Group sees GR housing prices rising

GRAND RAPIDS, Mich. (WOOD) - Out of 315 markets, a national real estate research company ranks Grand Rapids #7 for best expected price performance over the next year.

That's good news for buyers and sellers.

For buyers, they now know the price they pay will likely appreciate. For sellers, they now know it's time to put their home on the market.

The research company, Local Market Monitor , is used by investors and banks to forecast home price. The company predicts home prices will go up 2% in the next 12 months compared to the rest of the country which is expected to see growth of 7/10 of 1 percent.

The company states that current prices are "in balance," meaning the market is low risk for investors. The company sets "equilibrium" prices for each market. That price is $153,369. When a market is in balance, the actual price is within 15% of that.

And the trend could continue. Local Market Monitor expects prices to go up 2% each of the next three years.

The forecast is quite a turnaround. Over the past five years, home prices fell 16%, with the biggest decline in 2010. The market peaked in the last quarter of 2005, when the average home price was $161,239. The average home price is now $135,950.

Homeowner Mark Gephart can testify to that. He decided against putting his house on the market when realtors told him he needed to change the paint colors through most of the house and he would get $50,000 less than he was expecting. Gephart would have considered it if he could have found a good deal on a better house, but he could not find any that appealed to him.

Realtor Deb Schuhman of Keller Williams is not surprised by the depleted inventory of attractive homes. Many homeowners are like Gephart, with nice homes but refusing to take rock bottom prices for them.

Local Market Monitor uses several indicators to forecast prices, and all of their indicators are positive for the Grand Rapids housing market.

Total housing permits are up 16% over last year, and all of those permits are for single family homes. Local Market Monitor explains that the risk in lending to homeowners is highest when the number of permits is very high or very low. Builders are considered good forecasters of the market. LMM points out that permits fell well before prices did in the most recent housing crash.

Rental vacancy rates fell nearly 7%, and employment in the area is up 1.3% over a year ago while the rest of the country saw .7% job growth. There are a number of ways investors interpret inventory data.

Carolyn Beggs of Local Market Monitor explains.

"There are owner vacancy rates and rental vacancy rates, so I think this question is dependent on which type of vacancy rates you are referring to. When owner vacancy rates drop (because there is less inventory available on the market), home prices increase and therefore renting is the more desirable option. This relationship reverses if vacancy rates rise however. In Grand Rapids, the vacancy rate drops, there is less inventory available, therefore supply/demand would indicate that home prices will actually rise, not fall.

Schuhman says she'll believe the optimistic forecast when she sees it.

"From what I'm hearing there are more foreclosures coming down through the banks and that's going to peak at the end of the year and until those get into the market it's going to be hard seeing the market stablizing."

The other wild card is mortgage rates. Higher rates could turn buyers off.