This year, construction of new homes, home sales and listings of homes for sale are down in southeastern Wisconsin, while foreclosures are up.
Single-family home sales in the region for the first five months of the year were 7,284, down 23.5 percent compared with the first five months of 2007 and down 31.1 percent compared to the first five months of 2006, according to the Greater Milwaukee Association of Realtors (GMAR).
Listings of southeastern Wisconsin homes for sale in May were 5,274, down 10.7 percent from 5,905 in May of 2007, according to the GMAR.
Southeastern Wisconsin foreclosures increased from 4,062 for the first half of 2007 to 5,468 for the first six months of 2008, an increase of 34.6 percent, according to a report by ForeclosureAlarm.com.
Nevertheless, residential realtors, developers and home builders are hoping that the area’s housing market slump has already hit bottom and the industry will slowly recover in upcoming months.
“If we’re not at bottom, we’re close to the bottom,” said Roy Scholtka, president of West Allis-based Coldwell Banker HomeSale Realty. “We’re kind of leveling off.”
“I think we really hit the bottom of the market during the fourth quarter of ‘07,” said GMAR president Mike Ruzicka.
“I think we’ve hit the bottom and are starting to head up,” said John Horning, executive vice president of Brookfield-based Shorewest Realtors. “I expect it to be a little more gradual.”
The declines in home sales and listings are a result of the end of the housing boom of recent years. The rise in foreclosures is largely the result of many buyers during the boom receiving adjustable rate subprime loans that they could not afford when the rates adjusted upward.
Fortunately, the Milwaukee area did not experience a massive residential real estate bubble during the housing boom, as some other U.S. markets did.
“In Milwaukee we never have the big swings up and we never have the big swings down,” Scholtka said.
Property values in the area have held steady, but have fallen significantly in some parts of the country that had overheated markets.
“We’re flat,” Ruzicka said of the area’s housing values. “Southeastern Wisconsin has weathered the credit crunch better than almost any market in the country.”
“Prices I think will probably maintain,” said Horning. “I don’t think they’re going to be jumping up drastically in the near future.”
The national media’s reporting of the housing market is skewed by the massive problems in bubble markets in California, Florida, Arizona and Nevada and in the struggling Michigan, Ohio and northern Indiana rust belt, said Jim Gillespie, president and chief executive officer of Parsippany, N.J.-based Coldwell Banker Real Estate LLC.
“I wish the national press would understand that all real estate is local,” Gillespie said. “It all depends on the particular market segment you are in, even in a single metro area.”
Southeastern Wisconsin’s residential real estate market is much more stable than the bubble or rust belt markets, Gillespie said.
“The heartland market (including Wisconsin) is not a great market, but it’s a good, solid market,” he said.
The problems with the residential real estate market have created a buyer’s market that is a great opportunity for first-time homebuyers who do not have to sell a home in order to buy. Therefore, many in the residential real estate industry expect first-time homebuyers to increasingly take advantage of this buyers market and lead the way in driving the market out of its slump.
Some buyers that have been waiting on the sidelines are starting to look at making a purchase, Scholtka said.
“People don’t want to see the train leave the station,” he said. “Now’s a great time for people to be looking for their first home.”
Realtors and developers are reporting increased traffic at open houses.
“There’s definitely more activity than there was early in the year,” Ruzicka said.
“Since April, the buyer traffic has picked up,” said Horning. “There is more traffic at open houses and on our web site.”
Buyers may not want to wait much longer to pull the trigger. Conditions could change and the market might not be so favorable to buyers within a year, Ruzicka said.
“I think we’re in a window right now that is probably going to close in the fall or winter with low interest rates, adequate supply and flat prices,” he said.
The Fed might raise interest rates to fight inflation. The buyer’s market has driven listings down and that should eventually erode the supply of homes on the market as buyers take advantage of the current favorable buyer’s market conditions. Prices will start to go up as the supply is absorbed, he said.
“There’s still a lot of (buyers) sitting on the sidelines, trying to time the market,” Ruzicka said. “That’s not a good idea. You should buy when conditions are right. Conditions are right, right now.”
In the city of Milwaukee, single-family home construction has been strong in recent years, and has largely withstood the housing slump, said Department of City Development commissioner Richard “Rocky” Marcoux.
The city had 218 housing units start construction in 2005, 190 in 2006, 212 in 2007 and 56 in the first five months of 2008.
Those numbers represent a remarkable recent turnaround for residential development in the city, Marcoux said.
“Twenty years ago (the city would) have been lucky to get one or two (single family home starts),” he said.
Developers are building single-family homes in the city on the far south side and northwest sides of town, and the city has also attracted single-family home developers to the area just northwest of downtown by assembling property, cleaning it up and installing infrastructure.
“We are making Milwaukee a very competitive place to build a home,” Marcoux said. “We are not subsidizing these homes. What we are providing is a shovel-ready site and the developer can make money.”
In downtown Milwaukee the condo boom of recent years has slowed considerably, but some large condo developments are still under construction and more are on the drawing board. The downtown condo market has a supply of about 1,200 units that are either under construction or are built but yet to be sold, Marcoux said.
The housing market downturn in southeastern Wisconsin has actually returned the market to a normal level compared to the recent boom years, realtors said. Listings in 2007 were historically higher than normal as buyers tried to take advantage of the overheated market, Ruzicka said.
“We’re just coming back to a normal market now,” he said.
Home sales are back to a level comparable to 2005, prior to the housing boom, Horning said.
“That’s still pretty good,” he said. “It’s definitely normalized.”
As the residential real estate industry looks to first-time home buyers to drive the market’s recovery, generation Y is getting ready to lead that charge, Ruzicka said. Prices and sales should pick up by the end of the year and into 2009. Then in 2010 the first members of that generation will turn 30, moving into the prime age for buying their first home. As that occurs, a huge number of first-time homebuyers will hit the market.
“That generation is about the same size as the baby boomer generation,” he said. “We’re already seeing (the impact of generation Y). They are buying earlier.”