The coronavirus pandemic seems to have taken a toll on most aspects of life here in Milwaukee, with one great exception: real estate.
Home sales in the area reached record levels in 2020, despite the economic crisis and high unemployment.
“We have been pretty much firing on all cylinders,” Greater Milwaukee Association of Realtors President Mike Ruzicka says, adding that the red-hot market is showing no signs of letting up any time soon.
At the same time, a chronically tight supply of existing homes is driving up prices and sparking bidding wars among potential buyers. Not only hasn’t the pandemic hindered the market; it has actually helped stoke the frenzy, due to a large segment of the population that has been forced to work from home, a trend that is expected to continue, at least at some level, even after the coronavirus is brought under control. This has buyers searching for more spacious dwellings that can accommodate work and home-life needs.
Ultra-low interest rates, which dropped throughout 2020 and have averaged less than 3% for a 30-year fixed-rate mortgage, are also fanning the ames.
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“You can buy more home than you would at higher mortgage rates or have lower payments for a given mortgage,” says Marquette professor David Clark, who consults with the Wisconsin Realtors Association. “That has really helped to keep affordability relatively high.”
Interest rates were driven down by the recession brought on by the pandemic. But even if the economy rebounds and some of the jobs lost during the downturn return, it isn’t likely to push mortgage rates significantly higher in the first half of 2021, experts claim.
Millennials purchasing their first homes are another key demographic factor in the market’s surge. The group had previously been shut out of the home-buying market due to a weak economy and lackluster job prospects, while being saddled with significant debt from college loans.
“That generation is deciding that this is a good time to buy a house. They’ve paid off a lot of debt from their student loans, they are getting married, or they have a family and are looking to upgrade into a larger home that may be a bit of a forever home,” says Andy Hunt, director of the Center for Real Estate at Marquette University.
The market remains robust for sellers, with sale prices rising due to the limited supply of homes being listed. This means that many houses are selling on the first day they hit the market, with potential buyers forced to submit bids that are $10,000, $20,000, in some cases even much more, above the asking price.
From 2016 to 2019, about 21,000 houses sold each year in an area consisting of Milwaukee, Washington, Ozaukee and Washington counties. That number climbed to nearly 22,500 in 2020 and could have risen even higher if buyer demand wouldn’t have far outstripped the availability of homes, particularly those in the $300,000 to $400,000 range, Ruzicka says.
“We could have sold another 5,000 to 7,000 of those properties last year,” he says.
Demand for homes is expected to remain strong in 2021, even if doesn’t maintain the record-breaking pace of 2020. “I’d be very surprised if we hit over 22,000 sales again just because there isn’t enough supply,” Ruzicka says. “I think we will be around 20,000, which is still very consistent with where we’ve been since 2016.”
With an ongoing scarcity in inventory, home prices are likely to continue to rise, he says. And with demand consistently outpacing supply, double-digit percentage price increases have become the norm.
In the seven-county area of Southeastern Wisconsin, the average home sale price climbed to about $309,000 in 2020, an increase of nearly 10% when compared with 2019 and up more than 33% from the average sale price of $232,000 in 2016.
Price pressure is evident by the amount of time properties are on the market, which declined in 2020 by 13.4%, to 34 days from an average of 39 days in 2019, according to statistics compiled by the Greater Milwaukee Association of Realtors.
When properties are selling that quickly, there are often multiple bids, often above asking price. “We are in a very strong seller’s market right now,” Clark says.
Nevertheless, intense demand from potential buyers is posing challenges for sellers.
Many are struggling to find their next house due to the limited supply. With homes selling at a rapid pace, sometimes in just a day or two, sellers are finding it necessary to have that new house lined up even before they put their current home on the market.
“We’re going to have a tight housing market for a while,” Clark says. “Prices will continue to go up and affordability will diminish a bit because I don’t think mortgage rates will continue to slide, at least not at the rate they have been.”