Real Estate Recovery Slumps; Investors Head to Grand Rapids

Grand Rapids Attracts Investors

Grand Rapids, Mich., is experiencing a resurgence in the home market and attracting investors with deep pockets from outside the state.

According to Realtor® Josh DeLong, his hedge fund clients have millions to splurge, and he is buying up apartment buildings and single-family homes for his clients. DeLong has bought some 20 properties in the greater Grand Rapids area, according to news reports.

“We would like to have in the range of 200 buildings. It just depends, those numbers could go up,” DeLong said.

DeLong, on behalf of his clients, is investing in distressed and foreclosed homes. Depending on the home, his clients are either investing in fixing and flipping the properties or managing them as rentals.

“What we’re looking to do is buy in areas in such a way that we can help rebuild those markets and raise property values,” DeLong said. “We’re looking for the distressed homes that have been overlooked in the past and are looking to buy strategically in certain areas.”

Is There a Stall in the Rebound?

While Grand Rapids celebrates a spike in housing activities, there’s morbid news elsewhere. Nationally, the rise, fall and rise cycle of the housing market seems to be unending.

In March, sales of previously owned homes dived 7.5 percent compared to the year-ago period. That’s the slowest pace in two decades. New home sales

also spiralled 14.5 percent downward when compared to February. As if that wasn’t bad enough, mortgage applications dropped 21 percent compared to a year-ago period.

The last bit of news is a big blow because it signals waning buyer interest in the market leading up to the most important season for homebuying.

Rising mortgage rates have scared off many potential buyers. With the Federal Reserve reducing its bond-buying program, rates are not expected to hit rock bottom again anytime soon. The excitement among investors is also tapering off – another indication that the market is weak.

“The very-low-rate environment and the high level of investment activities really masked how weak the housing market was,” Sam Khater, deputy chief economist at CoreLogic told Bloomberg. “Once it goes back to the normal owner-occupied purchase market, you really realize how weak the market is.”

The downhill slump of the industry is having ripple effects elsewhere. According to Bloomberg, residential investment, including construction of single-family and multifamily homes, residential remodeling, and brokers’ fees, accounted for 3.1 percent of gross domestic product in the fourth quarter. What’s worrisome is that’s less than half the 6.6 percent contribution in 2006.

“The apparent crumbling in the housing recovery has, at least temporarily, removed a valuable support to GDP growth,” said an April 28 report by Capital Economics.

Markets such as Phoenix and Las Vegas, which were the rising stars in the last few years, symbolizing a beacon of hope for the industry, are also experiencing a downturn. Investors poured money into those markets, thereby inflating home prices. The investors are now holding on to their purse strings and traditional buyers aren’t coming to the market’s rescue. For many, mortgage rates and high prices are the biggest hurdles.

“We’ve had a boom, and we’ve had a bust – and those were all national events,” Mark Palim, vice president for applied economic and housing research at Fannie Mae, told Business Week. “Now that national drivers are less significant to the market, you’re seeing the re-emergence of local economic factors.”

In many cities, despite positive job growth, potential homeowners find themselves priced out of the market. Lawrence Yun, chief economist for the National Association of Realtors® told the magazine that home sales will decline 2 percent this year. “Housing is a victim of its own success,” he says. “It’s just that the fast price growth is not healthy.”

Real Estate Recovery Slumps; Investors Head to Grand Rapids

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