President, Homebuilder,
Harbor Homes
Project Designer and Coordinator, Bartelt. The Remodeling Resource
Owner and Broker, Jay Schmidt Group, Keller Williams Realty
AVP Regional Mortgage Sales Manager, North Shore Bank
LISTEN TO THE CONVERSATION
Milwaukee Magazine: Home inventory is at record lows in metro Milwaukee right now. How is that affecting your industry?
Scott Thistle: It certainly has driven prices up. Things are busier now than they ever were. I sold 100 houses in quarter one this year. I thought I’d sell 60 and be happy. The market is just not producing enough units.
Matt Retzak: The scale of remodeling projects has increased in the past couple years. That’s because there aren’t homes to buy for people who want more space. They could sell their house in half a day’s time, but they have nowhere to go. That set our phones on fire with people wanting to add on, to make their house more functional.
Jay Schmidt: Forty-five percent of the home purchases in metro Milwaukee last year were made by first-time homebuyers. With those millennials increasing the buying pool, that’s putting
pressure on inventory. And baby boomers are staying in their
homes longer and remodeling.
ST: This millennial demographic is bigger than the baby boomers ever were. Right now, depending on which numbers you look at, they are a full third of the housing market. They are buying new homes, they are buying used homes, they are remodeling. This demand easily could continue for 10 more years unabated, and we don’t have the housing stock to fill that demand.
Michael Murphy: The time between completing a preapproval and a buyer finding a house is much longer now, so we need to make sure we are maintaining the preapprovals and the information we are using is still current.
MilMag: How are those rising rates affecting affordability?
MM: In the beginning of the year, rates were close to 3%. Now we’re seeing 5%. Someone with a $1,500 budget for a mortgage payment in January may have qualified for approximately a $366,000 loan. Now they would qualify for approximately $288,000. That’s a $78,000 decrease in buying power.
JS: Buyers are much more aware now of the rates. I think the savvy buyer realizes that real estate is historically a 4% increase on value over one year. Stocks, bonds, 401Ks, you get 8-10% over 10 years. Whether you’re looking to buy or remodel, even with the rise in interest rates, real estate is still a solid long-term investment strategy.
MilMag: How does remodeling play a role in that investment strategy?
MR: With the market where it’s gone, I can tell people something I’ve never been used to saying. If you put $100,000 into your house, you could sell your house for another $150,000 the day we get it done.
ST: COVID has created so much demand for remodeling. All the things that were nice to have pre-COVID are things that people need to have during and post-COVID.
MR: The home office has been the top of the list: converting an unused area of a garage, or an unused dining room. The open concept is not a livable scenario when everyone’s together all the time. Demand went up with COVID, but it caught fire from there with the real estate market, and I don’t see it slowing down.
MilMag: Which areas in metro Milwaukee are the hottest right now?
JS: West Allis is extremely strong. The city of Milwaukee is white-hot. Grafton – there’s nothing for sale. It’s across all price points, all municipalities. As interest rates increase, instead of 15 offers on a home, maybe there’s only three or five.
ST: Since Jay mentioned Grafton – I run my own statistical analysis each month on the markets I operate in. At the end of February, there were exactly four houses on the market in all of Grafton under $450,000. People are shocked when they hear these numbers.
MilMag: Scott, you’re in the homebuilding business. What are some of the benefits of building a new house in this market, as opposed to remodeling or buying an existing one?
ST: You can build what you want. You don’t have to deal with a 30-year-old water heater or furnace or roof or whatever it may be. There’s less cost associated with owning a new home. We need municipalities to take an active role in solving this affordability and inventory problem. The way to solve it is through better land use and flexibility in zoning codes. This idea that we can burn up all the land in Waukesha County with traditional zoning and resolve this problem is, I think, a fallacy.
JS: We [Jay Schmidt Group] represent Lakeshore Commons, a development in Oak Creek. It has freestanding homes, adjoining villas and even townhouses. Those smaller lot sizes are popular with younger couples and families. Not everybody wants a half-acre lot and the maintenance that comes with it. I think those smaller lots reach a buying pool that traditional subdivision development doesn’t appeal to. It’s a trend in a lot of other states, and based on our initial success, it’s coming to Milwaukee.
MilMag: Mike, what kind of home loans are most popular with the current state of the market?
MM: We’re seeing people more often choosing longer-term adjustable-rate mortgages [ARMs], because fixed-rate mortgages are higher right now with rising interest rates. But there’s risk in taking an ARM because there’s no guarantee interest rates will come down in the next few years.
Bridge loans are increasingly popular. If a customer is building a home right now, there’s really nowhere them to rent while they build, as rental rates are rising as fast as mortgage rates. We offer cross-collateral bridge loans. We essentially finance the entire package for the lot and the home, and then once the buyer sells their current home, they pay us an agreed amount of equity out of the proceeds. If you’re buying an existing home and you get a cross-collateral loan, you can write an offer without a sales contingency. That absolutely makes your offer look more attractive.
MilMag: What are common mistakes you see homebuyers, sellers or owners make?
ST: Don’t wait to buy a house. Prices are not going down. Interest rates are not going down. In the last 10 years, the average price of a house in the metro Milwaukee market has gone up $150,000.
JS: Sometimes people remodel their homes in very specific ways. If you’re remodeling your house with the five- or 10-year goal of selling it, talk to your remodeler and talk to a real estate agent, so they can counsel you, and say, “Hey, I know you love the color red, but bright red cabinets might not be the smartest investment.”
MR: Jay’s exactly right. Cabinetry, countertops, flooring are expensive to redo, so stick with a timeless look for those. If you want to add flair, work with plumbing fixtures, lighting, or even just paint, things that are easy to replace.
MM: I think the biggest thing we focus on is making sure people know the difference between a preapproval and a prequalification. For a prequalification, a buyer will call the financial service, who pull their credit and ask them questions about their income and assets and then give them a letter based on unverified information. That’s a dangerous way to go about things. Buyers can understate, overstate their finances. For a preapproval, which is all we do at North Shore, the information supplied by the customer is fully underwritten and verified. We collect all the documentation. Get a solid preapproval instead of a prequalification and that can save everyone in the transaction a headache.
Using a local lender is even more important now with the volatility of the market. If you go with someone without local representation and there’s a curveball in the transaction, you may be calling a 1-800 number to someone who’s not in the state. If you have a local lender, you can call them directly or walk into their office and they are going to be responsive because they’re invested in the community.
JS: I’d like to reiterate Mike’s point from the real estate side. If we see a preapproval from an internet-based or TV-commercial lender, we know they’re not verified. Those offers may have great terms but will get put to the middle or bottom of the stack. Using a local lender like Mike is tantamount to getting your offer accepted and to the finish line.
Across all our industries, I think shopping based on who’s the cheapest is a mistake. If you had a medical concern, you wouldn’t look for the cheapest doctor. Real estate, whether it’s remodeling a home, buying a home or building a home, those that shop cheapest aren’t getting the best option.
Real estate is your largest form of wealth-building, so be sure to pick the right remodeler, the right builder, the right real estate agent, not the cheapest.
