West Michigan’s housing sector took a heavy hit from the early COVID-19 days, but industry figures show the rebound has been fast and hard.
Greenridge Realty in Grand Rapids celebrated a recent article from Forbes showing pending home sales rose 44% in May after falling 22% in April.
According to Forbes, the jump is way above what economists previously expected. Economists polled by Forbes originally predicted pending home sales across the country to increase only by 18.9%.
Adam Paarlberg, president of Greenridge Realty, said the national numbers run closely with those in West Michigan. Residential real estate suffered a downturn because of the COVID-19 pandemic and the corresponding state lockdown in March and April, but the industry came back strong in May, he said.
The new surge of home sales comes in two parts, Paarlberg said. First, there has been a surge in listings caused by a pent-up supply from the stay-at-home order. Secondly, there’s also a surge in sales caused by a quickening pace in buyers.
“We’re anticipating on the residential housing side that we’re going to pace ahead of last year’s trends month over month,” Paarlberg said.
While homes are selling for more than they did at the same time last year, the overall housing inventory in Michigan has shrunk, Paarlberg said. But he expects builders to gear up and replenish inventory at a faster pace in the latter half of this year.
“Obviously, the pandemic was a frustrating period for workers, but what we’re hearing is they anticipate an uptick in (housing) starts from the second half of 2020,” Paarlberg said.
Bob Filka, CEO of the Home Builders Association of Michigan, echoed the same prediction, although the supply chain may not catch up for a while.
Demand for building products actually has increased to above pre-coronavirus levels. He said there have been some significant shortages, particularly in lumber, but also with plumbing and electrical fixtures.
“Things like that are impacting the marketplace right now, but the demand is high, and the biggest frustration we’re hearing right now is those delays,” Filka said.
Prior to COVID-19, if these products took a few days to ship, now it might be several weeks, Filka said. People who are looking to build a new home or renovate still will have to manage expectations. Until production of building materials returns to pre-coronavirus levels, there will be some gaps in the residential housing resurgence, but not because of lack of demand.
“Production of new housing stock has been at historically low levels for several years now,” Filka added.
Additionally, low inventory in the $250,000-$350,000 price range causes a trickle-down effect in lower price markets, Filka said. If prospective buyers are looking to buy a $250,000 home, but there’s little-to-no inventory, they may instead choose to buy a $150,000 home and put another $100,000 into renovations, which limits the options of lower-income households that also are looking to buy.
Paarlberg agreed expectations ought to be couched, but he said he was confident the West Michigan market, which came on strong before COVID-19, will remain strong for the foreseeable future.
There are two reasons Paarlberg gave for the strength of West Michigan. One, the fundamentals coming in were strong: high buyer demand, low but steady inventory, low interest rates and strong job growth.
“All those things, particularly low interest rates, are going to continue to strengthen the real estate industry,” he said.
Secondly, as the pandemic has shown, individuals and companies are looking at new ways to work remotely. Consequentially, a midsized market like West Michigan may have people moving in from the bigger hubs. People may work in Chicago, he said, but decide to call West Michigan their home.
“Time will tell, but that’s the trend that we began to see even prior to 2020,” Paarlberg said. “With the pandemic, obviously, the needle on working remotely has moved dramatically.”