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By Tom Koetsier, Real Estate Broker and President of the Rental Property Owners Association and Clay Powell, Real Estate Salesperson and Director of the RPOA

2011 is likely to be a mirror image of 2010 regarding the real estate climate in West Michigan. The housing market is poised to begin a gradual recovery, but the hurt and depth of the housing problem is too deeply entrenched to turn around in a short period of time. Scars run so deep, huge efforts will be needed on multiple fronts to solve the underlying issues.

With that said, there is reason to be cautiously optimistic. There are some very positive things coming to fruition in the coming year. Employers that promised to create new jobs through major investments are beginning the interview process with potential employees. Just recently, Farmers Insurance interviewed well over 1,000 job applicants at a career fair to begin the process of filling 1,600 jobs that will be created in the next 12 to 24 months.

Despite this great news, the rental market is likely to experience a slow recovery throughout the year at a pace similar to that of the last two years. The market will be good in the coming year but remain very competitive. Furthermore, there is still a lot of pressure on rental rates in the downward direction — not for every property, but for most.

Prices for residential sales are also likely to stay flat over the next 12 months. Even though we predict that there will be more sales, the huge glut of foreclosed properties on the market with more coming down the pipeline will hold down prices. New buyers are looking for discounted prices and finding them through short sales and auctions.

The situation for real estate investors, in general, is a little dicey. Investors’ hands are often tied. Banks have yet to loosen up their purse strings. The box that underwriters have drawn for qualifying borrowers is very small. Even longtime successful investors are finding fitting in the box a challenge. Investors can’t get the loans to expand their business, and new regulation and oversight make it hard to sell assets because of competing bank inventories and new laws regarding seller financing and mortgage brokerage.

Furthermore, some investors are still wary of entering the market because of all the hurdles or for fear of further downward pressure. They sit on the sidelines or, at best, move ahead very cautiously.

Additionally, there exists a large amount of pent-up seller demand on the part of landlords. Many would like to get out of the business but can’t due to lack of equity or too few buyers. Those that must sell end up in trouble and have to resort to short sales, which puts further downward pressure on prices.

Cash investors will still be king in the buying and selling market this year. If you have some cash to invest, opportunities abound. The environment to buy is still fantastic. The possibility exists to purchase an inexpensive home and, with very few repairs, have a very presentable rental property. Within a short time, that investment could be paid off and produce excellent cash flow for years to come. Possibilities also exist to buy in very desirable neighborhoods, rehab like new and resell to first time homebuyers to everyone’s benefit. The neighborhood gets improved, the local government gets a property returned to the tax rolls, jobs are created and the new homeowner has a place to raise a family.

In summary, as long as the market continues to be controlled by large amounts of inventory and driven by the low price points of REO properties, the recovery will be gradual at best. Job growth and a loosening of credit restrictions will be positive steps for the housing market.

Hopefully, confidence in an improving economy in 2011 will breathe some life into the housing market and we will begin to see the challenges of 2010 dissolve into history. The present housing climate does create numerous positive factors for landlords and investors — especially those in it for the long term. Investors hold an important key to the solution of the housing problem as they often lead the way in purchasing houses and rehabbing them into productive assets.