Construction continues on houses in the Fox Crossing subdivision in St. Joseph on Nov. 15. Southwest Michigan is part of the nation trend of declining housing inventory. (Don Campbell | HP Staff)
By Tony Wittkowski | Business Reporter | The Herald-Palladium
The housing market has rebounded enough that it’s matched pre-recession levels that were last seen in 2006.
Sales are up and interest rates have been favorable. Everything is going well for real estate agents and homeowners with one exception: There are not many houses left to buy.
The housing inventory has continued to fall through a variety of reasons in Southwest Michigan and the rest of the country. Some say not enough houses are being built to keep up with demand. Others say people are unwilling to move and sell their homes like before.
Phil Amodeo is among the latter.
Amodeo, who recently became the association executive for the Southwestern Michigan Association of Realtors Inc., said the housing market is in uncharted territory.
“This phenomenon is really unprecedented,” he said. “When there is a recession, markets slow down and people pull back. But when it speeds up, things go back to normal. After this recession, that just didn’t happen.”
Several communities have been experiencing an inventory shortage for several years. Basically, there simply aren’t enough active listings within the in-demand neighborhoods that homebuyers covet.
At the end of October in Southwest Michigan, there were 2,069 houses on the market compared to 2,356 in October of 2015. At this number, the inventory had a 7.1-month supply of homes for buyers.
This was a decline from 7.5-months supply in September and 8.6-months supply in October of last year. Those recorded houses are in Berrien, Cass and Van Buren counties.
To determine the months supply of inventory for a given area, the number of active listings on the market is divided by the number of homes sold per month on average during the previous 12 months.
A “healthy” market usually has between 5 and 6 months supply of inventory. However, that normally is aligned with larger metropolitan cities like Santa Monica, Calif. In the Midwest, a 7.1-month supply is low.
Amodeo said there is no single reason why there’s a low number of available houses for sale. But when homeowners learned there was a tight inventory, Amodeo said people became more hesitant when choosing to move.
“People were saying we don’t think we’re going to find a house, so we’re not going to put ours up for sale,” he said. “A year or two later it’s still like that. If people would do the normal thing it would go back to normal.”
By the numbers
With a low inventory, it’s not surprising that selling a house isn’t hard in 2016.
The average time a home stays on the market before it sells has dropped to 104 days in October, down from 132 days in October of 2015. That’s a 21 percent decrease.
Year to date, the time on market has dropped from 134 days to 119, an 11 percent decline. This means homes are selling at a faster pace than in recent years.
Amodeo is moving from Texas and noted how the market there fully rebounded three years go. Unlike down south, Amodeo said states in the Midwest – like Michigan and Indiana – are the first ones to go into a recession and the last ones out.
“Homes are selling quickly there, but there is only a month- or two-month supply there,” Amodeo said. “I can’t explain it. I’ve studied economics and real estate for my entire career. There are patterns and trends, and it seems like you throw that out the window.”
Lawrence Yun oversees the production of existing home sales statistics as the chief economist for the National Association of Realtors. Yun can predict the direction a mortgage rate will trend, but even he doesn’t know when the inventory shortage will let up.
Nationally, the total housing inventory at the end of October declined 0.5 percent to 2.02 million existing homes available for sale, and is now 4.3 percent lower than a year ago.
What’s more frightening for the country’s housing inventory, is that figure has fallen year-over-year for 17 straight months. Unsold inventory is at a 4.3-month supply at the current sales pace nationally.
“The ramp-up in housing (construction) in October is a hopeful sign that overall supply can steadily increase enough to provide more choices for buyers and also moderate price growth,” Yun said. “A prolonged continuation of the robust single-family starts pace seen last month would go a long way in giving homeowners much-needed assurance that they can list their home for sale and find a new home to buy within a reasonable timeframe.”
David Kiel owns Kiel Construction in Benton Harbor and focuses on remodeling existing homes. But as president of the Homebuilders Association of Southwest Michigan, Kiel said the area housing is affected by where people work.
“With Whirlpool (Corp.) and how it is, a lot of people move into the area,” he said. “It also depends on how early people like to retire in the area. Because of how close we are to the lake, it makes it harder to find an available spot.”
Kiel said builders aren’t doing spec homes as much as they used to because securing financing for such projects has become harder and places a larger risk on builders.
A for sale sign is pictured at a home along Langley Avenue in St. Joseph. The average time a home is on the market before it sells is 104 days as of October of this year, down from 132 days a year ago. (Don Campbell | HP Staff)
Spec houses is short for speculative houses, which are homes built for sale with no particular buyer in mind.
“There’s a lot more paperwork involved,” Kiel said. “But that’s just because the banks are doing more homework to ensure there’s not another housing crisis.”
Kiel said the biggest problem in the soon-to-be future will be a lack of skilled workers. Along with a depleted inventory will be less professionals who have the capability to build a home.
Joshua Schmidke is the owner of Schmidke Construction in Baroda. He said affordability has a big impact on the housing inventory problem as it became prevalent about four years.
Houses that cost $300,000 or below are selling before they are even completed, Schmidke said. Anything higher tends to sit longer, which sometimes makes up a larger percentage of the available housing in regions.
Schmidke said another reason why it’s so hard to find an available home in Southwest Michigan – especially Berrien County – is Chicagoans and the second home market.
As chairman of the Parade of Homes Committee, Schmidke said cities like St. Joseph are big sites for second home owners who wish to spend summer in a nice community. With the addition of Harbor Shores and the emergence of the Senior PGA, vacation homes are becoming more popular.
“It’s probably 80 to 90 percent of our business,” Schmidke said. “We’re focused on making second homes for a lot of Chicago clients. At the same time, we don’t build the $300,000 houses that other people do locally.”
Amodeo should know how hard it is to find a new home locally.
He and his family are originally from northwest Indiana, but he’s just now moving from Texas.
Because he can’t find a more permanent home since taking the job of association executive, Amodeo leased a small house that’s split into a few units in St. Joseph that normally serves as a summer rental.
“We have our house on the market and I’ve been keeping my eye out for something, but there’s not a lot out there,” Amodeo said. “Our requirements aren’t really strict and yet in the St. Joe and Stevensville area, there’s not more than four or five houses in our criteria – unless you go into a higher price range.”
Contact Tony Wittkowski at twittkowski@TheHP.com or (269) 932-0358. Follow him on Twitter: @tonywittkowski.
(Author’s Note: This article was originally published on Nov. 27, 2016)