Labor shortage, tight markets pushing home prices higher

By Eileen Mozinski Schmidt - Special to the Freeman 

June 2, 2016

Work is underway on a new home by Bielinski Homes in the Laurel Springs subdivision in Jackson. Bielinski Homes CEO Paul Bielinski said new construction has been in high demand in the current housing market, which others in the industry say is a seller's market that is low on inventory.
Eileen Mozinski Schmidt/Special to the Freeman

MENOMONEE FALLS — There was a time in Rick Lentz’s career when it was remarkable for a listed house to receive more than one purchase offer.

Now it is the reverse.

“For the last six to eight months it’s been unique or special if you don’t get multiple offers,” said Lentz, sales manager of the First Weber Realtors in Menomonee Falls.

“I’m stunned at the number of multiple offers being written on properties,” he said, in an interview with The Freeman this month. “It’s as hot as I’ve seen the market in my career.”

The spring season has unleashed a seller’s housing market, an aftershock of a Great Recession that saw housing values plummet and held construction at bay, according to some in the industry.

Now area experts say housing prices are on the rise and mid-range inventory is being gobbled up quickly. Demand for new construction is increasing, and challenges like a lack of trade workers and few middlepriced housing inventory options have risen.

And with the Foxconn economic development project in the works, industry leaders say the Milwaukee metro area is poised for some of these trends to continue into the foreseeable future.

A “great flush” in the market

Lentz said homes priced between $150,000 and $450,000 in the Menomonee Falls area spend little time on the market. Listings $500,000 and up have a smaller pool of potential buyers and therefore are not selling at the same feverish pace, he said.

It is a pattern he said is being repeated across the state and country, but at prices particular to local regions.

“We’re all experiencing it in some shape or form but the price ranges are different,” said Lentz, who said that in a market like Seattle, where prices are higher, the in-demand inventory might be in the $450,000 to $800,000 range.

“This is countrywide. There is a shortage of inventory and the bulk of people are buying,” he said, explaining that during the recession, housing prices in the Milwaukee area dropped by about 35 percent.

“But this country didn’t stop making families,” he said. Now “you have this great flush entering the market and you don’t have the inventory for them.”

Paul Bielinski agreed that recent activity levels seem to be a follow-up to the slowness of the recession.

The Pewaukee-based company has developments underway throughout the metro area, with homes in various stages of completion.

“As fast as we can build them, we’re selling them,” said Bielinski, CEO of Bielinski Homes.

“We’re almost five months through the year and it’s phenomenal. Last year was a great year and this year is even better,” he said.

The shortage of inventory means more consumers are considering building new, and Bielinski said spec homes are in higher demand than ever, referring to the term for “speculative properties” constructed for immediate listing on the market.

People are drawn to homes where “nobody else has put their imprint on it” and yet all of the detailed decisions of construction have been made, Bielinski said. In addition, today’s consumers are accustomed to being instantly gratified with their purchases.

“This is translating into new homes as well,” said Bielinski, who said Waukesha County locations remain popular for home buyers and there has been “a lot of activity” in Washington and Ozaukee counties recently.

Those areas are growing quickly because there is available land for development and it is part of the metro area that had been expected to support the next wave of expansion, said Jonathan Synovic, president of the Metropolitan Builders Association, a nonprofit trade organization.

“Three years ago when coming out of the recession, developers had a plan for those areas,” Synovic said, adding that wherever developers are plotting new subdivisions, they are selling homes “left and right.”

U.S. housing starts in April were up 10.5 percent compared with April of 2017, according to the U.S. Census Bureau. But in the Midwest numbers were lower, down 18.4 percent year-over-year, the bureau reported.

A shortage of workers

The frenzied activity level in the market can be stressful for some, Lentz said, adding sellers sometimes feel they underpriced their home after receiving three or more offers.

“On the other side you’ve got the agents and buyers want to know what the other three offered. The buyer is saying, ‘I overpaid,’” he said.

In some cases, appraisers find themselves under pressure when they tell sellers the prices being offered can’t be substantiated.

And the shortage of trade workers is an issue.

“This is not just a Wisconsin state problem. This is a United States problem. We’re pulling tradespeople from other states,” said Synovic, who said the labor shortage is the result of fewer students pursuing the trades in favor of attending four-year colleges, and schools subsequently cutting trade programs.

There is also a backlog of homeowners who would like to sell but cannot find a home to move to, according to Lentz.

Meanwhile, the cost of land has risen considerably thanks to impact fees — both municipal costs of bringing services to an area and state fees, Synovic said. He said this is making it more difficult for buyers to find “middle- ground homes.”

He said the builders association is frequently engaging with cities, trying to convince them to allow builders to construct smaller homes more affordable to groups like millennials, many of whom carry student debt.

“The cities are frowning on that. They want to see more of the larger homes” that boost the tax base covering city infrastructure costs, Synovic said.

He recommended buyers who feel priced out of the market talk to realtors, builders, or others in the industry as there may be other options available, like remodeling a lower-priced home.

More growth with Foxconn

As the Foxconn Technology Group manufacturing project progresses in Mount Pleasant, there will be even more demand for trade workers to construct housing and the necessary surrounding infrastructure south of Milwaukee.

Synovic said the Builders Association is working with municipalities on plans for build-outs and housing developments.

The growth from the company will likely spread to other parts of the metro area given the plan for locating Foxconn’s Wisconsin corporate offices in downtown Milwaukee, Lentz said. The company acquired the 611 Building at 617 E. Wisconsin Ave. earlier this year.

“All of a sudden that opens up Brookfield, Elm Grove, Menomonee Falls” real estate markets, Lentz said. “This is going to have a pretty broad impact on housing in southwest Wisconsin.”

Synovic expressed concern about preparing building plans and finding the necessary labor as quickly as needed, along with questions of how to tackle the development needed around Foxconn while maintaining the current growth trajectory of the metro area.

But Synovic ultimately feels that all of these needs will be met.

“We’re up for the challenge,” he said.