The Northern Michigan Real Estate Market
History & Market Trends
Data analysis confirms that we are certainly past the bottom of the longest lasting downturn since the Great Depression.
Vacation homes typically lag major market residential by 12-36 months and with asking prices for Northern Michigan real estate up 10%-20% (based upon 24 months sold price per sqft averages), the past four years of heavy discounting is now over.
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During the worst of the Great Recession, prices dropped by about 20% from high water mark 2006/7 valuations but have since rebounded, cutting that loss gap in half.
Looking forward, our most immediate concern is a fading buyer window which is probably already over for reasons too complex to address in an efficient manner.
A recovering price structure in combination with unsustainably low-interest rates means that the cost of ownership may never be lower; it's just hard to know how long discounted pricing and the artificially manipulated FED cost of funds will last.
July is the height of our inventory accumulation cycle with most if not all of the well-priced properties selling to a more confident buyer base.
With the stock market indices setting all-time record highs, investors have been reluctant to redeploy capital but this will probably change as returns slow down and profit taking occurs due to trading range consolidation. Momentum driven exuberance is bound to fade if top-line performance continues to stagnate, paving the way for alternative asset class investments.
The good news is that increased confidence in net worth and employment income have historically driven demand for high-end luxury good spending. In combination with baby boomer demographics, a highly affluent customer base, the stage is set for the return of our long term 5% rate of appreciation, supporting the premise that you can have fun and make money if you know how to go about it.
Consumers continue to struggle with the idea of high-end luxury good spending, much less an extravagant Northern Michigan property, in these volatile and still uncertain economic times. Why should such an idea even be considered when frugality and de-leveraging are all the rage? Financially savvy consumers intuitively understand timing and the scarcity of unique assets; knowing that prices are down, cost of capital is at record lows and windows of opportunity short lived.
The stock market continues to be riddled with insider trading scandals, bonds are poised for massive losses due to Federal Reserve manipulated interest rates, and with cash paying almost nothing why not consider an asset class that can deliver an immediate lifestyle dividend in combination with a history of reliable and likely to continue long term appreciation?
The big story for the next couple of years is going to be the lack of available inventory. Best buy opportunities are still out there but not as plentiful as one might think. Six years of market illiquidity should have produced plenty of supply as sellers waited for market conditions to improve, which they have, but the exact opposite has occurred. Maybe prices aren't yet high enough or perhaps potential sellers think of their Northern Michigan property as a family legacy asset, but no matter the reason they're just not selling. Supply vs. demand ratios hasn't been this low since 2006.