After years of incandescent real estate activity, the housing market is finally showing signs of slowing down.

Nationally, rising interest rates, rising housing inventories and fewer buyers are driving a sea change in a market that, until recently, felt like an out of control freight train. But are the days of sky-high prices and 12-buyer bidding wars over, or is this downturn just a fluke? And how much of an exception will popular markets like Traverse City be, if and when the economy plunges into a recession?

We asked the leaders of the city’s four major real estate agencies to comment on this and more. They are (pictured clockwise from top left): Tommy Corbett, Brick & Corbett Team Leadership Team, RE/Max Bayshore; Bart Ford, Regional Vice President, Coldwell Banker Schmidt; Dennis Pearsall, President of Northwest Michigan and Franchise Divisions, Real Estate One; Brad Platt, owner, broker and co-founder of Century 21 Northland.

Ticker: Where will the US real estate market be in a year?

Platt: I spoke with two of our top agents this week and they both mentioned the same thing: “I feel like the market is changing every day right now.” It’s new and I find it exciting. Some buyers have just been discouraged by rising interest rates, but there is still a ton of cash left. We also have a large segment of sellers who wanted to sell and fear they may have missed or are missing out on a phenomenal seller’s market. Finally, a recession will and is expected to occur within the next 12 months; we need a reset for various positive reasons.

Corbett: The days of double-digit price appreciation are over. We will return to a more normal 4-5% price appreciation for the next few years. Inevitably, higher interest rates lead to fewer buyers and the remaining buyers will have reduced purchasing power. Demand will decrease, thus mitigating price appreciation.

Pearsall: We think it will be about 8-10% slower than the current market for homes sold. Values ​​should be higher, but by a smaller percentage – perhaps around 4% in some markets, a slight drop in others. Some warm markets may see a larger increase: South and Southwest are stronger, Midwest and West Coast higher priced, slower. Lifestyle markets will continue to benefit from workers becoming less tied to a workplace, in places like Austin, Charlotte, Phoenix, Seattle and Northwest Michigan. These areas will outperform less desirable markets, such as Chicago, Detroit, New York and Los Angeles.

Ford: I think the US real estate market will be very healthy in 2023. We should expect mid to high single digit appreciation, as opposed to 16-18% appreciation as we have seen in 2020 and 2021. Interest rates will fluctuate based on inflation, which is expected to fall from the 9% rate we’ve all experienced over the past year (which was) the highest rate in the last 40 years.

Ticker: What about the TC market? Are we safe from a potential accident or are we going to experience a rude awakening?

Platt: Overall I would say we are isolated, just like we were the last time we had a recession. Our market will change, but the intense desirability of this region will help us immensely. Our housing stock in the Five Counties area was very high before COVID, when the pandemic hit and changed the way we live, potentially forever. As of June 2020, the Five Counties area had approximately 1,600 residential homes on the market. In June 2022, there were approximately 800 residential homes on the market, of which only 556 are available and not awaiting sale. For a more historical perspective, just five years ago, in 2017, we had approximately 2,300 properties on the market. And if you look back 10 years, we had about 3,500 on the market. Thus, although the market is changing, inventory levels remain historically low. Until that changes, demand will remain high.

Corbett: Most economists and housing experts do not foresee a real estate crash in TC or elsewhere. The housing crash of 2008 is still fresh in the minds of many buyers and sellers, but today’s market is different. Lending standards are stricter due to lessons learned and new regulations enacted after the last crisis. We believe TC is insulated from large price swings, compared to many other parts of the country due to high demand and low supply. Demand will continue to be strong because people want to live here – especially retirees, young families and the work-from-home generation. Supply will struggle to catch up with demand as there is not enough inventory or new construction.

Pearsall: Northwestern Michigan is largely isolated from major declines. We think there will be a reset from the record activity of 2020 and 2021, but we don’t expect much, if any value reset. Even during the Great Recession, home values ​​in Northwest Michigan did not fall like other markets. Homes tend to be less leveraged and less susceptible to financial pressures to sell, which keeps prices more stable. That said, with the great flood of interest in the area during the pandemic – and the resulting reduction in inventory – the number of home sales has recently declined and will continue to do so, likely down 6-7% over the next 12 months from the current pace, which is already down 10% or more from the 2021 peak. This is still good real estate activity, given the incredible record pace of last two years. Some believe the market for homes priced above $1 million could cool as outside demand slows.

Ford: I don’t see a crash coming because there haven’t been a ton of piecemeal mortgages written in the last 10 years like there were in 2008, 2009 and 2010. A housing bubble is also happening when there is an inventory gluttony and that is certainly not the case here.

Ticker: What’s the biggest problem facing the local market: not enough affordable housing, short-term rental issues, too many vacation homes and second homes, or insufficient inventory?

Dish : Inventory. When our economy collapsed in 2008, a very large portion of our construction workforce left to work. Many of these people did not return. The houses were not built for many years. It is a very difficult situation to overcome and it will take us a long time to catch it, if ever.

Corbett: Inventory. The nation still suffers from a housing shortage that has reached crisis proportions at a time when many millennials are reaching the age where they are beginning to consider home ownership. This should continue to drive prices up.

Pearsall: Inventory. Even though demand has slowed, there is still a steady trend of lifestyle changes to Northwest Michigan. As a result, inventories are below demand levels, especially for mid to low priced markets.

Ford: Inventory. There are not enough housing starts to keep pace with household formation. Builders are booked with custom work, and the low inventory market — along with inflation — has driven prices up.

Ticker: If you had to give one “big idea” that you think could help solve the area’s real estate problems in the long term, what would it be?

Platt: Stay realistic and keep in mind the desirability factor of where we live. It is an absolute paradise for many people and always has been. For the past 30 years, the question has been, ‘I really want to live there, but what am I going to do to make a good living?’ This question is no longer as relevant as it used to be. If traffic during the Cherry Festival gets you down, take a vacation to our charming Upper Peninsula and step back in time. Traverse City and surrounding areas will not shrink or become less busy. This area will grow. Period.

Corbett: The answer to many of our local challenges – real estate and otherwise – is density. We need more people to be able to live in and around TC. The main obstacle is the lack of affordable housing. The only real solution is to have zoning laws that encourage greater density – including taller buildings, more homes per acre, and ancillary housing.

Pearsall: Make it easier from a municipal regulatory perspective to build affordable housing, allow higher density to reduce costs, and find creative ways to subsidize affordable homeownership for local workers.

Ford: I try not to use the word recession, because it has a negative connotation. But the real definition of a recession is just two consecutive quarters of falling GDP. I don’t want to say that’s going to happen, but it’s all going in that direction. And is it the end of the world? No, it’s not the end of the world. With a recession, I think interest rates will come down, and I think that will bring some balance to our market.

This story is excerpted from a longer article in the August Traverse City Business news. To read the full article and receive your own printed copy each month, subscribe here.