The Milwaukee area housing market showed major signs of a recovery in 2012. The number of homes sold increased significantly and the number of new homes under construction also rose.
But the prices of homes sold, which plunged during the Great Recession, remains flat and many potential home sellers are reluctant to put their houses on the market. That has led to a dwindling supply of homes for sale which, combined with the increased volume of sales, could finally lead to home price appreciation in the region.
There were 16,579 homes sold in the four-county metro Milwaukee area in 2012, an increase of 24.6 percent from 2011, according to the Greater Milwaukee Association of Realtors (GMAR).
"The last time the Milwaukee market saw that kind of sales volume was 2007, the beginning of the real estate recession," said GMAR president Mike Ruzicka
Meanwhile more homes are under construction in the region. There were 970 building permits issued for new single-family homes and duplexes in the metro Milwaukee area in 2012, up 8.4 percent compared with 2011, according to Oshkosh-based MTD Marketing Services of Wisconsin Inc. The number of housing starts in the metro area has increased three years in a row, but remains far below the peak of 3,007 in 2004 during the housing boom.
The biggest increases in housing starts in the region in 2012 were in Mukwonago (up 187.5 percent to 23), Hartford (up 183 percent to 17), Franklin (up 114 percent to 60), Richfield (up 108 percent to 25), Menomonee Falls (up 64.7 percent to 56) and Muskego (up 29.3 percent to 53). Housing starts plunged in the city of Milwaukee (down 60.8 percent to 56) and in Oak Creek (down 29.4 percent to 36).
Consumers have become more confident in the slowly improving economy and more have decided to get into the housing market to take advantage of low interest rates and depressed prices, Realtors say.
"I think we've had some pent up demand (with few sales during the economic downturn)," said John Horning, executive vice president of Brookfield-based Shorewest Realtors. "There's been some people sitting on the sidelines waiting to see what's going to happen. I think people sitting on the fence were going, 'What are we waiting for?'"
The buyers may be back, but many sellers are in hibernation. The average price of a home sold in the eight-county southeastern Wisconsin area rose less than 1 percent in 2012 to $173,600, according to GMAR data. That is a miniscule increase from 2011, which so far was the low point for housing prices in the region after the housing market crash. The market peaked in 2007 with an average sale price of $227,165.
The slight increase in home sale prices in the region was bolstered by improvement in the City of Milwaukee's housing market. Milwaukee is by far the largest city in the region and therefore has the largest volume of home sales, which has a significant impact on the regional data. In 2012, home sales in Milwaukee increased by 20.1 percent to 5,363 and the prices of homes sold in the city rose 3.3 percent to $90,148.
Unlike the city of Milwaukee, the prices of homes that were sold declined in most municipalities in southeastern Wisconsin during 2012, and the only counties that posted home sale price increases were Walworth County, Sheboygan County and Milwaukee County.
Average home sale prices for 2012, compared with 2011, by county:
Discouraged by the depressed price levels, many potential sellers have decided not to put their homes on the market and the number of listings in the region has fallen significantly tipping the scales from a buyer's market a year ago to a more balanced market, or perhaps a seller's market this year.
"The year (2012) ended with only 9,798 listings in the four-county marketplace, which translates to 8.7 months of inventory (the time it would take to sell all of the homes currently on the market)," Ruzicka said. The area's housing market usually has 11,000 to 12,000 listings in December, he said.
Horning estimates that the supply of homes on the market is even lower and says inventory has fallen from 8.6 months at the end of 2011 to 5.6 months at the end of 2012 for the four-county area.
"The anemic inventory of homes for sale has been a condition brokers faced throughout 2012," Ruzicka said. "The law of supply and demand typically would force price increases as supply decreased, however, the Milwaukee marketplace has not been able to sustain much, if any price pressure."
The homeowners that are listing their homes at a reasonable price are able to sell them in short order.
"The fresh listings are moving quickly if they are priced right and in good condition," Horning said. "The listings don't last long right now."
If listings remain low as the number of buyers in the market increases, the imbalance of supply and demand could finally drive up home prices in the region.
"Prices will probably start to increase, but I don't know that it is going to be right away," Horning said. "The real estate cycle doesn't pick up until the spring. If we don't see an infusion of listings I think we'll see prices start to rise, by late spring or early summer. But I think it will be gradual."
Prices should rise in the low to middle levels of the market because that is where the biggest demand for homes is right now, Horning said.
"Prices will increase where the most demand is, and that is the entry level to mid-level homes," he said.
Perhaps the biggest obstacle for housing price appreciation remains the foreclosed and short sale homes on the market.
"The distressed properties are still out there," Horning said. "I think the number probably peaked last year (2012). I see the number of them coming down but I still see them staying around for another couple of years."
Overall, the volume of home sales should remain strong and continue to rise in 2013, Horning predicts.
"We've got good momentum going," he said. "I anticipate we will see an increase in sales again. I don't think it will (increase as much as in 2012), but the factors are still there, prices low and interest rates low, especially if we get rid of some of the economic uncertainty."