The rising interest rates aren’t yet high enough to throw a wet blanket on the downtown Milwaukee condominium boom, according to several local real estate experts. In June, the 30-year conventional mortgage rate was 6.68 percent, compared with about 5.55 percent in June 2005, according to the Federal Reserve Bank of St. Louis. Rising interest rates have allowed the condo real estate market to level out to more normal-paced levels, but condo developers continue to build, and consumers continue to purchase, real estate experts say. "Two years ago, mortgage payments were lower than average for the previous 28 years," said Mark Eppli, Marquette University professor and chair of the Robert B. Bell Real Estate Program. "The issue is less about interest rates and more about the supply of housing and the demand of jobs."
One concern some consumers have about rising interest rates is that they will result in a housing bubble burst, which would send property values downward. Howver, according to Eppli, it would take a combination of overbuilding and a decline in employment by more than 5 percent to cause a serious decrease in housing prices. "We are not overbuilding Milwaukee, and we are not losing jobs," Eppli said. "We are in supply and demand equilibrium." When interest rates increase, the people immediately affected are first-time home buyers and those on the margin for being able to afford a loan, Eppli said. "A couple of points will put people out of a mortgage," said Mike Ruzicka, president of the Greater Milwaukee Association of Realtors.
With the rising interest rates come larger numbers of people receiving exotic or nontraditional mortgages, Ruzicka said. Those can be risky, experts say. "People on the edge of being able to afford a mortgage may use an adjustable rate mortgage (ARM)," Ruzicka said. "People use a three-year ARM just to get into a house. But when the three years are up, the ARM adjusts, and they get whacked." Such situations often result in mortgage foreclosures, Ruzicka said. The downtown Milwaukee condo market remains stable, Ruzicka said. "Everywhere else except for the $200,000 range has slowed and gone to a more normal market," Ruzicka said. "The last couple years, the market was moving at a break-neck pace where it could not keep up with itself, and now, 10 years in, the market is normal."
A normal pace is marked in some cases by the amount of time a property or unit stays on the market before being sold. Currently, 75 to 90 days on the market before a first offer or first look is normal, Ruzicka said. "I have been a Realtor since 1995, and it has been my experience that these interest rates are not high at all," said Jean Stefaniak of Milwaukee-based Stefaniak Group Realtors LLC. "Anything in the single digits is still good. Buyers have been spoiled in the last three or four years. To go from 5.5 to 6.5 percent, to an educated buyer, is no big deal and they will still see the value." In 1981, the 30-year conventional mortgage rate was more than 17 percent, according to the Federal Reserve Bank of St. Louis.
"The real estate market in the Metro Milwaukee area compared to other areas in the country is still really quite affordable," Stefaniak said. "The Third Ward has been outstanding historically and is definitely a growing trend where people are spilling (from the Third Ward) to the Fifth Ward south of the river." Stefaniak and her business partners are currently working with Water Street Lofts at 200 S. Water St. in the Fifth Ward, where phase one is completed a second phase will have 36 units, 24 units of which have been sold or have accepted offers.
"Overall, from a general real estate perspective, residential real estate in Milwaukee is solid compared to the rest of the country," said Tim Gokhman, director of sales and marketing for Milwaukee-based New Land Enterprises LLP. "We tend to be conservative, so there are no huge ups and there are not huge downs. We don’t really get bubbles in Milwaukee."
New Land Enterprises has developed nine condominium properties in the metro Milwaukee area, including The Sterling on North Farwell Avenue, Cathedral Square on East Wells Street and City Green on North Marshall Street, which will be completed in 2007. New Land Enterprises also owns and manages 10 apartment developments in the metro Milwaukee area.
"The condo market is still strong," Gokhman said. "At The Sterling, we are at the final stage of construction. People have started to move in, and we have sold 76 out of 112 units already, which is the majority of the project. City Green is high end and more expensive (than The Sterling) and we have already sold a quarter of the building. We sold a quarter of the building and we don’t have a model or the ability to tour through." The Milwaukee condo market is still not oversaturated, Gokhman said.
"There are so many options out there," Gokhman said. "When the condo boom started in Milwaukee, I think it was novel for Milwaukee, and because Milwaukee had never seen it before, the projects sold right away. Now we are in a balanced market, which is a good thing. As a developer, I would be happy to sell units overnight, but as a buyer, you don’t want that. You want to comparison shop, and that is healthy." New Land Enterprises has two additional condo development proposals, one near North Downer Avenue on the East Side, currently called Downer Lofts, and one on East Silver Spring Drive in Whitefish Bay, currently called The Bay. Gokhman said that the lower interest rates over the past three years have caused more people to consider purchasing over renting.
Even with the rising interest rates, the apartment market is still somewhat weak, he said. In many ways, the apartment market is difficult to gauge in Milwaukee because of a seasonal influx during the summer months with short-term leases, Gokhman and Chris Kantak, assistant property manager for Yankee Hill apartments said. "I don’t believe rising interest rates have affected us in any major way, and interest rates are historically low," Kantak said. "Rising interest rates have a bigger impact on the price of condos. A 10 percent interest rate is going to push people out of the market in terms of affordability and (condo developers) may have to soften prices."
A one-bedroom apartment at Yankee Hill ranges in monthly rent from $895 to $1,090, two bedroom rents range from $1,155 to $1,490 and penthouses go up to $3,500 per month, Kantak said. "Yankee Hill is a more expensive property, given the location and amenities," Kantak said. "It is a lifestyle decision. People want the freedom of not having to shovel snow and cut the lawn." Yankee Hill, along with other apartment properties in the downtown Milwaukee area, will offer rent specials during the spring and fall when there is an increased amount of occupancy. However once the summer months start, the specials are no longer available, Kantak said.
High interest rates or not, individuals are purchasing condos for the space and the place, Eppli and Ruzicka said. "Condos will not be for everyone," Ruzicka said. "You can’t take a couple with young kids and move them downtown, but the young professionals and empty nesters are not going away." Ruzicka predicts that more condo development will continue west of Interstate 43 near Marquette University. Condo developers need to have three key elements fulfilled to continue to be successful in the downtown market, Gokhman said: location, design and price.
"If it is a great location and floor plan, but the price is out of control, the developer will have a tough time," Gokhman said. "If one key element is missing, the condo units will be tough to sell, but that is why it is so important to do solid research before purchasing a condo." Purchase prices, monthly payments, condo fees and taxes are all factors in the decision to purchase a condo. However, when the condo is located near downtown Milwaukee, consumers see a value in the amenities both inside and outside the complex, real estate experts say. New Land Enterprises chooses land to purchase for condo developments based on the neighborhood around the property so residents are within walking distance of the lake, shopping and entertainment, Gokhman said.
"The reason we go with this theme is the philosophy of downtown living," Gokhman said. "Residents are not just living downtown, generally speaking. The fun of it is that they get to come home on Friday afternoon after work and can park their car for the weekend and don’t necessarily need it. They can go to a farmer’s market or a lakefront festival, and that is the point of city living." Stefaniak says the aging baby boom generation should keep the downtown real estate market strong for the foreseeable future. "With the majority of the population being baby boomers and the majority of baby boomers retiring in the next 10 to 12 years, we still believe the condo market and real estate in general is going to be strong for the next 10 to 12 years," Stefaniak said. "Baby boomers will be retiring and purchasing real estate that is on one level, whether it is a condo or a single family ranch home."
"Consumers will just have to readjust to the market," Ruzicka said. "This is a unique market. Over the last 15 years we have created a new city within the city, and there is no slowing down until interest rates hit 18 percent again."
