Archive for category: Weekly Brief

As the summer residential sales season starts to wind down, we are finally starting to see some signs that the inventory logjam is starting to break. Home sales volumes are dipping, which is an indication that we may start to see a correction between the imbalance of buyers and sellers.

Also, as the COVID-19 pandemic starts to slowly recede, the hesitancy of sellers is starting to likewise recede.

Finally, we are starting to see the rapid rise in residential prices begin to slow down.

All of these are signs that the number of homes listed may start to rise. Couple that with the (now) 2022 lifting of the foreclosure moratorium, and I firmly believe that 2022 will be more “normal” than 2020 and 2021. This may be bad news for those who were able to sell without worrying about buying a replacement home. But it will be good news for the majority of the residential real estate marketplace.

Last week I discussed how the pre-pandemic disputes over short-term rentals are bubbling up again.  The other land-use issue that I expect will come front and center as we return to some semblance of normalcy post-pandemic is cannabis-related property.

Communities are starting to see large-scale and capital-intensive cannabis development. The property taxes from these developments are, of course, enticing to communities. However, I suspect we will start to see some municipal disputes about cannabis uses in the next few years, as these uses continue to proliferate.

Already, we are seeing disputes relating to the use of property for caregiver grow operations. I expect these disputes to multiply.

However, I also expect to see cannabis-related property transactions to proliferate. If (or when) the federal government removes the remaining regulatory and legal hurdles to cannabis development, I would expect these developments to accelerate. However, I also expect major corporate investors to get into the cannabis market once the remaining legal hurdles are cleared. The impact of the acceleration of this segment of the market may, in my mind, counter-intuitively, drive prices down. As the business becomes more normalized, I expect the approved zoning for these uses to expand, which will have the impact of increasing the supply of properties that are approved for such uses.

(Shameless plug: My title company has extensive cannabis property experience. We have handled over $80 million in cannabis property transactions. We can issue title policies for cannabis-related properties, and we have dedicated escrow accounts for cannabis-related funds at a cannabis-friendly financial institution. If you need assistance in this area, email me at dnykanen@mwtmi.com)

As we begin to see signs that the COVID-19 pandemic is starting to wane, at least in the United States, the rubber is about to meet the road on two important issues facing real estate.

First, as the eviction and foreclosure moratoria start to be lifted, we will see whether the government’s efforts to avoid catastrophe in the residential sector were successful. There are early signs that residential evictions will be high. Whether the same will be true for foreclosures remains to be seen.

Second, commercial real estate is a mystery.  Vacancies in office buildings are already starting to slowly increase, as flexible work arrangements begin to become permanent. The hospitality industry is also seeing signs of tension. However, the commercial real estate sector appears to remain strong. More will likely be revealed as the long-term impacts of the COVID-19 pandemic become evident.

Real estate investors and developers are inherently optimistic. Most of the time, that is a positive trait in a developer. However, when storm clouds are on the horizon, that same optimism can be a fatal flaw. Two data points that were reported this week may be storm clouds on the horizon for the United States in general, and Michigan specifically. Developers and investors who fail to monitor this trend may have a blind spot for the potential for decreases in property value and marketability.

First, the preliminary data from the 2020 Census was reported. The data shows that the United States had its second-slowest growth ever. Only the decade after the Great Depression had a slower growth rate. While the news was bad for the country in general, it was worse for Michigan. Michigan actually lost population in the last decade.

The second data point, which is obviously related, is that the birth rate in the United States continues to decline. This declining birth rate will eventually lead to population decline unless the declining birth rate is replaced by immigration. For a view of what declining population means for a developed country, a view of the economic issues facing Japan is helpful.  Japan will see its population dip by 30% over the next few decades unless the country’s birth rate increases or immigration is increased. The impact on the economy in Japan will be devastating, as there will not be sufficient workers to care for older citizens, or even fund the social safety net for such elderly citizens.

What this means for the real estate economy should be clear. Without population growth, there will be much less need for new construction, which means there will be fewer construction jobs, financing, etc. This could eventually lead to a downward, self-fulfilling, cycle of economic contraction. Put bluntly, we need more people. Whether through births or otherwise. The economy depends upon growth.