Signs of hope in housing market

The good news for the southeastern Wisconsin housing market is that the economy is improving and sales are picking up. In the metro Milwaukee area, the number of homes sold increased 7.5 percent in the first quarter of 2010, compared with the first quarter of 2009.

However, the bad news is that the value of homes in southeastern Wisconsin continues to decline, according to MLS data provided by the Greater Milwaukee Association of Realtors.

The average price of a home sold in the eight-county southeastern Wisconsin area was $171,927 in the first quarter of 2010, down 24.3 percent from the market’s 2007 peak when homes in the region sold for an average price of $227,165.

The region’s housing market has declined concurrently with the national housing collapse. Some experts say the national housing market’s fall is almost over, which could be a good sign for the southeastern Wisconsin market.

“The (U.S.) housing crash is over – nearly. We are now near the bottom,” said Mark Zandi, chief economist and co-founder of Moody’s “There will be no real price growth in 2010 or 2011. Whether home prices weaken is unclear, but it will take two more years to work off excess housing inventory at the current sales pace. Of course, if demand picks up, it would take less time for prices to rise.”

In southeastern Wisconsin, home values have fallen the most in Milwaukee County (down 30.2 percent), Kenosha County (down 28.8 percent) and Walworth County (down 26.1 percent) from the 2007 peak.

One sliver of hope: three southeastern Wisconsin counties posted gains in average home sale price during the first quarter, compared to the first quarter of 2009. The average sale prices were $267,419 in Waukesha County, up from $260,141 in the first quarter of 2009; $222,350 in Walworth County, up from $211,710 in 2009; and $134,527 in Milwaukee County, up from $116,928 in 2009.

But Washington County was the only county in the region where the first quarter average home sale price ($198,786) was higher than the county’s average for all of 2009 ($197,624).

It remains to be seen how the region’s housing market will perform during the rest of 2010 compared to 2009, when the Great Recession finally ended.

Housing values in the region peaked in 2007. The U.S. housing market was over-inflated in 2007 as a result of low interest rates and years of irresponsible lending by many banks and irresponsible borrowing by many homebuyers. Numerous banks gave sub prime loans to people who couldn’t afford them. When many of those borrowers went into foreclosure the housing market took a severe hit and the overall economy fell into the Great Recession as the real estate market collapse helped trigger a financial industry crisis. Then the Great Recession resulted in massive job losses in nearly all industries, causing even more homeowners to go into foreclosure. Foreclosures are just beginning to show some signs of slowing nationally.

The region’s housing market still hasn’t recovered from all of that economic trauma. The Milwaukee area residential real estate market decline won’t hit bottom until the fourth quarter of 2011, according to Brookfield-based Fiserv Inc.’s Case-Shiller Index. The index indicates that housing prices in the Milwaukee area will not return to 2007 levels until 2017.

It could be worse, however. Several metro areas in California, Florida, Arizona and Nevada will not see home prices return to peak levels until 2025 or later, according to the Case-Shiller Index. The index, owned and generated by Fiserv, uses home price historical trend data from the Federal Housing Finance Agency and Moody’s.

“Nationally, Fiserv Case-Shiller data points to a further 7 percent decline in home prices through the end of this year, with a prolonged recovery beginning early in 2011,” said David Stiff, chief economist for Fiserv. “In many markets, the emphasis is on the word prolonged. We see several powerful forces in the market that will severely hinder the housing recoveries of many metro areas.”

Although home prices continue to slide, residential realtors in southeastern Wisconsin were happy to see increases in the number of homes sold during the first quarter. But the sales increase was likely boosted by the federal government’s home buyer tax credit. First-time home buyers received an $8,000 tax credit and repeat home buyers received a $6,500 tax credit for home purchases where a binding sales contract was signed by April 30.

Southeastern Wisconsin home sales surged in April as buyers hustled to beat the tax credit deadline. April home sales were up 54.2 percent in Waukesha County, up 40.7 percent in Ozaukee County, up 31.5 percent in Milwaukee County and up 25.0 percent in Washington County.

“It would appear that the $6,500 homebuyer tax credit targeted to buyers who were also selling a home has worked,” said Mike Ruzicka, president of the Greater Milwaukee Realtors Association.

After the housing market collapse, home sales slowed dramatically as homeowners were unwilling to sell their houses at a dramatically reduced price. In the 8-county southeastern Wisconsin region 24,308 homes were sold in 2007, but only 19,594 were sold in 2008, a decrease of 19.4 percent.

The federal home buyer tax credits likely led to an increase in the number of homes sold in 2009 and the first quarter of 2010. But now that the home buyer tax credit has expired, will home sales again decline?

“Only time will provide the answer to that question,” Ruzicka said. “But with consumer confidence rising, favorable interest rates, low prices, and plenty of inventory, the GMAR expects the rest of 2010 to be fairly decent for home sellers. But the market will remain a buyer’s market.”

Solid job growth and continued improvement in consumer confidence are needed to sustain a recovery in the housing market, said William Malkasian, the president of the Wisconsin Realtors Association.

The U.S. economy added 290,000 jobs in April but the nation’s stubborn unemployment rate still rose to 9.9 percent from 9.7 percent, on a seasonally adjusted basis, the U.S. Department of Labor reported. Wisconsin’s unemployment rate is at 8.5 percent in April on a seasonally adjusted basis, according to the state Department of Workforce Development. The state gained 16,400 jobs in April, on a seasonally adjusted basis.

“We’re hopeful consumers will recognize the opportunities in this market and take advantage of the combination of low interest rates, reasonable prices and excellent inventories,” Malkasian said.

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Andrew is the editor of BizTimes Milwaukee. He joined BizTimes in 2003, serving as managing editor and real estate reporter for 11 years. A University of Wisconsin-Madison graduate, he is a lifelong resident of the state. He lives in Muskego with his wife, Seng, their son, Zach, and their dog, Hokey. He is an avid sports fan and is a member of the Muskego Athletic Association board of directors.

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