Archive for year: 2021

The mainstream press is catching on to the inventory issue in the residential real estate market in a big way. In some respects, this has become a self-fulfilling prophecy.

At the beginning of the pandemic, the lack of inventory was attributed to sellers’ reluctance to list homes because they (depending on the source) were concerned about potential buyers entering their homes, or they were concerned they would not receive satisfactory offers, due to the economic conditions.

Since we have reached a “new normal” during the pandemic, the explanations for the lack of inventory shifted. Now, sellers are worried that they will not be able to identify and afford a replacement home. Sellers themselves are concerned about the limited inventory. Put more simply, we now have limited inventory because we have limited inventory.

So, how do we get out of this feedback loop? Well, the latest stories seem to indicate that new construction may not be our savior. Prices of construction are increasing dramatically because of supply chain issues (see, pandemic, among other causes). Lumber prices, in particular, are increasing quickly.

It seems the way out of this constrained inventory may require some creative work by real estate agents (and/or lawyers). Negotiating post-closing possession may give sellers the comfort they need that they will have the time to locate and purchase a replacement property. Given that this is a strongly seller-favorable market, it would appear sellers have the leverage to negotiate possession if that is what it takes to make a seller comfortable to enter into a purchase agreement.

The other option is that eventually, the market may just revert to equilibrium, as markets often do. Hopefully, this summer selling season will answer many questions about where the market is headed.

With apologies to Dickens, 2021 is the best of times for residential sellers, and the worst of times for retail landlords. There are several stories this week that emphasize this divergence in the real estate market.

First, the good news. The residential market in Michigan is still thriving. It is still an incredibly strong seller’s market. This week saw multiple stories about the rising prices for residential properties. There are, however, some clouds on the horizon. Because prices in some areas are rising so quickly, the “appraisal gap” is becoming an issue. The appraisal gap arises when the home does not appraise for the purchase price. This generally means the buyer will have to come up with more cash for a down payment, as the lender will only finance the appraised value. If this were to continue in the long term, this issue could prevent younger, less wealthy buyers from purchasing homes. The second cloud on the horizon is that because inventory remains constrained, the market volume could remain artificially low.

Now, the bad news. Stories about the pummeling retailers are taking as a result of the COVID-19 pandemic as well as the systemic shift to online retailing continues to dominate. One analyst predicts 80,000 retail locations, or 9% of all retail locations, will close in the next five years, for an annual average of 16,000 closures per year. These closures will include major anchor retailers. This compares with the previous high of 9,832 per year. As I have noted previously, malls are taking the brunt of the damage, with the increase in vacancies hitting an all-time high in the past year. Some analysts believe a quarter of malls will close in the next five years.