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West Michigan/Grand Rapids Economy


GRDadof3

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5 hours ago, MJLO said:

Or some bigger name players in residential housing figure out there's a market here and start adding real inventory...

It is rather surprising that the nation's biggest home builders are so focused on the Sunbelt when there are plenty of opportunities for large scale development in places like Grand Rapids.  

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5 hours ago, MJLO said:

Or some bigger name players in residential housing figure out there's a market here and start adding real inventory.  That said I drive through Allendale M-F and it definitely seems to be seeing the largest amount of new homes being built that I can tell.  There also appears to be commercial development starting to creep in between US 31 and 96th st.   Allendale is more connected to Grand Rapids than it is to the Ottawa Co. urbanized areas.  I take development spilling that way as a signal that the rural center of the W.MI urban triangle is starting to fill in.

Ehhhh, I don't know about that. Pulte was here for a while and really struggled to get a foothold here. They really needed to be around 300 homes a year (which is considered a tiny market for them) to stay in the market, and they never reached that. Eastbrook is somewhere around 250 in the metro area and has held the top spot for quite some time. If you can sell 30 or 40 homes a year in one particular development, you're doing pretty well. And it would have to be a very large development, at least 100 lots, to make it worthwhile for a national homebuilder.That would mean you'd have to open up 10 developments in the GR area of that size. I don't really know where you're going to find that amount of land that is served by water and sewer (well and septic lots are usually 1 acre minimums, which means you'd never get 100 homes in a well and septic community). 

And municipalities are not real excited to extend water service out to remote areas, plus the cost to extend water is pretty expensive; you have to find land that's adjacent to already served areas. We're not like Colorado or Southwestern states where the suburbs are ringed with 10,000 acre cattle farms. You have to piece together up to a dozen properties in some cases to put together a decent 30 acre project, and that takes years and a lot of cash. Once in a while you'll see a large farm property come on the market, usually when the eldest members of the family pass away (farmers don't like to retire to nursing homes). 

You're partially correct about Allendale. Georgetown Township is also seeing a lot of growth as usual but I think Jamestown might eclipse that here soon, especially when the new Meijer goes in. 

But home buyers in this area are not big fans of mega builders, especially people of the Dutch persuasion. :) 

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15 minutes ago, temporary.name said:

 

I would argue Allendale is not as desirable as, say, Heritage Hill. 

That's comparing apples to oranges. This year there may be 120 home and condos built in the Allendale area (maybe more), and maybe 150 in Georgetown Twp. 

You don't know if that many homes can be built in Heritage Hill because there's no property to build on. The levels of scarcity are completely different. I do know that in any given year, almost 200 condos change hands in the "greater downtown Grand Rapids area" that includes Heritage Hill. 

I think you'll start to see more developments in areas like Walker/Standale, Comstock Park, Caledonia, even Kentwood may see a comeback for new homes. The days of large Forest Hills developments are over. Byron Center has a lot of farmland to fill in, between 84th and M-6 and 131 and out to Homerich/Wilson.  Lowell will probably pick up in the next 10 years. In fact, those large chunks of land along I-96 at the Lowell exit that are zoned industrial will probably switch to single-family residential at some point. I'm surprised a builder like Mayberry out of Lansing hasn't already done that. 

It would be interesting to see, and I've love to see it tried, is a new condo project within walking distance of downtown. I wonder how many units you'd sell per year. 

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3 minutes ago, temporary.name said:

That's exactly my point. It's Boomers who own that "desirable" (yes, I understand that is perspective) land. Whether it's HH, Walker, Creston, Midtown, or EGR; its Boomers who own the lion's share of that land and the houses on it. And no matter how much the buying power of other generations increases, some people just won't sell. 

Do you know that to be true? Or are you just speculating? 

I was surprised to read a stat that showed that almost half of households in the city of Grand Rapids are occupied by one person. I'm guessing elderly women are a big chunk of that. 

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24 minutes ago, GRDadof3 said:

I think you'll start to see more developments in areas like Walker/Standale, Comstock Park, Caledonia, even Kentwood may see a comeback for new homes.

Yeah, you look at WalMart and Menards on Alpine and what's directly behind?  Farmland.

I would think the area between 4 and 8 mile, Fruit Ridge to Alpine would be prime.  I'm sure the farmers there know it.

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12 minutes ago, arcturus said:

Yeah, you look at WalMart and Menards on Alpine and what's directly behind?  Farmland.

I would think the area between 4 and 8 mile, Fruit Ridge to Alpine would be prime.  I'm sure the farmers there know it.

That's why the Grand Valley Metro Council was pushing to set up large areas along "The Ridge" up there as preserved areas, no development zones. 

Everything in yellow on this Alpine twp master plan will probably be developed in the next 20 - 30 years. But some of that property up there is unsuitable for homes due to the decades of spraying for fruit crops, from what I remember. I think actually Pulte ran into issues related to that at the golf course property? English Hills? They were going to build a massive condo development? That was at least 10 years ago I think.

Everything in green you'll never see developed in our lifetimes or our children's lifetimes. Grand Rapids just isn't growing that fast. 

 

592432992d71b_AlpineTwp.thumb.JPG.71873c5c1ef892f3fea20cc594558dae.JPG

 

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In other economic news, more job growth in the Grand Rapids area for April 2017:

https://www.bls.gov/regions/midwest/mi_grandrapids_msa.htm

This also landed in my inbox from the NYTimes:

https://www.nytimes.com/2017/05/22/upshot/seattle-climbs-but-austin-sprawls-the-myth-of-the-return-to-cities.html?em_pos=small&emc=edit_up_20170522&nl=upshot&nl_art=0&nlid=77880896&ref=headline&te=1&_r=0

Cities are still sprawling. Only the largest cities in the US are seeing any kind of increased density in the city core. 

 

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On 5/19/2017 at 9:20 AM, x99 said:

Renting is always an option.  It's what you do instead of buying into a bubble.

Normally I would agree that renting is always an option. However, rent is going up at the same rate as housing costs and it has gone from a viable way to put a roof over your head to a gigantic waste of money. Come October, I will be paying $900 for a one bedroom apartment. Three years ago, this unit went for $750. Prior to living here, I paid $650 for a one bedroom unit. New management came in and it immediately jumped up to $900. It no longer makes sense to rent when for $100 more you can have a home and actually make some equity on it if the market doesn't crash again. However, when prices are as high as they are, $1,000 per month now gets you a 1940's ranch style house that needs a lot of TLC. Unless you put in that work and money to improve it, that's where the fear creeps in that you won't get any equity out of it when it comes time to upgrade. 

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40 minutes ago, GRDadof3 said:

That's why the Grand Valley Metro Council was pushing to set up large areas along "The Ridge" up there as preserved areas, no development zones. 

Everything in yellow on this Alpine twp master plan will probably be developed in the next 20 - 30 years. But some of that property up there is unsuitable for homes due to the decades of spraying for fruit crops, from what I remember. I think actually Pulte ran into issues related to that at the golf course property? English Hills? They were going to build a massive condo development? That was at least 10 years ago I think.

Everything in green you'll never see developed in our lifetimes or our children's lifetimes. Grand Rapids just isn't growing that fast. 

 

592432992d71b_AlpineTwp.thumb.JPG.71873c5c1ef892f3fea20cc594558dae.JPG

 

The farmland thing is definitely an issue. Grand Rapids is surrounded by farmland on all sides. Expansion into those lands comes with health risks due to tainted ground water as well as drift from fields being sprayed in the vicinity.  

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1 hour ago, GRDadof3 said:

That's comparing apples to oranges. This year there may be 120 home and condos built in the Allendale area (maybe more), and maybe 150 in Georgetown Twp. 

You don't know if that many homes can be built in Heritage Hill because there's no property to build on. The levels of scarcity are completely different. I do know that in any given year, almost 200 condos change hands in the "greater downtown Grand Rapids area" that includes Heritage Hill. 

I think you'll start to see more developments in areas like Walker/Standale, Comstock Park, Caledonia, even Kentwood may see a comeback for new homes. The days of large Forest Hills developments are over. Byron Center has a lot of farmland to fill in, between 84th and M-6 and 131 and out to Homerich/Wilson.  Lowell will probably pick up in the next 10 years. In fact, those large chunks of land along I-96 at the Lowell exit that are zoned industrial will probably switch to single-family residential at some point. I'm surprised a builder like Mayberry out of Lansing hasn't already done that. 

It would be interesting to see, and I've love to see it tried, is a new condo project within walking distance of downtown. I wonder how many units you'd sell per year. 

Hudsonville has been one of the biggest suburban success stories as well. I don't foresee that changing anytime soon as it starts to expand west and south into Jamestown.

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1 hour ago, GRDadof3 said:

This also landed in my inbox from the NYTimes:

https://www.nytimes.com/2017/05/22/upshot/seattle-climbs-but-austin-sprawls-the-myth-of-the-return-to-cities.html?em_pos=small&emc=edit_up_20170522&nl=upshot&nl_art=0&nlid=77880896&ref=headline&te=1&_r=0

Cities are still sprawling. Only the largest cities in the US are seeing any kind of increased density in the city core. 

 

It looks to be more of a Sunbelt/Legacy city divide based on the article.  That's not really new,  the corporate push to make Sunbelt cities seem more dense has been going on for decades but the are entrenched in a suburban culture/mind set.  Based on the data I see, I don't see how the GR urban area doesn't show increased core density.  My nerd butt has been breathlessly awaiting the release of the 2016 city estimates this week.   Perhaps I need other hobbies. 

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17 minutes ago, arcturus said:

Most of suburban Chicago was farmland once which I'm sure was treated with all sorts of nasty chemicals yet it hasn't stopped the sprawl.  What make GR any different?

Not wanting to point out the obvious, but I'd wager the  vast majority of suburban Chicago was developed and in place quite a bit before such things were taken in to consideration.  That said farmland in the area is being developed into Suburban/Exurban areas, especially in Ottawa County.   For some reason the northern part of the GR urban area is disproportionately under developed in comparison to the southern/eastern portions.  It appears it will largely remain that way for some time now. 

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11 minutes ago, MJLO said:

Not wanting to point out the obvious, but I'd wager the  vast majority of suburban Chicago was developed and in place quite a bit before such things were taken in to consideration.  That said farmland in the area is being developed into Suburban/Exurban areas, especially in Ottawa County.   For some reason the northern part of the GR urban area is disproportionately under developed in comparison to the southern/eastern portions.  It appears it will largely remain that way for some time now. 

That's what I'm saying ... exoburb development like Oswego, Plainfield, Huntley, New Lenox is going full tilt along with NW Indiana. 

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4 hours ago, arcturus said:

Most of suburban Chicago was farmland once which I'm sure was treated with all sorts of nasty chemicals yet it hasn't stopped the sprawl.  What make GR any different?

How apple orchards were/are treated is different from your typical corn/hay/alfalfa rotated farmland. One property in Alpine Twp was eligible for brownfield due to the cleanup needed. It was a retired apple orchard.

4 hours ago, GRLaker said:

Hudsonville has been one of the biggest suburban success stories as well. I don't foresee that changing anytime soon as it starts to expand west and south into Jamestown.

Georgetown Twp only has a handful of developments going right now. Probably the lowest number in 10 or 15 years. 

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22 hours ago, temporary.name said:

This isn't a bubble. Bubbles are artificial and there's nothing artificial about the lack of available homes for sale. 

My concern is that the affordability metrics are starting to get out of whack.  The prices are higher than the incomes ought to be able to support. That usually turns into a problem.  Hopefully not, but I guess we'll see.

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14 hours ago, x99 said:

My concern is that the affordability metrics are starting to get out of whack.  The prices are higher than the incomes ought to be able to support. That usually turns into a problem.  Hopefully not, but I guess we'll see.

There isn't a "bubble" like there was in the last runup of the real estate market. The major difference is that in the last one, a huge percentage (maybe half?) of mortgages being written never should have been written. It was funny money, 5/1 ARMS, 0% down, bridge loans, appraisals were being forged and exaggerated. As soon as the cat was out of the bag, it was halted and the market crashed. 

This appreciation in the market is actually based on sound economic principles, a lack of supply (scarcity principle). In most markets, new players would enter the market to help reach an equilibrium between supply and demand. The problem though is that the barriers to entry for residential development are huge. So then what? Does the government enter the picture as a housing developer, like China? I guess in some ways it has with the LIHTC program. And like the programs talked about previously in places like Boulder, Colorado.

The smallest brand new home today pretty much starts at $220,000 - $250,000.  That means a household income of probably $50,000 - $60,000 in order to purchase at today's rates. How does that stack up with our regional average of household income? 

I even saw a home in East Hills recently sell for $299,000 that was completely renovated. 

http://www.realtor.com/realestateandhomes-detail/1029-Hermitage-St-SE_Grand-Rapids_MI_49506_M32329-26025

I think with these kind of price increases, people will just start looking at other areas.

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Completely non-saracastic question. :) Why is the barrier to entry so high for residential developers now vs 15 years ago? Just curious. Back then, you saw Pulte and Eastbrook building multiple large developments in tandem. I know Pulte is gone, but why do you think you don't see that today? You'd think Rockford, Forest Hills Eastern, etc. would be ripe for another large development (or three). 

Is it a lending problem? I've always been surprised that while there is lack of available housing, you don't see many major housing developments being built or even planned. 

Joe

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19 minutes ago, joeDowntown said:

Completely non-saracastic question. :) Why is the barrier to entry so high for residential developers now vs 15 years ago? Just curious. Back then, you saw Pulte and Eastbrook building multiple large developments in tandem. I know Pulte is gone, but why do you think you don't see that today? You'd think Rockford, Forest Hills Eastern, etc. would be ripe for another large development (or three). 

Is it a lending problem? I've always been surprised that while there is lack of available housing, you don't see many major housing developments being built or even planned. 

Joe

I spelled out all the reasons in a post above. ^^^^ :)

) Lack of large chunks of available land adjacent to existing water and sewer

) Lack of developers willing to develop land. It takes years and a lot of cash to get a development approved (you can't generally get financing from a bank to do it). The risk is huge and the rewards are shrinking as development costs rise.

) In many larger markets, the (national) builder acts as the developer and can take relatively small margins on the lots and make it up on the homes. We only have a handful of builders here who act as their own developer (Eastbrook being one). Most builders here are small and don't have the capital to develop their own projects. Keep in mind Eastbrook is building about as many homes now as they were during the peak. I heard rumors that they're telling buyers that delivery of a new home is at least a year out if you buy today. That's insane. It's usually 6 - 7 months. 

) Commercial lenders are more than willing to help get developments get going, once all the approvals are done and the engineering work is done. They're actually encouraging growth. But only to seasoned veterans who know what they're doing (and many of those guys are getting close to retirement age).

) If you ever wanted to get into a high risk field, land development is it. If you can pick up a 10 acre parcel for $300,000, get the entitlements (rezoned, approved, etc.), and if it's zoned R-1, you can maybe get 25 - 30 lots that will fetch $65,000 - $75,000. But half of your $2 Million revenue will go toward roads, tree removal, excavation and infrastructure, so $700,000 profit hypothetically speaking. And it will take you about 3 years to sell all those lots and get your $700,000 profit (you're usually the last to get paid in a development project), assuming the market stays strong. :)

Oh and you have to pay for much of that in cash up front, lol.

Also, Pulte has pretty much been replaced by Allen Edwin Homes in this market, as the #2 or #3 builder depending on sub-market. Then you have Jim Tibbe Homes and their sister company Interra Homes, and even Bosgraaf Homes has come back after being dormant for a number of years. 

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32 minutes ago, GRDadof3 said:

There isn't a "bubble" like there was in the last runup of the real estate market. The major difference is that in the last one, a huge percentage (maybe half?) of mortgages being written never should have been written. It was funny money, 5/1 ARMS, 0% down, bridge loans, appraisals were being forged and exaggerated. As soon as the cat was out of the bag, it was halted and the market crashed. 

This appreciation in the market is actually based on sound economic principles, a lack of supply (scarcity principle). In most markets, new players would enter the market to help reach an equilibrium between supply and demand. The problem though is that the barriers to entry for residential development are huge. So then what? Does the government enter the picture as a housing developer, like China? I guess in some ways it has with the LIHTC program. And like the programs talked about previously in places like Boulder, Colorado.

The smallest brand new home today pretty much starts at $220,000 - $250,000.  That means a household income of probably $50,000 - $60,000 in order to purchase at today's rates. How does that stack up with our regional average of household income? 

I even saw a home in East Hills recently sell for $299,000 that was completely renovated. 

http://www.realtor.com/realestateandhomes-detail/1029-Hermitage-St-SE_Grand-Rapids_MI_49506_M32329-26025

I think with these kind of price increases, people will just start looking at other areas.

All great points. Although, with most Millennials and late Gen Xers having high student loan debt today, I would argue that $60,000 - $70,000 is more likely needed to afford a $220,000 - $250,000 home. I'm sure there is a statistic out there on this, but I would wager that the average income of a college educated person in this area falls in that $50-60,000 range. 

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2 hours ago, GRDadof3 said:

I even saw a home in East Hills recently sell for $299,000 that was completely renovated. 

http://www.realtor.com/realestateandhomes-detail/1029-Hermitage-St-SE_Grand-Rapids_MI_49506_M32329-26025

I think with these kind of price increases, people will just start looking at other areas.

Very interesting to see a rehab like that in an area of homes where many appear to be in fair to poor condition.  I guess it's a street right between the hot Fairmount Square/Cherry and Fulton business districts, and that's what's driving it.   It will be interesting if we will see more of this in that area? Maybe there has been and I just don't know.

With regard to housing developments, It appears Koetje Builders has given up finishing out the River Road Farms subdivision in Comstock Park. They started developing that property back in the 1990s and built homes there till the downturn. I think Koetje still own 45 acres there, and is trying to sell it off as a single house site instead.

http://www.grar.com/property/mls/15034128

Edited by mpchicago
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13 minutes ago, mpchicago said:

Very interesting to see a rehab like that in an area of home where many appear to be in fair to poor condition.  I guess it's a street right between the hot Fairmount Square/Cherry and Fulton business districts, and that's what's driving it.   It will be interesting to see if we will see more of this in that area?  Maybe there has been and I just don't know.

With regard to housing developments, I think Koetje Builders appears to have given up finishing out the River Road Farms subdivision in Comstock Park. They started developing that property back in the 1990s and built homes there till the downturn. I think Koetje still own 45 acres there, and are trying to sell it off as a single house site instead.

http://www.grar.com/property/mls/15034128

Here's a property for ya in Ada/Forest Hills, approved for 6 or 7 homesites. Only needs 3000 cubic yards of "dump waste" removed before you can get building permits. :) (in the sellers disclosure docs)

http://www.realtor.com/realestateandhomes-detail/556-Pettis-Ave-NE_Ada_MI_49301_M32584-52646

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48 minutes ago, GRLaker said:

All great points. Although, with most Millennials and late Gen Xers having high student loan debt today, I would argue that $60,000 - $70,000 is more likely needed to afford a $220,000 - $250,000 home. I'm sure there is a statistic out there on this, but I would wager that the average income of a college educated person in this area falls in that $50-60,000 range. 

$70k is tight for one of those "starter" new homes.  $70k in household income can only afford a $215,000 house, assuming about $500 in other monthly debt payments (car loan, student loans..)  But there are a lot of people with that income level doing a streeeeeetch up to a $280,000 house which is where it starts for something that isn't a joke of a new house. If you actually want to be realistic, throw in daycare costs for that young family with two college grads making $50,000 each with a $100,000 household income.  They can just barely scrape into a $270,000 house with no student loan debt.  Throw in a couple student loan or car payments, and you're back at $200,000 for a house even on a $100,000 household income.   

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