Construction and Real Estate

Residential market afflicted by low inventory

But experts say there may be reason for optimism in the future.

December 13, 2019
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Low Inventory
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Low inventory will continue to plague the residential market in 2020, according to experts.

The growth of the housing market in West Michigan has been stymied by low inventory for several years; however, there might be light at the end of the tunnel. 

According to Lawrence Duthler, president and co-owner of Sun Title Agency in Grand Rapids, the market is predicted to see an increase of 6% in new construction next year.

He said that will not translate into any meaningful inventory increase for 2020, however.

“To really experience an increase in inventory levels, we need to get existing homes listings up,” he said. “We are starting to get to that point where baby boomers are looking to transition out of their homes. There is this hope that more inventory over the next few years will come on the market between new construction and baby boomers looking to either downsize or move south or whatever they decide to do.”

As of right now, Duthler said people who are interested in selling their homes are having a hard time finding a replacement.

Thomas Cronkright, CEO and co-owner of Sun Title Agency, said over the last three years, there have been listings of inventory that only last for a month to a month and a half. Duthler said listings of a healthy inventory should at a minimum last for three months, ideally for six months.

The restricted inventory, Duthler said, are homes with a price range of $150,000-$250,000. He said those are the homes that are challenging to find.

One of the reasons why there is such a limited inventory is because of construction labor shortage and land availability. Although the economy has been strong for some years, Cronkright said the recession continues to have a residual effect on the residential market.

“The challenge with everything on housing is that we were in the Great Recession for so long that the builders need land as their inventory starting point and because that lasted so long, it is taking quite a bit of time to convert raw land into developable lots,” he said. “The townships got burnt on several developments in town where they weren’t completed by developers and they had to go back. … There is a longer tail on converting raw land to lots and that coupled with, ‘Now that we have the lot, is there enough capacity to frame and finish the house?’”

Because of low inventory, Bob Wuerfel, CLTP title agency president for Lighthouse Group, said 2020 market indicators are pointing to a 4%-8% reduction in the market. Some of the other factors that may contribute to a downturn in the market are trade uncertainty, an election year and 10 years of current positive economic growth. 

He said the first quarter of 2020 will mirror the first quarter of 2019 when the winter/polar vortex slowed the mortgage lending and real estate activity.

According to Colliers International Research & Forecast Report for West Michigan Q3 2019, occupancy should remain strong with low vacancy throughout the markets; owners should expect to achieve small rent increases in 2020.

“Investors’ demand for West Michigan multifamily will continue to outpace supply,” the report stated. “There will be far more buyers than sellers, which will help bolster competition and keep values high. Indications point to interest rates remaining steady in the first half of 2020 — good news for refinances and sales.”

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