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The Real Estate Rebound

August 12, 2014

Back in the black

By Julie Baumkel

Big-foot custom homes are rising again in certain posh areas of Oakland County, but Kelly Sweeney, chief executive officer for Coldwell Banker Weir Manuel, a Bingham Farms-based realty firm with 14 offices in southern Michigan, believes the general market trend for the next generation of homebuyers is smaller homes in more urban areas.

Sweeney, 61, began his career as a city assessor for Birmingham and has been actively involved in offering insights and expertise on the construction, building and real estate market for the past 30 years.

The painful past

The CEO recalls the year the bottom dropped out for those in the state. It was 2005 and the Great Recession was being keenly felt in Michigan before any other state.

“I was at a conference then and talking about the crisis and people were looking at me like I was crazy,” Sweeney says. “Michigan is different than every other market. We actually went into recession before everyone else did. Between 2000 and 2010, the manufacturing base was globalized and we lost 850,000 jobs in the state. In 2005 and 2006, our market was in free fall. We were No. 2 on the list of states in foreclosures from 2005 to 2008.”

Since then, it has been a long, slow path back to black for the industry.

“Prices were cut in half. Construction virtually came to a halt in Michigan,” says Sweeney. “If you looked at building permits in the state, you would see home building virtually ceased in Michigan from 2006 to 2010. The big national builders were hard hit but they managed to survive. Many of the regional and local builders either went bankrupt or retired.”

By 2010, though, buyer demand began to rise and the remaining builders began to acquire inexpensive lots from the banks. Sweeney says foreclosed properties were sold for pennies to the dollar. For example, a lot that may have sold for $50,000 in 2003 went for as low as $5,000 in 2009.

With fire sale deals, building activity began to return to Michigan in 2010.

Today’s turnaround trends

“Now people are buying again, but not necessarily the big homes,”
Sweeney says. “The big question is: What will happen in the future? We think we may be seeing the writing on the wall. The largest segment of the population is baby boomers and their days of conspicuous consumption are virtually over. Now many of them are empty nesters headed for retirement.

“The next coming wave of home buyers is quite different than their parents,” he says. “Generations X and Y are postponing home ownership because they are getting married and having children much later, they have significant debt from college and their buying preferences are different.

“They don’t want a 6,000 square foot or even a 4,000 square foot home and, unlike their parents, they don’t want to be stuck out in a cornfield in suburban tracts. They want walkable communities and an urban setting. So we are seeing a lot of activity up and down the Woodward Avenue corridor.

“Lately, we’ve seen activity in homes priced around $400,000 to $500,000 and below, and among buyers 50 and under, in areas like Rochester, Lake Orion, Oxford and Clarkston, principally in 2,000 and 3,000 square foot homes.”

Building for Boomers

Indeed, Jim Clarke, president of Robertson Brothers Homes, a long-established Bloomfield Hills builder, says business really picked up about two years ago.

“There was a lot of pent-up demand. Right now we are building lots of small condo units and detached ranches ranging from 1,600 to 1,900 square feet for buyers in the entry-level market with small developments in areas like Troy, Independence Township, South Lyon and Oxford. The issue is often land availability. There’s just not that much land left in the area due to zoning issues.”

Yet, Clarke says building for boomers is a different story than that of the entry-level buyer.

“Boomers may want the condo, but they also want all the perks they had in their last home — like nice kitchens, elaborate custom molding, well-amenitized — just with less square footage and less maintenance. Also, they don’t want to spend as much as they spent for their last home. They want to preserve the money they earned from their last home and only spend part of it on the new space.”

Sweeney acknowledges the custom home market still exists but not in its former incarnation.

“We still see some consumers building custom homes in Birmingham, Bloomfield Hills and Franklin. So examples exist of individuals spending $1 million or above for a custom home. But that is one home designed for one family,” he says.

Future forecast

The two housing pros offer some interesting predictions about Michigan’s housing future as they gaze into their crystal ball.

“Here in Michigan, our aging population needs to be serviced somehow and there is not just enough buildable land,” says Clarke. “We think our state’s future might include “mini-rises” or small podium-type buildings in the most popular urban areas. We also expect the infill areas in Ann Arbor and Detroit will become more valuable.”

Sweeney sees the current jobs forecast as a critical — and, at this point, the most hopeful — part of any crystal ball gazing.

“I will safely say home sales and building activity will hinge on the jobs that we retain and regain here in the state. We saw problems when all the jobs left the state,” he says. “Now Oakland County shows unemployment dropping from 13 percent to 7.5 percent and a University of Michigan study indicates that the state’s unemployment rate will continue to drop to 5 percent in the next two years.”

All promising indications that a recuperating real estate market is likely to continue on a healthy path. NS

 

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