The southeastern Wisconsin housing market bounced back during the first half of 2015 with more sales and higher prices than in the first half of 2014.
And Realtors expect sales activity in the region to remain brisk in the second half of the year.
“The demand is still extremely strong,” said Kevin Donnell, president and chief operating officer of First Weber Group. “We haven't seen any sign of demand slowing down.”
Although home sale prices were up in 2014, the number of home sales and housing starts in the region were down compared to 2013.
The region’s housing market improved in the first half of 2015, with continued price increases and more home sales.
The first half of the year has been a “robust market” with “many, many competing offer situations,” Donnell said.
For the first five months of the year (the latest data available at press time), the number of homes sold in the four county metro Milwaukee area was up 10.9 percent to 6,697, according to the Greater Milwaukee Association of Realtors. For the first five months of the year, home sales were up in every county in southeastern Wisconsin, according to GMAR. May was the fourth consecutive month of sales growth for the metro area, according to GMAR.
Home sales volume in the Milwaukee area during the first half of 2015 was similar to sales levels of 2005-’06, before the collapse of the national housing market, said GMAR president Mike Ruzicka.
Low interest rates and job growth with the improving economy are driving demand from buyers.
Many buyers are hearing about possible increases in interest rates and want to buy a home before the historically low rates go up.
“I think everybody realizes at some point in time interest rates are going to go up,” Donnell said. Buyers realize this might be their last chance to take advantage of the historically low rates, he said.
Buyers are also getting more aggressive because they are noticing that home sale prices are on the rise, Donnell said.
Home sale price data varies, depending on the source. Median home sale prices in the four county metro area were up 11 percent to $172,500 for the first five months of the year, compared to the same period in 2014, according to the Wisconsin Realtors Association. Ruzicka estimates that home sale prices were up about 5 to 7 percent in the metro Milwaukee area during the second quarter.
“You would think prices would go up faster than they are,” Ruzicka said. “Buyers are still not willing to pay an exorbitant price for a home.”
Demand for existing homes has been boosted by a slump in housing starts, Ruzicka said. There is a labor shortage for the home building industry, which shrank during the recession and still has not fully recovered, and the cost of construction materials has increased as the economy has improved. The cost to build a new home right now is not competitive with existing home values, Ruzicka said. People that are building new homes prefer a new home to an existing home and are willing to pay more for what they want, he said.
Housing starts in the Milwaukee area were down in the first half of the year, but builders are “very busy” and housing starts are expected to rise in the second half of the year, said Kristine Hillmer, executive director of the Metropolitan Builders Association.
The price of building supplies is on the rise, and those prices are only going to continue to rise and drive up the cost of new construction, Hillmer said. Those rising costs, combined with an anticipated rise in interest rates, are expected to push buyers to move forward with plans to build, she said.
While demand is strong for the local existing home market, the supply of homes that are listed for sale remains low.
The inventory level of homes for sale (the time it would take to sell all of the homes on the market at a given time) in the metro Milwaukee area is about four months if you take out listings with active offers, Ruzicka said.
“It’s really, really low,” he said. “We haven’t seen inventory this tight since well before the recession.”
The combination of strong demand and low inventory should continue to drive prices upward.
So far, some homeowners still have not seen the value of their home recover enough from the Great Recession to list their homes for sale.
“There is a percentage of the market that probably in the past would have put their homes on the market, but they lost a significant amount of equity during the downturn and are unable to put their properties on the market,” Donnell said.
“Some people might not be underwater, but their head is barely above water,” and they are unable to sell their homes, Ruzicka said.
“The market could be gangbusters if there were more homes on the market,” Donnell said.
Sellers have also been frustrated by stubbornly low appraisals, Ruzicka said. In some cases, there is a lack of recent comps to provide evidence for appraisers that a property’s value has increased.
“Several deals have fallen apart because of (low) appraisals,” Ruzicka said.
That could improve in the second half, as first half sales could provide comps to justify higher appraisals in the second half.
“We all knew (the low appraisals would) eventually wear off,” Ruzicka said.
“(Appraisals) are going to be (low) until there is a significant base,” Donnell said. “You have to establish enough of a sold comparable base for appraisers to adjust the prices. That’s starting to happen.”