Shortage of affordable homes continues to plague Milwaukee housing market

Homes for sale in Menomonee Falls.
Homes for sale in Menomonee Falls.

Last updated on April 28th, 2020 at 02:43 pm

The metropolitan Milwaukee housing market, though it has shown consistent strength with robust sales month after month, has for some time faced a significant challenge: the lack of available homes priced at $300,000 and under.

Area real estate agents said the shortage presents significant issues for buyers and even causes some to think twice about entering the market. They also noted that help is not on the way through new-home construction, which is not keeping up with demand and isn’t creating new homes at that crucial price point.

The shortage is made clear through data analyzed by the Greater Milwaukee Association of Realtors. Each year, the National Association of Realtors conducts a national survey on home buying and selling, and GMAR regularly commissions an oversample to get a Milwaukee-area perspective.

Survey data was collected for the 12-month period ending in June 2019. The survey’s findings were compiled in a report that was released earlier this year.

“All the numbers are colored by the fact that there’s really a lack of inventory,” said Mike Ruzicka, president of GMAR.

Of course, the shortage of homes is reflected in median prices. The median home price in Milwaukee was roughly $236,500, according to the survey. This actually shows a small dip from $240,000 for the previous 12-month period ending June 2018, but is still up significantly from the median price of $200,000 two years back. Three years ago, the median price was $161,500.

The numbers also show that first-time buyers in the Milwaukee area make up nearly half (46%) of all home buyers in 2019. This compares to 33% nationally. Even so, the typical buyer in the Milwaukee area had a median income of $94,600, which is higher than the national median of $93,200.

The average income of Milwaukee-area purchasers went up from $91,600 the previous year, $84,000 two years ago, and $85,000 three years ago.

“(The researchers) commented that the average income of purchasers went up last year, and they were attributing it to the fact that younger people, or the people that don’t make as much money, can’t afford houses because prices have gone up,” Ruzicka said. “Those people aren’t even in the numbers anymore; it’s only people that can afford a $350,000, $400,000 or $500,000 house.”

GMAR also reports home sales for metro Milwaukee each month. Its latest report, for February, showed that seasonally adjusted inventory of homes on the market (at all prices) was 2.8 months. This means there was enough inventory for sale to satisfy 2.8 months’ worth of demand from buyers. Anything less than six months indicates a seller’s market. Six months of inventories indicate a balanced market, and anything over six months indicates a buyer’s market.

The metro Milwaukee housing market has been a seller’s market for some time. February was in line with January’s inventory level, and slightly down from the 2.9 months of inventory in February 2019.

GMAR also calculates inventory by subtracting listings that have an active offer. That is done because about 80% of listings that buyers place an offer on become a completed sale.

Adjusting for active offers leaves the market with an effective inventory level of 1.3 months, down from the 1.4 months of inventory in January and the 1.6 months recorded in February 2019.

Courtney Stefaniak, a real estate agent with The Stefaniak Group in Milwaukee, said the shortage of homes means those that are on the market are scooped up rather quickly. Buyers, therefore, need to be ready to make an offer at basically any time.

“The challenge on the buyer side is that we have to be ready to go like 24/7,” she said.

According to the annual survey data, recently sold homes in the Milwaukee area were on the market a median of two weeks, Ruzicka said. Nationally, homes were on the market a median of three weeks.

“So really, for about three years now, (the median days on market) has been at a really low level,” he said. “What’s interesting is it introduces a whole slew of new problems in the market, because sometimes the realtor will have a property, they get people (who) knock on the door as soon as the sign goes up and say, ‘I’ll put an offer on it,’ and they do.”

He said that fact could potentially affect sellers, who benefit when their home is on the market longer because they’ll get more offers that tend to keep climbing in price. Of course, buyers are impacted because they have to move so quickly.

Stefaniak said any house within the range of $300,000 or under will likely have multiple offers within a day or two of being on the market. If buyers are to move quickly, they will need to have their documents in order and have taken care of pre-approvals even before touring the home.

If they find one they like but don’t have those other steps taken care of, the house will be gone before they can even put in an offer, she said.

“We’re still able to get them to a showing,” Stefaniak said. “But do they have the weekend to sleep on it? No. … And that’s why I’m telling everybody to be prepared.”

The primary buyers of homes in the $300,000 or under price range are first-time buyers — many of whom are in the millennial generation — followed by older individuals or couples who are looking to downsize, often as empty nesters.

Homes for sale in Menomonee Falls.
Homes for sale in Menomonee Falls.

Stefaniak said that purchasing a home can be especially difficult for millennials when they are competing with older, well-financed buyers.

But empty nesters face issues of their own. John Gscheidmeier, broker and owner of RE/MAX Service First in Waukesha, said those who own a home know they could likely sell it quickly. But problems could arise if they are looking to downsize from a $300,000 home to something like a $175,000-$200,000 condo.

Those people could end up selling their old home quickly while not being able to find a new one to move into in the meantime, said Gscheidmeier.

“There are a lot of challenges with that price point,” he said.

Relief is not likely to come from new construction either, Gscheidmeier said, noting that construction costs are continuing to go up. The reasons range from building costs to state and local regulations, which only add to the price tag. He said that in Waukesha County, for instance, it would be hard to build a home that could be sold for under $400,000.

And according to a recent report from the Wisconsin Realtors Association, new-home construction and subdivision creation is trending in the wrong direction. WRA found that new construction declined in the state in 2019, despite strong demand for new housing resulting from population, job and income growth.

Last year, roughly 17,600 residential building permits were issued for new homes (including single-family and multi-family dwellings) in Wisconsin, down from roughly 19,100 the year prior. What’s more, between 1994 and 2004, the state built over 6.7 new homes per 1,000 residents. But, from 2012 to 2019, only 2.9 new homes were built per 1,000 residents.

The WRA report also noted that the price of housing is rising faster than inflation and income levels. Using price index data from the Federal Housing Finance Agency, WRA found home prices in Wisconsin were up 17.7% in the past three years. Meanwhile, median household income in the state grew 6.97% in that time period.

But the lack of inventory isn’t necessarily leaving prospective buyers out in the cold. Stefaniak said that buyers, especially first-time buyers who aren’t necessarily able to make a large down payment, want to take advantage of low interest rates.

It’s just a matter of patience and persistence when searching for a home in that often-challenging below $300,000 price range. Stefaniak mentioned words of wisdom her father taught her: Real estate is like buses.

“If you miss one, there’s always another one coming,” she said. “There is always going to be a new listing, new opportunity.”

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Alex Zank
Alex Zank covers commercial and residential real estate for BizTimes. Alex previously worked for Farm Equipment magazine and also covered statewide construction news at The Daily Reporter. He graduated from the University of Wisconsin-Eau Claire, where he studied journalism, political science and economics. Having grown up in rural western Wisconsin, Alex loves all things outdoors, including camping, hiking, four-wheeling and hunting.