Welcome back to another real estate market update for the Greater Milwaukee area, this time for April, 2021.
Traditionally speaking, real estate market updates are not that exciting because nothing ever happens in the real estate market. But in 2021, we definitely cannot complain about that. We have lots of things to talk about today. We are going to go over interest rates. We’re seeing a major trend change there. We are talking about inventory. What’s going on in the local, international level and what happened with home prices and home values? You probably know the market is hyper competitive. So we’re going to cover that as well.
Before I get to the data, just a quick reminder, if you have any questions about buying or selling real estate in Milwaukee, feel free to reach out. You have my contact information here on the screen. I just had a conversation with somebody last week who said, “Well, we’re not sure if it’s actually okay.” Absolutely, reach out to me. I love answering questions. That’s why I’m making these videos. And if you want to buy or sell in Milwaukee, we definitely got you covered. So with that, let’s jump into the data and see what’s going on with interest rates.
So if you have followed my monthly market updates, this is certainly not unexpected for you. The mortgage rates are following the 10 year Treasury, and they’ve started pointing up a while ago. So we’ve been expecting this; rates are going up. We are now at a little over 3%. And on a historic context, that is still very, very low. It’s only a few years ago when we said, “If rates are ever falling below 5%, it’s going to be crazy. That’s so cheap. Totally unheard of.” So in that context, anything below five or 6% is really very, very low. And just as a quick reminder, back in the ’80s we had mortgage interest rates going into the 16, 17, 18% territory.
So yeah, we’re headed from 2.65% back up to over 3%, I think. But mid of the year we might be at three and a quarter, maybe three and a half by the end of the year. So what that does, of course, it makes buying a home a little bit more expensive. And a lot of people are thinking that this will slow down the real estate market.
I’ve been talking to a few of my clients, and the sense that I’m getting, it’s actually putting additional fuel on that fire, because now people are worried that rates are running away on them and they’d rather buy a house now than in three months when they’re locking in on a higher interest rate. It also changes a little bit the plans for people who are move up buyers. So those are people that are selling a house, let’s say in a 250 to 350 range, which is the most competitive price range in the Milwaukee market, and they’re upgrading into something, let’s say, five to $600k, which is a lesser expensive, lesser competitive market. It’s still competitive, but not as crazy as the lower price points.
And so they’re upgrading into a higher price point. They’re leveraging the equity that they are getting from the sale of their current home, and then locking in on a low interest rate, and then moving into potentially a better neighborhood, bigger house/working from home, and doing this with similar payment than they used to have before in the smaller home. So that’s what’s happening with interest rates. I think this is going to add urgency for some people. But of course, on the long run, it’s going to make buying more expensive homes more difficult because your monthly payment is going to be higher. So we’re seeing a change here. This chart makes it look like it’s going to shoot up straight. I don’t think that’s what we’re going to see, but by the end of the year I can definitely see 3.5% interest rates. We’ll see if my crystal ball is broken on this one.
Let’s take a look on numbers here. So these are, as always, single family homes from the southeast Wisconsin, Greater Milwaukee area. And when you look what’s going on here, we have absolutely no inventory.
2,422 homes for sale. That is down almost 50% from last year, which is completely unheard of. Real estate inventory is not supposed to move more than 3% or 5%. We’re down almost 50%. And the crazy part is, despite inventory being down half, so nothing on the shelves, we have sold in February, 1510 homes, which is 3% more than we have sold in the previous year. So with less inventory, we’ve sold more homes. And of course, no surprise, prices are up 11.63%, which is even more than we had last year. 10.26% was the overall price increase we’ve seen in the Milwaukee area last year. So we’re headed now into almost 12% territory. That’s a percent a month in price increase in single family homes.
Milwaukee County, not much different. Same picture. Inventory down, sales volume up. But it shows how competitive the market is. And of course, prices are up 14.3%. So what’s going on here, on a high level?
This is our new normal for 2021. We have a very, very high demand on the entry-level and on the mid-level price points. So anything up to 350 and then anything up to 500 is now also getting competitive. Millennials are the number one home buyers. So we’ve read this in the news. Three years ago they would say, “Yeah, millennials never going to buy a home. They’re just going to not even get a driver’s license, they’re just going to rent an Uber and work at Starbucks on their laptop,” and now this is changing. Millennials are 38 years old. They have babies, getting married. So it’s time for a house and millennials are the number one home buyers that we’re seeing in the Milwaukee area. And nationally for that matter.
Inventories on a record low. We’ll talk about that a little bit more. The older generation lives longer and healthier, which is great for them, but that is also restricting what usually is giving us inventory in Milwaukee, because that and new construction are really the only two options for additional inventory in the market. And new construction is not really helping. We’ve spoken about that in the past quite a bit. Anything that is built is out in the suburbs and usually between five and $700,000. So that does not help much. And of course the quantities are tiny, so that doesn’t really make an impact. We do see a gentrification in Milwaukee. So people who were not able to get a house on the contract because they got outbid, for example in Wauwatosa, they are venturing now across the border and going into lower priced areas in Milwaukee. So we’re seeing them pushing prices up there. Just as an example, but you see that in West Allis, you see that from Bay View to Walker’s Point, wherever you look. You’ll see prices moving that direction.
And what’s happening is really becoming very obvious when you compare it with this data that I have published on YouTube a year ago. So this is February last year, that was before the pandemic, compared with February from 2019. And you can see we had almost 5,000 units for sale on the market. So twice the inventory. And we were complaining back then that inventory was low, minus 2.5% mind you. We said, “Inventory is so low we can’t sell anything,” and we sold 1,446 houses, about the same as the year before. And now compare this with what we’ve sold this year in February. Prices were competitive back then, going up. And the trend keeps on going. But I think it’s always interesting when you look back a year or two years, because that really gives you the context and gives you the trendlines of what’s happening.
So speaking of what’s happening, let’s take a look at national home prices. So we finally have the verdict in from the big research organizations. And they all agree more or less about 10% was the increase that we’ve seen on a national level. And of course, what that means for homeowners is that Lawrence Yun, he’s the chief economist from the NAR, he just put it reasonably. He said, “A typical homeowner in 2020, just by being a homeowner, they would have accumulated about $24,000 in housing wealth last year.” So that equates to saving up $2,000 a month. And what’s concerning to me about this is that it’s also dividing homeowners from non homeowners on a wealth side, because you’re seeing that accumulation on wealth on one side, but people who are not homeowners, they’re missing out on that and getting increasingly difficult for them. So that’s raising some eyebrows of course.
When we look at Milwaukee inventory, and I actually have a chart here, this is national inventory months of supply. When you look back here into January, February of last year, you can see that we went down and then we got spring inventory rolling in. I’m recording this video at the end of March, and I’m not seeing that spike going up with the spring inventory. So that is really concerning. And just as a reminder, something that I’ve discussed on a previous video extensively, Milwaukee is fully built out. So all of these houses are all occupied. If we wanted to build more houses, we have to go out into the suburbs. The problem there is all the houses they’re building there are on super large lots, very big houses, very expensive. That doesn’t really help with the inventory crisis that we have currently going on in Milwaukee.
So I start blaming a failed politics here a little bit. Nobody saw this coming. And we are, from an inventory point, we’re stuck between a rock and a hard place. We’ll see what’s going to happen with that.
And you can see it even more when you look back in time. I’ll start here. We’re currently, with data here for February ’21. So we’re down at 2,500 listings. This is data straight out of the MLS here. And you can see we had about twice the inventory a year prior. That’s when the pandemic hit. And we said, “Oh, inventory is so low because of COVID. Nobody’s listing their house. This is why inventory is so low.” Look back here to 2014, 2015. That was a balanced market. And you can see, but we’re here in 13, 14,000 inventory. This is active listings in the Milwaukee area. So we came a long way from 14,000 down to 2000 homes for sale. This really illustrates how tight the market has become.
All right. So can we get some inventory from forbearance? This is a topic that always comes up in online forums. And I keep getting those questions and answering them. And we have seen forbearance come down quite a bit last summer, but we are pretty stable. It’s declining slowly now here. You can see it on the blue bars. And we are down to 5.2%, which equates to about 2.7 million mortgages that are still in forbearance. And so this is national data. When we look at how this breaks down, you can see that a lot of those who are in forbearance so far had a favorable outcome. So everybody who’s on the green side here, about half of the people, they were just able to pay for it. So they’re good on their mortgage. Then you have the blue guys here that were able to work out some sort of a deal with the lenders. So they are good as well. But we have that red segment here, which is about 15%, and those guys are still in trouble and they’ll have to do something.
Years ago we would have said, “Yeah, they are going to go into foreclosure.” Now what’s happening is they can just put their home on the market and sell it because they’re going to have so much equity that they can sell it, avoid foreclosure. So just sell it traditionally with a real estate agent, walk away with the check, and not having to deal with the foreclosure ruining their credit, which is devastating. So I think this number is too optimistic the way it looks now as we’re working through this. I think we’re getting more to the bottom of the barrel. So I think that red share is going to increase, and we might see more homes coming on the market from forbearance.
But here’s the other side when you look at it. This is data from Altos Research. And they look at the inventory here over the last years. This is typically what we’ve seen in January. Inventory was so low in January this year, with only 325,000 units. That is nationwide. They are thinking that potential foreclosures would only be about as much. So even if those go bad, we would still not have a rush of inventory. It would just barely get us to where we were in a year prior, where we were complaining that inventory was very low. So in that context, you can say that inventory that is possibly coming from the forbearance programs is going to be good news, if anything, because we really need these homes on the market to sell. But this is not going to put us into a situation where we’re going to have an abundance of inventory, or even the surplus of inventory that would be able to slow down the increase that we’re seeing on pricing. So the data does currently not indicate that even if things are getting tougher as we’re moving forward.
And here’s the other thing to consider. This is national data, but forbearance is basically driven by unemployment. So it’s mostly people that have lost their jobs, that cannot keep up with the mortgage. They are going to go down that path. When I looked up Wisconsin unemployment rate, I actually had to Google it twice because I didn’t believe it the first time I saw it. It’s 3.8% in January. That is for Wisconsin. And when you look at this chart here, this is giving you a national context, you can see the gray lines here are all the other states. Look where we’re at. We are one of the best states in a national context. These are the 50 other states, how they are doing. So Wisconsin has done a fabulous job recovering from the COVID spike, almost 15% that we’ve seen last year, with very low unemployment rate. You can look it up for Milwaukee as well. Milwaukee is higher. Metro areas are always a little bit higher than their entire state. But even so, I think Milwaukee was like 5.8% or 5.9%.
So we’re doing much better than most states and most metro areas doing on a national level. My point here is, most of the forbearance that are actually going to default are not going to be in Wisconsin. There’s going to be more in other states where they’re still having much higher unemployment rates.
So I would say bottom line is that we can expect some inventory to come out of the forbearance programs, but I don’t think that it’s going to be enough to make a major dent in the market, or even tilt the market dynamic into another direction where we’re going right now.
Let’s take a look at home values, because every time I look at these numbers and I’m seeing 10, 12% price increase year over year for a market like Milwaukee, which is not New York or San Francisco, this is not normal for us. This is not usual. And it makes me nervous. So looking at the data, what can we find here? When you look back into the years 2002 to 2005, you see that we had an average annual appreciation of over 10%. And when you’re comparing this to what’s going on right now in the last four years, we had an average of 6.3%. The main difference back then to now, is that back then we had a lot of new home construction, we actually had a surplus of inventory. So there have been a lot of vacant homes that have been only built on a speculative basis with very hot money from easy loan mortgages, ninja loans, that everybody could easily get. Build a new house, sell it half a year later for a profit, pay off the credit cards. Do it again. So this is what people were doing.
Today we have a completely different situation. We actually have no vacancies. We have not enough houses. We have not enough new construction. We have not built enough new houses for the last 10 years. This is what got us into this hole where we’re at now. And we don’t have enough inventory, and we have a huge wave of demand coming in from young buyers who are buying their first home. And that’s what’s creating the demand side. I’m not seeing either the supply side changing much, or the demand side changing much. If you have a different opinion, I would love to hear your comments, just put them down in the description below. I would love to hear your take on this. And I always try to respond to comments within about 24 hours. So keep an eye on that. I’m always happy to see what people are thinking.
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All right, moving on here. Here is a comparison on a national level. Back in 2005, this is what happened. So this was before the 2007, 2008 crash. You can see that three regions really stood out here with a very strong gains, 17 to almost 20% year over year increases in property values. Of course that’s not sustainable. So these areas were the ones that eventually started getting us all in trouble. The Midwest was very conservative with 6.2% at the time. So the point here is that you see a lot of differences between the different regions. When you’re comparing this with what happened in Q4 of last year, you can see that this is very much the same all across the country. So everybody is about, give or take, in the 10% range. We have 10.7% here, and that’s right around the average of 10.8 that we have for the US. The only two regions that are standing out is the mountain region and the New England region, both with about 13%. And that is because people are moving there because of COVID.
They want to move from a very densely populated area into more a rural area. So that’s why we’re seeing these increases there. We’re also seeing this, by the way, with Milwaukee. So there’s people are moving from major metro areas that are calling us and looking to relocate to the Milwaukee area because they’re downsizing from a super large metro area to something like Milwaukee. So that’s a trend too. But this looks a lot better than what we have seen here in 2005, which was really hyped up by cheap, easy access money, and then overproduction of new houses. Right now, this is a reflection of the national shortage that we have on inventory. There’s too many buyers and just not enough houses. We are just short of inventory. That’s what it comes down to. So we’ll definitely want to keep an eye on this.
What does this mean for the next months going forward? So here’s my outlook for spring, for the next month. Millennials are the biggest buying group in Milwaukee, and they will continue to drive the market. By the way, in the last months, I have not written an offer for only asking price. Every single offer that I have written, or received for this matter when I was on the listing site, was over asking price. We’re seeing anywhere between three and 10% over asking price. When you do the math, that is insane. But that’s what’s happening right now, especially on very popular listings where everything is remodeled, it looks like HGTV, and people are just offering way over asking price and they’re still not getting their offer accepted. We’re seeing a lot of offers without home inspection or with limited home inspections. And because when you drive up the value so high, then financing an appraisal becomes a concern. So we’re seeing offers with limited [inaudible 00:21:06] appraisal contingencies. That shows how competitive the market is going.
A few years ago you would make an offer, and you would offer $10,000 below asking price with inspection financing, appraisal contingency. And by the way, if anything comes up at the inspection, then Mr. Seller, you’re going to have to pay for that. We are upside down. It’s a completely different environment here. So prices will continue to increase about 1% per month, and this is not going to change until we are going to see a change in that dynamic. That means we need to either have somehow more inventory on the market, so we need vacant houses, wherever they’re coming from, or we are going to need the demand to go away. And I cannot really think of a good way for the Milwaukee market, how either one or the other might happen. Because the demand is coming from young people and they’re sick and tired of renting, and they’re not going to want to move in with mom and dad again and live in their basement.
So I don’t really see how this is happening. And put your thoughts in the comments below. I’d love to hear from you, from your friends, from your own social circles, what are people saying? What are they thinking? What’s going to happen? Attractive homes are selling extremely competitive. Just mentioned that rising interest rates will make homes more expensive. So we have two different going theories here what’s going on with the rising interest rates. That could either mean that this will going to dampen the housing market, which quite frankly would probably be a good thing, and slow things down a little bit so we can start breathing again. But on the other hand, I see it with my current clients that it’s driving their urgency because they really want to get a house under contract now and lock the interest rate in before it keeps on going too high.
Medium price points, and also luxury price points, are going to appreciate. Especially the luxury segment, we have not seen going up last year. I think we’re going to see that cascading effect now more and more as people are upgrading, they’re selling a house in a more entry-level or a medium segment, taking advantage of that hyper competitive market, taking the equity and upgrading into a less competitive, higher priced home. So it’s definitely a good time to trade up.
If you have any questions, if you’re thinking about buying or selling, you have my contact information here. Definitely reach out. We’ll take good care of you. And please give it a thumbs up if you enjoyed this video, and I’m going to see you next month.