GRDadof3

West Michigan/Grand Rapids Economy

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It doesn't do any good if your rental company stock goes up but your buying power for a home goes down. Even if you sell in an up market and make gains on your home, you're also buying in an up market and pay more. Any undue pressure on a housing market from outside investors/flippers is never good for any real estate market. Look at the runups in Miami, Vegas, Phoenix and other hot markets. Those housing markets still have not purged all of the massive number of foreclosures they had, unlike West Michigan. 

Are we in a better position because the majority of new housing starts are coming in the form of multi-family?   If population growth continues as it is will bigger home builders get back in the market?

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It doesn't do any good if your rental company stock goes up but your buying power for a home goes down. Even if you sell in an up market and make gains on your home, you're also buying in an up market and pay more. Any undue pressure on a housing market from outside investors/flippers is never good for any real estate market. Look at the runups in Miami, Vegas, Phoenix and other hot markets. Those housing markets still have not purged all of the massive number of foreclosures they had, unlike West Michigan. 

The foreclosure "crisis" actually wound up cleaning up an enormous number of trashed houses.  What I'm seeing of now, though, are a bunch of badly done flips that aren't getting asking prices.  That's actually a good sign.  The rental market, on the other hand, has me worried.  A lot of inventory is going to come online that was built with zero regard for market demand.  It was simply, "build, build, build" and it could all end up very badly.  We'll find out in about two years when the initial leases come up for renewal (and the allure of "brand new" has lost a little bit of its shine).  If we find out in a year because they can't even rent the huge amount of new stuff coming online... well, let's hope not.

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Correct me if I'm wrong, but I'm hoping a lot of outside interest comes in to build new rental projects for my sake, as a renter.  I live in Heritage Hill at a rental rate that is essentially a steal, but that will be ending in 9 months as the landlord moves out and converts it into a 3-bed rental rather than a 1-bed rental.  I worry about with the high demand for rental and not enough stock lessening that demand, that I may be priced out of downtown and forced back into the suburbs.

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The foreclosure "crisis" actually wound up cleaning up an enormous number of trashed houses.  What I'm seeing of now, though, are a bunch of badly done flips that aren't getting asking prices.  That's actually a good sign.  The rental market, on the other hand, has me worried.  A lot of inventory is going to come online that was built with zero regard for market demand.  It was simply, "build, build, build" and it could all end up very badly.  We'll find out in about two years when the initial leases come up for renewal (and the allure of "brand new" has lost a little bit of its shine).  If we find out in a year because they can't even rent the huge amount of new stuff coming online... well, let's hope not.

 

I guess it depends on where you stand, because I'm not really all that concerned if the apartment developers experience a "correction" in values. They have multiple layers of financing and investors that can absorb that. Me on the other hand, as someone who owns two homes and will probably buy or build another in the next year or so, will get hit with artificially rising prices on the buying side; up to a price that I'll be lucky to get as a resale 5 or 10 years from now. Like temporaryname mentioned, the market is getting almost to a point where everyone is buying high. It's supposed to be buy low, sell high.

Like people who bought in 2006 and 2007 who are lucky if they're getting what they paid for their homes now. People who bought in 2002 and 2003 are enjoying some pretty healthy gains in their house values, so they're sitting on them (why the number of listings is anemically low) or tapping into home equity to do renovations aka HGTV/Houzz/Pinterest style. 

Artificially inflating a market or "hyping" a market to outsiders is almost always a bad idea when it comes to a local mid-sized housing market, rental or otherwise. Then we have HGTV stars in town giving seminars trying to make every Tom Dick and Sally a house flipper. I'm going to go out on a limb and say that the first Powerpoint slide they show is one showing Grand Rapids as the #2 rental property market in the country with a 1.6% vacancy rate..

The end result is that housing and rents become unaffordable for a large segment of the population. In retrospect I probably shouldn't have posted the report. :) 

 

Edited by GRDadof3
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I haven't really gotten the sense that we are seeing an overbuild situation in apartments in Grand Rapids, even if everything that has been proposed actually gets built. Overbuilding apartments will only lead to lower asking rents, which will allow an even greater share of the population able to afford the units. Additionally, some developers may have plans to convert their product to condos if values reach a certain price threshold. 

Grand Rapids has lagged in population and economic growth for decades. We may have turned the corner, where GR now attracts population and economic growth that historically went elsewhere. If that is the case, then outside real estate investment is a great macro-economic indicator.

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Ask people in growth areas like Seattle, Denver, Phoenix, etc whether they felt they were 'buying high' 15 - 20 years ago, or even 5 years ago in certain locations.  My guess is they would all say yes.

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Micro Units?

Amen.  It's called a studio, and we used to build lots of them.  Good move.  

 

As far as crashing rents, my concern is that it can bring construction to a huge halt while dealing with the overhang, and scare off investment for a long time to come.  It may not happen, but it frightens me when I hear an unnamed lead developer say he has no idea what the demand will be for their units, or where they will price them.  That's craziness.  With condos you at least had some sort of pre-build commitments.  

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A studio is more of a single-room unit, where there is no separate bedroom.  It's a multi-use room, kitchen, bathroom, and closet.  They aren't always micro, there are some large studios.

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At some point, something's gotta give, right? 

http://www.rejournals.com/2015/11/09/lack-of-supply-slowing-the-growth-of-west-michigans-retail-market/

While I get what they're saying about the retail being added in the small mixed use projects, I think Collier's report is talking more about large-scale retail (lack of supply). 

 

And in other hiring news: 

http://www.crainsdetroit.com/article/20151108/NEWS/311089998/west-michigans-it-community-is-booming-but-struggling-to

Edited by GRDadof3

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Funny, that in 1500 +/- words they never addressed offering higher wages to better address the increased competition in the marketplace... even as the sidebar notes the significant difference between our local market and the national market. There is no talent gap. There is a wage gap.

100% agreed. It sounds to me her problem is attracting and acquiring the talent, not that the talent isn't there. Case in point: "We are not in an era where people are sending in résumés," 

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Funny, that in 1500 +/- words they never addressed offering higher wages to better address the increased competition in the marketplace... even as the sidebar notes the significant difference between our local market and the national market. There is no talent gap. There is a wage gap.

It may be a problem, but it may not be as big a problem as it appears.  You would need to get down to nuts and bolts to determine whether wages in areas with extraordinarily high costs of living are skewing this.  A programmer making $88,000.00 a year in Grand Rapids is living a whole lot better than one making $100,000 in NYC or San Francisco.  The gap versus the rest of Michigan is very slight.  That said, our tight (and increasingly expensive) housing market may play some role in making West Michigan less attractive than the east side of the state.  

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It may be a problem, but it may not be as big a problem as it appears.  

No, it is as big as it appears. IT more easily transitions to work from home than other industries so cost of living isn't as big of a issue as it would be with manufacturing staffing. But even manufacturing is having trouble finding staff. The skilled tradesmen (journeymen, electricians, die makers, milwrights, etc) are all old baby boomers and because college is the only answer (yea right), there have been very little apprenticeships needed to back fill those positions. West Michigan is booming but only for a little while until the boomers expire at greater rates. We have to either 1. up the wages to entice people to move. 

2. suffer the decades long work of educating a workforce beyond being an engineer or a marketing specialist. 

3. do both at the same time.

 

I like number three the best. 

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Skilled workers of any sort are very hard to find in the West Michigan area.

Many companies are using recruiting firms to optimize the search and many are offering relocation packages to potential hires.

Culture and a "cool" downtown can perk the ears of potential outside hires, but it is the housing costs, availability and location that will determine whether or not they take the deal.

We have a Manufacturing spine here in the area. At the core there is much movement and seasonal growth, but it is very very difficult to find people to work right now.  Part of it is low pay.  The other issue is that many of these manufacturers are located in areas, with a mismatched population based on the type of worker they need.

Many manufacturers moved away from cities and into rural areas, for lower costs, cheaper available land, and easier transportation of goods.  But the workers they would hire don't live in these areas.

 

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If there is low supply, then it's either because people don't demand the service or they demand it at lower than market rates. Plain and simple. There are plenty of geeks out there, they just happen to move to companies that pay to play, not ones that complain they can't attract talent. 

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I do not know what the advertised salaries for these positions are, I do know that average wage information lags current data.  I can tell you in automotive we are bringing people in at wages higher than the statistical state average for the position, and often with less than desired experience.    I have heard this wage argument before, but living in the midst of one of these battle sectors I just don't see it.  I have to imagine the tech firms in the area are smarter than that and likely are recruiting at wages higher than years old "area average" would suggest. 

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I kind of thought the jobs market might cool off a tad, but that doesn't appear to be happening (and anecdotally I read a lot more about companies hiring and expanding than layoffs). 

http://data.bls.gov/timeseries/SMU26243400000000001?data_tool=XGtable

20,000 more jobs than this time last year, or a 3.8% bump year-over-year, to 543,000 non-farm workers empoyed.  My guess is that will push the umemployment rate locally into the 2's percentage wise. 

Other peer MSA's:

Raleigh, NC: 1.5% annual growth rate, now within 30,000 workers of GR MSA at 577,000 workers

Rochester, NY: 1.1%, 540,000

Omaha: 1.8%, 498,000

Salt Lake City: 3.2%, 686,000 (on a very similar track as GR)

Richmond, VA: 1.0%, 641,000

Providence: 1.5%, 584,000

Des Moines - West Des Moines: 2.9%, 358,000 (not sure it's really a peer anymore)

Jacksonville, FL, 2.0%, 641,000

Hartford, CT, 1.6%, 581,000

Birmingam, AL 0.9%, 521,000

 

23185672641_3e07988b81.jpg

 

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2 hours ago, GRDadof3 said:

I kind of thought the jobs market might cool off a tad, but that doesn't appear to be happening (and anecdotally I read a lot more about companies hiring and expanding than layoffs). 

 

 

 

I was in 28th and Kzoo Meijer on a Saturday not too long ago at about 11 AM.  There was only 3 cashiers working.  The lines were massive.  All of the self checkout lanes were also packed.  I thought maybe they were trying to push more people to the self check out lanes.  Upon further investigation I found out that they literally cannot hire cashiers.  They have an immediate need for 15-20 more cashiers.  When they do get them and train them, too many times the lose them within months of hiring.  I am hearing stories like this all over our area.  It's pretty crazy.

 

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4 minutes ago, lighthousedave said:

I was in 28th and Kzoo Meijer on a Saturday not too long ago at about 11 AM.  There was only 3 cashiers working.  The lines were massive.  All of the self checkout lanes were also packed.  I thought maybe they were trying to push more people to the self check out lanes.  Upon further investigation I found out that they literally cannot hire cashiers.  They have an immediate need for 15-20 more cashiers.  When they do get them and train them, too many times the lose them within months of hiring.  I am hearing stories like this all over our area.  It's pretty crazy.

 

 

I heard a story recently, maybe it was last night even, that the new Hampton Inn at MidTowne Village sat for 3 months waiting for trim carpenters to do the interior work, because there aren't enough of them. 3 months?! 

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2 hours ago, GRDadof3 said:

I kind of thought the jobs market might cool off a tad, but that doesn't appear to be happening (and anecdotally I read a lot more about companies hiring and expanding than layoffs). 

http://data.bls.gov/timeseries/SMU26243400000000001?data_tool=XGtable

20,000 more jobs than this time last year, or a 3.8% bump year-over-year, to 543,000 non-farm workers empoyed.  My guess is that will push the umemployment rate locally into the 2's percentage wise. 

Other peer MSA's:

Raleigh, NC: 1.5% annual growth rate, now within 30,000 workers of GR MSA at 577,000 workers

Rochester, NY: 1.1%, 540,000

Omaha: 1.8%, 498,000

Salt Lake City: 3.2%, 686,000 (on a very similar track as GR)

Richmond, VA: 1.0%, 641,000

Providence: 1.5%, 584,000

Des Moines - West Des Moines: 2.9%, 358,000 (not sure it's really a peer anymore)

Jacksonville, FL, 2.0%, 641,000

Hartford, CT, 1.6%, 581,000

Birmingam, AL 0.9%, 521,000

 

23185672641_3e07988b81.jpg

 

What's interesting is that if you dig a little deeper into the numbers, the GR metro area initially peaked in Nov, 2000. It took a slump and then a decades long job stagnation, followed by the great recession. It wasn't until October 2014 that GR hit a new peak. The exciting things is that it looks like we're growing at a 90's like clip again!

 

Capture.PNG

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19 hours ago, GRDadof3 said:

 

I heard a story recently, maybe it was last night even, that the new Hampton Inn at MidTowne Village sat for 3 months waiting for trim carpenters to do the interior work, because there aren't enough of them. 3 months?! 

That was actually from me.  True story.  My wife and I know the guy that finally got the contract.

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5 hours ago, lighthousedave said:

That was actually from me.  True story.  My wife and I know the guy that finally got the contract.

I knew it was from you, I was just trying to be funny. ;)

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WSJ had a long article on this today.  The culprit is demographics.  For the first time since 1950, the global working-age population will drop.  Companies are running out of workers, customers, or both.  It explains why there's been a historically weak recovery while the unemployment rate has dropped by half.  

Workers are retiring at a rate greater than any decline in demand, creating a labor shortage.  Any areas IN demand?  Good luck.  Think about that a minute.

 

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