Local housing inventory will remain tight through end of year

Mid-year Economic Forecast

This home is for sale in Wauwatosa.

The Milwaukee metropolitan area’s housing market is expected to remain hot for the rest of the year, which is great for sellers, but will continue to be tough on buyers searching for the perfect home.

There is currently about two-and-a-half to three months of inventory (the time it would take to sell all of the homes on the market at a given time) on the market in the area, much less than the ideal six months that brokers like to see for a balanced market in which neither buyers nor sellers have the upper hand.

This home is for sale in Wauwatosa.

“Most brokers don’t ever recall it being this tight and the frustration is on the buyer’s side,” said Mike Ruzicka, president of the Greater Milwaukee Association of Realtors.

Sales were up 3.7 percent in June, but listings were down 2.9 percent compared to last year, continuing the extremely tight level of inventory, which is at 2.8 months, Ruzicka said.

For the first half of the year, sales in the four-county metro area were up 2.2 percent, while listings were flat with an increase of only 0.1 percent, compared to the first half of 2016.

A recent survey from GMAR found that 77 percent of existing homeowners believe now is a good time to buy a home and 58 percent of them believe homes are selling fast. But many potential sellers are still in a “wait and see” mode.

Ruzicka said after eight years of an economic growth cycle, and the current uncertainties in Washington, D.C., many people are hanging on to their largest asset: their home.

“Homeownership is a life decision, and there are numerous quality of life issues that impact an individual’s or family’s decision to purchase a home,” Ruzicka said. “Typically, those factors are questions of finding the right house in a good neighborhood, looking for a good school district, how far a neighborhood is from work, the cost, etc.”

Homeowners who have made it through the Great Recession are in a somewhat comfortable position and are being cautious with the equity in their home, he said.

Reasons for not selling a home, according to the survey, include the fact that many did a little remodeling in the past few years, refinanced their mortgage with rates at historically low levels, or are looking at retiring soon.

Homeowners also are bullish on the future of the market, with 54 percent saying that with prices still increasing, they want to see if their home will be worth more in the future.

Also, in many cases, people are nervous about finding a new house to move into, Ruzicka said.

Sixty percent of respondents said they want to purchase a smaller home or a condominium, which he said is very problematic for the region, where new home construction is still catching up to pre-recession production.

Milwaukee architect and developer Peter Renner is planning to build a seven-story, 72-unit condominium building along the Milwaukee River in the city’s Walker’s Point neighborhood. The $50 million project, called South Water Condominiums, at the corner of East Pittsburgh Avenue and South Water Street, would be the first condominium development in Milwaukee since 2008.

Housing starts in the greater Milwaukee area were up 15 percent in 2016 over the previous year, with more homes built for the first time since 2008, but are still lower than Ruzicka would like to see.

There were 1,618 building permits issued in the state in the first three months of the year, which is the latest data available from the Wisconsin Builders Association. During that time period, there were 23 permits issued in Milwaukee County, 220 in Waukesha County, 42 in Ozaukee County, 51 in Racine County and 70 in Washington County.

A 2016 National Association of Home Builders report found that, on average, local and state regulatory costs total $84,671 per home built, which has slowed the pace of new homebuilding across the state overall.

That, coupled with the cost of land, makes it difficult to build a new house in the area for less than $350,000, according to the Metropolitan Builders Association of Greater Milwaukee.

Despite the low inventory, home buyers are still sticklers for move-in ready homes.

“Buyers don’t want fixer-uppers,” Ruzicka said. “This is a dynamic that has existed for the last 15 to 20 years, so people selling might want to make sure their kitchen is up-to-date; otherwise, the price will take a hit.”

Average sale prices have surpassed their pre-Great Recession peak in the second quarter, by 0.1 percent, with an average sales price of $259,735 at the end of the second quarter for the four-county metropolitan area.  Second quarter average sale prices were up 4.7 percent from a year ago, with increases of 9 percent in Waukesha County to $317,570, 5 percent in Milwaukee County to $175,731, 3 percent in Ozaukee County to $316,843, and 1 percent in Washington County to $228,794.

But Ruzicka doesn’t believe buyers will be priced out of homes.

He said pre-recession, buyers were willing to offer up to $10,000 more than asking price to get the home they wanted. Today, buyers are offering more than asking, but only by about $1,500 to $3,000.

Appraisers are also holding down the prices, Ruzicka said.

“Before the recession, none of this existed but today, appraisers and buyers are going to make sure prices are not getting too out of control,” Ruzicka said. “It has been frustrating for a lot of sellers, and has realtors running around like crazy, but overall, I think it is a good thing.” ν

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