The demand for smaller homes, typically under $250,000, is larger than the current supply in the market, experts say.

The demand for smaller homes, typically under $250,000, is larger than the current supply in the market, experts say.

Photo by Tiffany Esshaki

Real estate still growing, but there’s more work to be done

By: Tiffany Esshaki | Birmingham - Bloomfield Eagle | Published February 26, 2019


BIRMINGHAM — Spoiler alert: The real estate market in Michigan, and in particular Oakland County, has been growing like gangbusters for the past several years.

You definitely know that’s true if you’ve been in the market for a home and encountered a bit of sticker shock.

And if you ask local real estate professionals, there’s no reason to expect that upward trend to change in the near future. But like anything else in life, the industry will need to make some changes with evolving times.

The Bloomfield Open Hunt Club was filled to the gills Feb. 22 with Realtors, developers, lending agents and other real estate professionals for the annual Real Estate Forecast, hosted by the Birmingham-Bloomfield Chamber of Commerce. The breakfast event started with some thoughts on the commercial real estate market in key areas of southeast Michigan, and wrapped up with speculation on trends for homebuyers.

Building up
Presenting on commercial real estate was Robert Pliska, the owner and managing director of SVN Property Investment Advisors. He boasts more than 40 years of commercial real estate experience and has secured more than $1.5 billion in real estate transactions.

So if Pliska is happy with the market in Detroit, its outer suburbs and even Pontiac, then the rest of us can feel good about it too.

The upward trends in Michigan’s economy, as cited during last month’s Oakland County Economic Forecast, reflect well on businesses and development. There are lots of startups setting up shop in the state, and even China is bringing business to town. Vacancies are down, sale prices are up, and the bottom line is that there’s building to be found everywhere.

“Detroit, obviously, is a story in itself,” Pliska said. “You saw back in 2011 we had substantial issues going on. We had (General Motors) going bankrupt and Chrysler going bankrupt; the city was going bankrupt. But now we have pretty much a complete turnaround. We’re kind of the story of the industry.”

He noted various areas of Detroit where growth is occurring, and the list is long. From downtown to midtown, Corktown to the Riverfront and Eastern Market to New Center, there are new developments everywhere. Chemical Bank/TCF’s new digs, Little Caesars Arena and company headquarters, the old Michigan Central Station now housing Ford Motor Co., and the list goes on. The new Hudson’s building going up downtown is expected to be the tallest building in the state, and the city’s theater district is booming, second only to Broadway in New York City.

Birmingham isn’t to be outdone, with the 127-room Daxton Hotel on its way to fruition, along with the new Brookside residences on North Old Woodward Avenue, the expanded parking and office space opportunities at North Old Woodward and Bates Street, and the old Peabody restaurant site right on Woodward Avenue, just south of Maple Road, which is on its way to being developed.

But the surprise underdog, Pliska said, would be just north of the Eagle’s coverage area: Pontiac.

“Pontiac is kind of an interesting story because what we have here is a city that’s typically been falling and lagging behind here in one of the richest counties in the country. Recently, in 2018, the phoenix has risen in the sense that a tremendous amount of things have happened in Pontiac,” he explained.

Pliska listed developments coming to the historic but largely dilapidated city: an $85 million investment from Shore Mortgage, a $14 million project at the Karmanos Cancer Center, and 14 new tech companies — $10 million worth of new startups — all coming to Pontiac.

So what does all this success mean for those in the commercial real estate game? Pliska said existing properties can enjoy a high sale price, and as development spreads, that makes for more opportunities to get into a hot new area early on with interest rates still hovering relatively low.

Be on the lookout, he said, for “Opportunity Zones” outlined by the Michigan State Housing Development Authority. The program incentivizes patient capital investments in low-income communities that have been cut off from capital and have experienced a lack of growth. That’s code for some nice tax breaks.

One major risk that Pliska noted is an issue with mobility. Metro Detroit is an auto-centric town existing on the precipice of an autonomous vehicle boom. How would the Motor City fare in an era of public transit and driverless cars? One might say the prognosis isn’t good, but Pliska said the Detroit Three aren’t going down without a fight.

“They say, ‘So goes the auto industry, so goes Detroit.’ Obviously, there’s some things we need to look at,” he said. “But that’s being counteracted. Ford bought the train station downtown, and that’s creating a mobility center. At Willow Run Airport, that’s been converted to 500 acres for autonomous vehicles. Electric cars, you just saw last week. Samsung just leased a $62 million facility in Auburn Hills.”

Not to be forgotten: marijuana. Pliska said the legalization of marijuana for recreational use could have a positive impact, before getting a big laugh from the crowd at the mention of the potential for “joint ventures.”

Settling down
Family trends should be front of mind for those in the residential real estate market.

John North, the CEO of Coldwell Banker Weir Manuel, said it’s an “interesting time” in the world of buying and selling homes because generations are starting to make life choices that could majorly shift the market.

But we’re starting from a good position.

“Birmingham, Bloomfield Township, Oakland County, (home values) are all up,” North said, noting increases of 4.3 percent in Birmingham, 6.8 percent in Bloomfield Township and 5.3 percent in Oakland County, keeping up with and even slightly outpacing the national median home value increase of 6.1 percent on average.

“It’s been good and rosy, and we’ve been riding this trend for the past 10 years,” he said. “That said, home sales in 2018 were down across the board. But that needs to be put into perspective, because 2017 was a record-setting year for home sales in the United States. So if we slipped 3.1 percent last year, it’s probably just a normal step back.”

The Eagle’s coverage area finished 2018 in even worse shape than that — with sales dropping 5.3 percent in Birmingham, 6 percent in Bloomfield Township and 6.4 percent in Oakland County overall.

Is that an indicator that buyers are straying away from the suburbs? Not a chance, North said.

“Millennials are the largest single generation of homebuyers ever, even more than baby boomers,” he said. “There’s that myth that they are so scarred from growing up during the recession that they’re not buying, and if they do, they’re opting for the inner city (for walkability).”

The truth is, according to North, millennials are looking for a suburban lifestyle just as much as their parents. And their considerations for lo

“The issue has been for us that (millennials) were forced to go into renting because they were delaying life choices like marriage and starting a family. So that means they were delaying buying homes. But that generation is aging out now, and they’re looking to form families.”

Now that there’s a huge pool of up-and-coming buyers in the market, how does the supply of starter homes look? Not great, North said.

“Boomers, at the same time, are looking to downsize. They’re competing with millennials for those starter homes,” he explained. “Or, boomers are staying in their homes and they’re choosing to add on (to house aging parents).”

Homes in the price range of $250,000 or less are few and far between. They’ve either been snatched up by a millennial or haven’t been vacated yet by an empty nester. North said that’s why developers should shift their thinking when it comes to creating housing.

“If a builder has a choice to build a $500,000 house or a $250,000 house, they’re going to opt for the higher one. But we need to get builders excited to build on the smaller end.”

Not only do millennials and baby boomers share a desire to purchase smaller, more efficient spaces, for the most part that’s all they can afford — with millennials in jobs that haven’t seen much wage growth over the past decade and boomers on fixed retirement incomes.

There’s a light at the end of the tunnel, though. The U.S. has enjoyed eight straight years of job growth, and the unemployment rate in Michigan has plummeted during that time from around 15 percent to less than 4 percent. Wages are slowly picking up, and those millennials are finally putting down roots and taking the plunge into making major investments. For at least the next 24 months, the housing market should be “just fine,” North said.

But before we take that sigh of relief, we need to consider now what new generations of families will want from their homes and communities in the future.

“Birmingham (is expanding) parking structures, but will we need them when we all have autonomous cars? And will we want (parking) meters when we can just have our plates scanned and the bill sent to our house? Will we even want garages on our homes?” asked North.