If there is a housing bubble, and if it bursts, the economy as a whole would suffer, and that would also hurt the local commercial real estate market, according to many real estate developers and brokers.
"(A housing bubble burst) would shut down consumer spending," said Jack Jacobsen, NAI MLG Commercial. "Retailers would suffer. Manufacturers would suffer. If people are buying less, there’s less demand to manufacture products."
"If people’s homes are worth less, then their spending drops," said Sam Dickman Jr., vice president of The Dickman Co. Inc. "That hurts the whole economy. The residential (real estate) side and the industrial side aren’t directly related. But if people stop spending, it turns down real fast."
However, many commercial real estate professionals say a housing bubble burst would have little impact on the commercial real estate market because there is little relationship between commercial and residential real estate.
For example, the housing boom in downtown Milwaukee has had little impact, so far, on the downtown commercial real estate market, said Scott Welsh, president of Inland Companies.
"I don’t think there’s a huge connection between the housing market and the office market," he said.
"The factors affecting the commercial real estate industry are significantly different than the factors affecting single-family home sales," said Tom Bernacchi, vice president of Towne Realty Inc. "I don’t think there would be any significant effect on the commercial real estate industry (from a housing bubble burst). There may be some home lenders and mortgage brokers that go out of business, so that would hurt office occupants. But I don’t see it having a significant impact on retail, industrial or office."
"It’s not like there’s a one-to-one correlation (between residential and commercial real estate)," said John Czarnecki, vice president of Apex Commercial Inc.
However, anything that hurts the economy as a whole will hurt the commercial real estate market, he said.
"A negative impact on the economy hurts the commercial side," Czarnecki said.
Some brokers say a housing bubble may be forming on the coasts, but not in southeastern Wisconsin.
"I just don’t think things have gotten that out of line here like other places," said Gordon Steimle, vice president of commercial brokerage for Ogden & Company.
He said employees in the company’s office in Scottsdale, Ariz., have noticed much higher increases in housing values there.
"I don’t think Milwaukee is the kind of market that has the extremes that other markets have," Jacobsen said.
"I don’t think it’s going to burst," Dickman said. "Housing has generally shot up in value, held steady for a few years and then gone back up."
"It all depends on what happens with the interest rates," Bernacchi said." If interest rates stay within a point of where they’re at today I think (housing market growth) is going to continue. It’s still the lowest anybody has seen for a long time."
Stable Milwaukee
"One of the problems when you start to talk about froth or a bubble is that people come to associate any increase with a bubble. In Milwaukee, there’s a lot of pressure on the secondary market. (But) there’s not a lot of secondary home activity here. The price pressure here has been based on demand. It’s been a grassroots pushing up of prices. I think there’s still a lot of pent-up demand. There’s still a significant demand for homes under $200,000."
– Mike Ruzicka, president of the Greater Milwaukee Association of Realtors
"Certain markets are a little more out of line, but I don’t see a bubble. In the Midwest, we’ve had steady growth. We haven’t had the real big growth they’ve had in those areas. We’ve had steady growth, and there’s still steady demand – that’s the key thing. (September) has been a strong month, and October is starting real strong for us. I don’t see any change in the demand right now. Interest rates are still extremely low. The selection for first-time home buyers is still really good. Rates may go up slightly, but I don’t see any major jump."
– John Horning, executive vice president at Shorewest Realtors
"I think things are a little out of whack in the country and here in Milwaukee. They have gone up a tremendous amount everywhere. I don’t think we’ll have a bubble (here) like in Phoenix or Miami. But we have started telling most of our owners and sellers that we have to get realistic with prices. I really feel that because of the outlook for the next year we will have a little higher interest rates. I kind of feel that we can’t go on this way forever. I’ve been doing this for 32 years, and it can’t go on like this forever. But I think Milwaukee will still be pretty steady."
– Jean Henning, broker and owner of Re/Max of Metro Milwaukee
"I’ve been in real estate since 1983, and since then I’ve seen a lot of adjustments to the market. There are a lot of factors that weigh into those, like energy costs and the local and national economy. In our marketplace, we’ve never seen a bubble. This is a pretty stable market. When things get crazy out East or West, we adjust but we don’t have the same shifts the other markets do. I think their economies swing more wildly than ours does, and these adjustments take place to offset them. The word ‘bubble’ is over-rated by the media. We’ve had a great growth spurt in our market, and it’s naturally got to adjust itself. After 20-some years in our business, adjustments don’t frighten me any longer. They’re just a natural part of the real estate economy."
– June Herman, director of relocation and referral services for Prudential Absolute Realtors
"In the East and West, we see big ebbs and flows. Sometimes we see skyrocketing out there, and we’ll see big drops too. One nice thing about this area has been its gradual increase. The East and West will always be more vulnerable to a bubble burst, and we won’t see that because of our gradual incline. Real estate, long term, is still the place to go for a safe place to put your money. We’ve been on a great ride – since 1987 our market has steadily gone up. It’s a really good time to buy. Rates are in the mid to high five’s and we have a little higher supply than usual. I can see a little slowdown, but I don’t see a bubble bursting. I don’t think that’s accurate for our market."
– Peter Stefaniak, partner and broker with The Stefaniak Group
