A Pandemic DOES NOT Equal Recession

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Friends,

One of the questions I got the most pre-Pandemic, was “How’s the market?” Usually asked with a smile.

The question I’ve been getting the most mid-Pandemic is “How’s the market?” This one comes through a pained expression waiting for the worst.

Spoiler alert for the rest of this write up: The market is still great!

Now, you may want a little more depth than that.

You’ve probably heard radio commercials pushing panic and recession fears. We’re reading click-baity headlines designed to pull us in, shared among our friends who aren’t reading all the variables outlined in the article.

I get it.

The world is running on fear and that message is sold hard, and often, to keep our attention and motivate our actions.

But here’s the deal; Our country has been through Pandemics and recessions before. We have something to point to for both.

So I want to reassure you; Pandemics do not equal recessions, and the Grand Rapids market is strong with a lean towards the sellers still.

Here are 3 reasons why I do not live in fear of the next 18 months in West Michigan real estate.

Showings and Multiple Offers Over List Price Continue:

Quick personal story then we’ll dive into the data.

I’ve been showing this couple homes just below the average sales price for the area. It’s a competitive price point because that’s where a lot of First Time Homebuyers and Cash Investors hang out as their target price point.

So we get to a house an hour before offers are due. I am informed that there are 7 offers in hand. The couple likes it, we write up an offer $15,000 over list price (YES, really.) and submitted it.

I get an email 2 hours later, “I ended up with 21 offers and unfortunately yours was not chosen. We ultimately ended up choosing one that did not require closing costs and had an appraisal gap guarantee.”

This means that someone went even higher, covered any amount over the valuation in cash and did not ask the seller for closing costs. They essentially agree to over pay for this house, even if the bank said it wasn’t worth that value, in order to get it.

So this is what’s happening since the shelter-in-place.

Now the data:

Source: ShowingTime who electronically monitors Realtor requests for client showings in the Grand Rapids metro area.

So what we’re looking at here is the showing activity for Realtors in the area. This is a pretty good early indication of understanding buyer’s optimism and activity.

You can see, pre-Pandemic, we were already showing more homes than last year. The shelter-in-place happened, essentially stalling the real estate showings, and once re-opened we picked back up at the same pace we were pre-Pandemic.

Buyers, while being physically cautious inside homes, are still very interested in buying homes right now.

We need to take a pause for a quick conversation about foreclosures:

Do I expect there to be an increase in foreclosures after the moratorium is lifted? Yes, I do.

This has financially impacted many families nationwide. However, the investor activity, access to cash and non-traditional capital for those purchases, and strong buyer interest indicates to me that these will continue to fill the need for housing rather than sit on the market as an over abundance of housing.

Right now we are at 2.9 months of inventory available. That means if not one more house was put on the market we would have 2.9 months until we ran out of houses for buyer demands. A balanced market is 5-6 months. The Great Recession was 11+ months of inventory.

EVEN IF there are more homes on the market it just means we are moving towards a balanced market. It is okay. That is not a terrible thing.

The West Michigan Region is Growing:

Quick, name 5 reasons why West Michigan is a great place to live!

Easy, right?

  1. Access to natural resources within 5 minutes

  2. Awesome schools with loads of investment in tech and specialty programs

  3. The re-investment in Downtown accessibility, energy efficient building, and minority/women owned businesses

  4. Diversity of industries, including a little tech bubble emerging

  5. THE BIG LAKE

Those are mine. Yours may have included something about Beer City designations, Top 10 lists, or our Art scene.

The point is, this area is regularly touted as a gem in the Midwest and relocations to the area are on the rise. This area has had both a significant investment in attracting businesses, an eye on sustainability, and a huge effort by our tourism board to promote National recognition.

West Michigan is GROWING which means housing inventory continues to be low, which in turn continues to raise prices.

We Have History To Lean On:

In 2007, the then VP of the Federal Reserve, Thomas Garrett published a white paper titled, “Economic Effects of the 1918 Influenza Pandemic Implications for a Modern-day Pandemic.”

Now, in 2007 I imagine this publication was rather dry to read and put on a shelf of later reference.

Well, today, this is a juicy read.

In it Garrett outlines the US unpreparedness for a modern day pandemic, the economic impact to expect, and potential recovery timelines.

Garrett points out that, YES, local businesses with suffer a revenue loss in excess of 50% and the government based on how it was run in 2007 wouldn’t be able to be counted on to help, but that those losses mostly recovered shortly after the pandemic runs its course and workers, especially in “essential” industries would see an increase in pay because of risk involved.

All of this is to say that while we are stalled from Pandemic, it’s rough, but the economy will bounce back shortly thereafter.

You’ll see in the graph below 14 countries averaged for home prices since 1870. The two grey lines are the World Wars, but also thrown in that 1918 year was the Spanish Flu that aligns with the timing of the end of WWI. So in 1920 there is a quick rebound of pricing followed by about 10 years of economic growth.

Now some may say, yes, but that was also the end of the war which lead to national buying, investments, and optimism.

Guys, doesn’t this feel like the same thing?

I’ve seen neighbors talking with neighbors, victory gardens being planted, investment in homes, a sense of national pride (not to be confused with ethnocentrism) and a rallying together as a country.

There are parallels to what happened in 1918 and I expect there to continue to be parallels for growth as well.

So do you let them spread fear to sell their services? Fear is a powerful motivator – but hope, optimism, and love sustain us for longer. Lets focus on those as we move forward.

 

Looking to learn more about buying, selling, or relocating in the GR area? Click HERE to get started.

-Tiffany Szakal

Join The Discussion

One thought on “A Pandemic DOES NOT Equal Recession”

  • Joanna Schlientz

    Thanks for posting. You had some great information.

    Reply

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