A group of colleagues from WHR Group recently attended the 7th Annual Wisconsin Residential Real Estate Summit at The Wisconsin Club’s City Club in downtown Milwaukee. This event, put on by the Marquette University Center for Real Estate, aims to bring together some of the leading real estate experts from our local Wisconsin markets and those from around the country. Topics included local demographic trends, the outlook of the residential housing market, home affordability and new construction, and predictions for 2019.

relocation housing

Going into the event, I had two perspectives in mind.

  1. I’m a homeowner. Like many people, my home is my largest financial asset. Naturally, I was incredibly interested to hear about the potential effects on my own financial situation.
  2. Since WHR Group is an employee relocation management company, a main revenue stream comes from buying and selling homes throughout North America. I was very interested to hear if there were any major impacts on the business.

We heard from a variety of speakers such as Mr. David Belman (President of Belman Homes), Dr. Douglas Ducan (Senior Vice President and Chief Economist at Fannie Mae), and Ms. Vickie Kelsall (Regional Manager at Century21). All speakers brought their unique perspectives on the current housing climate, and I was impressed with the enthusiasm and knowledge that poured out within a mere three hours. An overwhelming theme of the day was supply versus demand.

Supply

The current supply of the housing market is inadequate given today’s demand. In general, there are three areas to look for homes: foreclosures, new construction, and the existing home market. Each of these segments has seen dramatic changes throughout the last year and will continue to be watched throughout 2019.

Foreclosures

The volume of annual foreclosed homes is at pre-recession numbers. In 2007, there were over 28,000 foreclosures; 2018 had only about a fourth of that amount. This is a massive amount of missing inventory that we’ve been accustomed to seeing for the past fifteen years or so.

New Construction

Another area to look at for inventory is new construction homes. Builders such as David Belman, President of Belman Homes, have had a plethora of issues to deal including new tariffs on materials such lumber and quartz coming from countries like Canada and China; these new tariffs increase the overall cost of goods.

They’ve also seen a significant decrease in labor as new generations entering the workforce tend to be more focused on technology than getting their hands dirty. As labor becomes scarce, it also becomes more expensive. Legislation is another big hurdle for builders. Environmental and safety requirements are costly and cause huge delays in the development of new subdivisions.

Due to the combination of these increased costs, today’s homebuyers are quickly priced out of the new construction market.

Existing Home Market

The third segment to look for inventory is in the existing home market. Vickie Kelsall, Regional Manager for Century21, hit home the various issues facing the current and prospective homeowners. Many current homeowners are apprehensive to put their own homes on the market for fear of not being able to find another home they can afford or secure quickly enough. Buyers who purchased five years ago and secured a 3.5% interest rate may not want to abandon that for a higher rate. As home values have seen steep increases over the past few years, homeowners may opt to pull equity out of their homes to remodel them rather than sell the property.

Demand

Demand is extremely strong – anyone working in real estate or trying to buy or sell will not be surprised by this at all. Just about every listing that comes on the market gets multiple offers, often times 10% more than the listing price. This causes extreme frustration and uncertainty from buyers and agents. This is most prevalent in lower priced homes where most first-time homeowners are looking to buy.

Unless you avoid the internet and television all together, you have probably heard that unemployment rates are extremely low – the national average was just 4.0% in January 2019. This means that the volume of people with steady paychecks increases and floods the buyer pool, generating intense competition. While we’re all tired of reading about millennials, I would be remiss in not mentioning that they have been becoming homeowners at an increasing rate over the past three years.

Low interest rates are another major reason why people are trying to trade leases for mortgages. We’ve seen the Federal Reserve (Fed) raise interest rates a few times recently, but homebuying is still more affordable than we’ve seen in past decades. The Fed recently indicated they would be patient with future rate increases, but a few of our speakers weren’t very confident in this. The keynote speaker, Dr. Douglas Ducan, predicted an increase in June and another towards the back end of 2019.

Local to Wisconsin, I was surprised to learn that people from the Chicagoland area are moving into Wisconsin quite frequently. This adds to the number of people potentially purchasing homes. While it’s good to see this population growth, those people are not selling homes in our area which creates an imbalance in our markets.

Final Thoughts

The majority of our expert speakers and panelist agreed that 2019 would be very similar to 2018. The markets will be tough with very low supply and high demand. We also heard regular predictions that our next recession isn’t far away — as close as 2020. However, the experts didn’t think this recession would be nearly as bad as the “great” recession that we remember all too well.

While I didn’t walk away from this day with many concrete solutions,  I did learn that many are trying to solve the problem. Lobbyists are trying to remove some of the red tape that makes building less difficult. Builders are looking to develop on smaller lots with less roads and driveways in an attempt to reduce costs and take advantage of a lack of space. Real estate agents are trying to get more creative in helping their buyers to find properties and setting realistic expectations about what is available.

All in all, this was a fantastic event with great speakers. These experts have seen good times and bad. The consensus was that although we’re dealing with some short-term pain, the US still has the strongest economy in the world and we’ve learned to overcome some obstacles and avoid another major downturn in our markets.