THIS STORY IS FROM OUR BUYING IN THE BURBS PACKAGE. READ MORE HERE.
The story of homebuying as the 2024 real estate season ramps up: gridlock.
Would-be buyers are finding a situation similar to recent years: a scarcity of listings and uncomfortably steep prices. Would-be sellers are staring down interest rates that might be double that of their current mortgages and deciding to stay put.
“It has been super slow,” says Mike Ruzicka, president of the Greater Milwaukee Association of Realtors. “There’s a ton of pent-up demand on the buyer side, and while there are some people who would entertain selling, they can’t move for two reasons: There’s nowhere to go, and the financing part of it makes them shy away from it. So they are just sitting out. Bottom line is there are a lot of potential buyers out there but very few listings.”
It’s time to pick your Milwaukee favorites for the year!
What will it take for the single-family home market to return to a healthy level of sales in 2024?
Foremost will be convincing homeowners that a dramatic drop in mortgage rates isn’t in the cards, Ruzicka says. The average daily rate for a 30-year fixed mortgage stood at about 7% this February, compared with rates that had dipped to a record low of 2.65% in January 2021. “People that own a home now but want to move need to start thinking they’ve just got to bite the bullet,” he says. “A lot of Realtors are telling their clients to pick the house they like, and they can always refinance if the rates do drop.”
Although new listings rose in the final five months of 2023, they were down nearly 15% for the year in the seven counties that comprise Southeastern Wisconsin, falling to 26,899 listings in 2023, compared with 31,625 the previous year, according to GMAR. Listings rose again in January – up 11.3% – but there’s a lot of ground to make up. “The market is still hundreds of listings behind where it needs to be to satisfy buyer demand,” Ruzicka says.
Mortgage Rates Matter
MORTGAGE INTEREST RATES bottomed out at an average of 2.65% in January 2021; they averaged around 7% three years later. That difference has an enormous impact on monthly payments or the type of home you can afford.
THEN – $2,289: Monthly mortgage payment for a $400,000 home with a 2.65% interest rate, $80,000 down payment (20%) and $12,000 in annual tax and homeowners insurance
NOW – $3,129: Payment for the same house with a 7% interest rate
NOW – $298,900: Price of a house with a $2,289 monthly payment with a 7% interest rate, $80,000 down, and proportionally similar tax bills.
None of Milwaukee’s suburbs or neighborhoods has been immune to these challenges, Ruzicka says: “I tried to identify hot communities – those that have an increase in sales, a decrease in days on the market and an increase in average sale price. There isn’t a single community that meets those factors. Usually, there are as many as 10 or 12.”
The ongoing shortage of inventory stems in large part from reluctance by existing homeowners to take on a new mortgage with an interest rate that is considerably higher than what they are currently paying.
“They’d have to take on a new mortgage and don’t want to do it at 6% or more, especially those who are a bit older,” Ruzicka says. “They are kind of content and wouldn’t mind downsizing, but they are saying, ‘Let’s wait a couple more years and see what happens.’”
About 82% of homeowners nationwide have a mortgage rate below 5%, 62% are below 4% and 23.5% are below 3%, according to real estate company Redfin. “That puts an insane amount of pressure on current homeowners [to stay in a home]. Why would they move, when they are going to pay 6% or 7%, even if it is the new normal?” says Andrew Hunt, director of the Center for Real Estate at Marquette University. “That’s only going to continue to exacerbate the problem. It’s such a weird time.”
When there is low housing inventory, sellers can often get top dollar for their homes. But most sellers will also need to purchase a new home, which leads to the market conundrum. “Those who are in their homes and sitting on a 3% interest rate or less are just staying put, even if they have a lot of equity in their home,” says Courtney Stefaniak, a Realtor with The Stefaniak Group. “You might sell for a high price, but if you have to enter into the market as a buyer, you’re still seeing near record-high home prices and higher interest rates than what you currently have. That’s a tough pill to swallow.”
Although the bidding wars aren’t as fierce as they have been, competition for houses remains a challenge due to the dearth of listings. “If you are competing for a home in this market, it’s not like it was like in 2021 and 2022, where we were seeing 20 to 30 offers per house,” Stefaniak says. “So far this year we’ve been seeing about three to five offers per house. This depends on location and price range, of course. Homes in the $400,000 price range and under are still really moving.”
The market has been especially troubling for first-time home buyers, she says. “They make up probably 35% of the market right now,” she says. “It’s unfortunate, because we’ve got all of these would-be homeowners who are forced into rental units.”
Higher interest rates are also a factor in a historically low level of homebuilding. “Construction permits are half of what they were before the recession,” Ruzicka says. “A couple years before that, the building industry was kind of on steroids. Now, you have more people chasing fewer properties.”
The lack of supply last year contributed to the average Southeastern Wisconsin home sale price increasing 7.4%, to $402,256 –passing the $400,000 threshold for the first time – according to a report compiled by GMAR.
Despite the challenges, Ruzicka says the fact that demand for single-family homes is showing no signs of letting up is a bright spot. “If we didn’t have demand, I’d be nervous,” he says. “You’ve got two generations of younger people who are ready to buy houses, but they are hitting this brick wall.”
Buying Tips from Real Estate Pros
How should a would-be buyer think about moving forward in the 2024 buying season?
GET PRE-APPROVED
Pre-approval – especially with a local lender known to MKE-area real estate agents – can offer a competitive advantage.
ACCEPT THE NEW INTEREST RATE ENVIRONMENT
Market watchers expect rates to remain between 7.5% and perhaps 6% by year’s end. The 3% of recent years is gone for a while. “I would be surprised to see interest rates that low again in the next 20 years,” says Mike Ruzicka, president of the Greater Milwaukee Association of Realtors.
CHOOSE YOUR AGENT CAREFULLY
Says local Realtor Courtney Stefaniak: “Experienced Realtors will be able to help guide you through the buying or selling process, give you tips and creative ideas on how to write a winning offer, help prep and stage your home for sale to net you the best price, negotiate in your best interest, and work through any potential issues along the way.”
Burbs By the Numbers
