus school districts.  If these current housing market trends continue, then a slowing of demand caused by an increase of interest rates, could begin to bring inventory back toward normal levels.

My interpretation is based on the local world we live in.  I doubt that an increase in interest rates will have a huge effect on our local market.  We could see an increase of Months of Supply, but even a 3.0 month supply is still only half of a normal 6.0 month supply of homes.  Additionally, the Millennials are a huge group of buyers that will continue to control the destiny of demand and I believe they will continue to purchase homes.  There is also the ingredient that many homeowners have already refinanced to those lower rates around 3% or less and may not be willing to make a move to a 4%+ interest rate for a new mortgage unless they have a pronounced reason for doing so.

We will continue to watch all three of these factors as we near the end of 2021 and move into 2022.  We may see a gradual movement toward a normal market, but it won’t happen suddenly.  There is a lot of inventory that needs to build and a lot of demand that needs to slow down, before we see a movement to normal.

The above graph shows the increase of Average Sale Prices on a rolling 12-month basis for the Lowell School District (Green) and the Entire MLS (Blue) from January 1, 2020, through October 31, 2021.

2021 Statistics Year-To-Date

Average Sale Prices – Year-To-Date Through October 2021

School District Average Sale Price
Forest Hills $498,592
Caledonia $385,608
Rockford $382,169
Lowell $341,212
Entire MLS $265,177
Saranac $244,216
Belding $205,024
Lakewood $197,064
Statistics courtesy of GRAR (Greater Regional Alliance of Realtors)

The entire MLS (Multiple Listing Service) Average Sale Price grew at an identical increase as last month, only .64% in September and .64% in October.  The Average Sale Price in our focus area school districts outpaced the MLS growth as they all increased by about 1%, except Caledonia decreased slightly.  The Lowell School District Average Sale Price grew by 1.2% to $341,212.  The overall demand remains strong throughout West Michigan and our School District focus areas continue to have above average demand.  The Lowell School District continues to be a higher demand destination as younger families look for higher rated schools, desirable locations geographically, and more affordability.

Average Sale Prices by Township – As of October 31, 2021

Location/School District Average Sale Price
Ada Township $551,974
Cascade Township $500,199
Vergennes Township $412,268
Grattan Township $341,676
Bowne Township $340,557
Lowell Township $330,827
Boston Township $279,256
Entire MLS $265,177
Keene Township $228,441
Statistics courtesy of GRAR (Greater Regional Alliance of Realtors)

All the above surrounding townships experienced increases in Average Sale Prices in October, except Keene Township decreased.  Grattan Township experienced the highest increase in Average Sale Price, mostly due to an increase of waterfront transaction closings. There are portions within Ada Township and Cascade Township boundaries that are Lowell Schools, but most of their elevated Average Sale Prices are influenced by Forest Hills Schools.  Bowne Township contains a large area of Lowell Schools but is also influenced by the Caledonia School District.  Grattan has a portion of Lowell Schools, but also has a large area of Belding Schools. There is at least a portion of each of the above townships that contain Lowell School District boundaries, but Vergennes Township and Lowell Township are entirely contained within the Lowell School District boundary lines.  As you can see, nearly all our surrounding township Average Sale Prices exceed the Entire MLS Average Sale Price.

                                                 Market Inventory – As of October 31, 2021

Location/School District Homes Currently

for Sale

Months

of Supply

New Listings

Oct 2020 vs Oct 2021

Entire MLS – GRAR* 3,994 1.2 4,089 – 3,558
Rockford 67 1.0 83 – 65
Forest Hills 58 .8 97 – 52
Caledonia 37 1.0 39 – 42
Lowell 25 1.0 31 – 24
Belding 10 .7 23 – 23
Lakewood 9 .7 20 – 11
Saranac 7 1.1 12 – 7
*MLS is Multiple Listing Service.  Coverage area includes all of Kent and Ionia Counties, northern Barry County (inclusive of Gun Lake) and southeastern Ottawa County.  Statistics courtesy of GRAR (Greater Regional Alliance of Realtors).

“Months of Supply” refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace.  Historically, six months of supply is associated with moderate price appreciation, and a lower level of month’s supply tends to push prices up more rapidly.

All our focus area school districts had a smaller number of homes for sale at the end of October compared to the end of September, including the entire MLS.  Months of Supply in our focus areas continue to be less than the entire MLS.  The lack of inventory continues to fuel an extraordinary seller’s market and Average Sale Price increases.  I have added a new comparison this month that shows the lack of new listings comparing October 2020 and October 2021.  Only Caledonia and Belding had a comparable number of new listings from last year.  All other locations have far less new listings comparing the same month in 2021.

Average Price Per Square Foot – As of October 31, 2021 

Location/School District Average Price Per Sq. Ft.
Forest Hills $166
Rockford $163
Caledonia $158
Lowell $152
Entire MLS $138
Saranac $129
Belding $125
Lakewood $118
Statistics courtesy of GRAR (Greater Regional Alliance of Realtors)

The Average Price Per Square Foot means the price per square foot in relation to the Sale Price. These averages continue to increase in our focus area school districts.  These numbers are also an indication of supply and demand.  Average new home construction costs begin around $200 per sq. ft. in West Michigan, but that does not necessarily include landscaping; the cost of the land or lot to build the new home; or the cost of improvements to the land, such as water/sewer hook-up, well, septic, driveway, electric, and gas.  The above averages include existing homes and some new construction.  Our focus area school districts had a range of increase from $1 to $3 per square foot in the month of October.

Pending Sales – As of October 31, 2021

Location/School District Pending Sales
Entire MLS 3,082
Forest Hills 65
Rockford 60
Caledonia 40
Lowell 20
Belding 16
Lakewood 12
Saranac 5
Statistics courtesy of GRAR (Greater Regional Alliance of Realtors)

Pending Sales are sales under contract with an accepted offer, but those transactions have not finalized yet (closed).  Some of the above numbers could change daily, as some sales will fall apart, but new sales will be added.  Pending Sales decreased within the Rockford, Lowell, Belding and Saranac School Districts from September to October, which can be attributed to seasonality.  All our other focus areas had increases, including the Entire MLS.  If enough homes are available for purchase, and the demand continues to be strong, Pending Sales will remain constant or increase.  These numbers are important as a tool to forecast future closings and indicate recent activity.  The above numbers are based on the one-month activity of reported Pending Sales.  Most pending sales become finalized and closed within a three-to-six-week period, from the date it became pending.

Rick Seese works with buyers and sellers of residential, commercial, and industrial real estate.  He is an Associate Broker with Greenridge Realty, Inc. and has been licensed full-time for over 40 years.  If you’re interested in reaching out to Rick for more information, or have a question for the monthly article, you can contact him via email ([email protected]), visit his website at www.rickseese.com or Facebook page at (www.facebook.com/Rick Seese), or call/text him at 616-437-2576.

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