Home sales could slump as inventory continues to remain tight

The shortage of homes available on the market for millennials looking to purchase their first house, baby boomers hoping to downsize and everyone in between will continue to be tight for the next 18 months to two years, industry experts say.

This has been the trend since the housing market rebounded in 2015 – about six years after the Great Recession – when more homeowners were able to sell their homes for more than what they had paid for them.

The recent frustration, of course, has been on the buyer’s side, as some homes located in good school districts and the hottest neighborhoods sell well above asking price and many have multiple offers.

“It is a really tight market and because of that, things are selling at or over asking,” said Toni Spott, a realtor with Keller Williams Realty. “But still, even in this market, it has to be a decent house and has to appraise out by the bank.”

Spott recently met with a financial advisor who said within the next 18 months to two years, there will be a glut of homes on the market and the prices will begin to go down.

“I do think we’re at a little bit of a bubble again,” Spott said.

Mike Ruzicka, president of the Greater Milwaukee Association of Realtors, said that if the economy hits a lull or interest rates go up within the next 18 months to two years, sales could slow down.

“The pie of listings seems to be getting smaller, and as the number of listings decrease, buyers might go away,” Ruzicka said.

In just the past two months, home sales, which had been increasing month after month for more than a year, have been down.

In May, home sales fell in the metropolitan Milwaukee market for the first time in 2018, down 2.7 percent. Home sales were down 8.5 percent in June, with 221 fewer homes sold last month than in June of 2017.

Home sales in the metro area for the first half of the year were flat compared to the first half of 2017, with 10,247 homes sold so far in 2018. Still, the totals through the second quarter, for both 2017 and 2018, were the strongest since 2005, when 10,282 units sold.

“Despite a decline in sales over the last two months, and an even second quarter, the building blocks of the local economy and housing market are pretty solid,” Ruzicka said. “Many homes in good school districts, in move-in condition and priced under $300,000 are receiving multiple offers. And there are no signs that the market will slow down.”

The only thing holding back a higher volume of sales is the availability of homes for sale. And there doesn’t appear to be any way to remediate that issue any time soon.

The supply of homes for sale is not close to keeping up with demand, which continues to increase, Ruzicka said.

“We’ve seen an increase in household creation in the last 10 to 12 years, which before was easy to accommodate,” Ruzicka said. “Now, we can’t accommodate them, which is why when kids graduate college they live with their parents or find an apartment; but apartments are expensive.”

There were 2,459 new housing permits in the state from January through April, according to the Wisconsin Builders Association’s most recent data. That is down 2 percent from the same time in 2017.

Of those, Milwaukee County had 44 permits pulled, Racine County had 81, Kenosha County had 62, Waukesha County had 320, Ozaukee County had 58 and Washington County had 105.

Ruzicka said he would love to see more condominiums built but so far, with the exception of a few small condo developments that have been announced, that is not happening.

“Apartments are fine for a few years, but most people want to build equity,” Ruzicka said. “What is interesting is because the first-time market is generally looking under $300,000 and the baby boomers want to downsize, they are competing for the same homes.”

In the four-county metro Milwaukee area, homes under $300,000 accounted for 68 percent of the homes sold in June. Of those, 85 percent sold within 60 days.

During that same time, there were 409 fewer homes listed for sale in the area than June of 2017.

Over the next six months to a year, Ruzicka expects these types of trends to continue.

“If you sell your house, you will probably get in the low single digits (percent) above what you could have gotten last year,” he said. “Depending on the condition and the school district, it could go up more. And you can probably expect multiple offers.”

Southeastern Wisconsin home sales

Source: Greater Milwaukee Association of Realtors.