WAUKESHA COUNTY — If there is one thing everyone in the greater Milwaukee area has talked about this year, it’s the almost crazed state of the local housing market.
Stories of homes selling within a day or two of being listed and skyrocketing offers have left many would-be first-time buyers wondering if their dreams of home ownership might ever materialize.
For those wondering when there might be some relief, the simple answer is: Not anytime soon.
But new approaches to development, and a little flexibility on the part of homebuyers, could provide some relief in the months and years to come.
Sales up, supply down
Speaking about the phenomenon, Mike Ruzicka, president of the Greater Milwaukee Association of Realtors (GMAR), said the impacts of the low-supply, high-demand market are expected to continue for at least another 12 to 18 months.
While data recently released by GMAR shows that home sales across Southeastern Wisconsin — an area that includes Waukesha, Racine, Ozaukee, Kenosha, Walworth, and Washington counties — were up by 26.6 percent in May, Ruzicka notes that the number of homes sold during the month is still 5 percent below where sales were in May 2019. In Waukesha County, sales only increased by about 9 percent. And in Washington County, they were down by 7.5 percent.
The problem, said Ruzicka, continues to be the overwhelming lack of single-family homes on the market.
“Right now inventory is at 2.6 months of supply. It’s actually under a month if you exclude all the houses on MLS (the multiple listing service) that are active with an offer,” Ruzicka said. “We’re kind of seeing a little bit of cooling now (as far as the bidding goes). But it’s going from 10 offers on a property that was listed yesterday to five offers on a property that was listed last week. It’s like going from a 104-degree fever to a 102-degree fever. It’s still a fever.”
The reason for the lack of listings here, and across the country, isn’t just due to COVID-19 supply chain and labor impacts.
“The situation we are in right now is really a hangover from the Great Recession,” Ruzicka explained. “Many people got out of the building trades. At the same time, household formation never really stopped.”
With increasing numbers of Millennials entering the housing market, and Baby Boomers looking to downsize into condos, it created the perfect storm, especially when COVID-19 hit. With no new construction happening, there was nothing to alleviate the pressure, Ruzicka said.
“Both supply and demand are kind of on steroids right now … if you are looking for a 20-foot view, we are looking at (things staying the same) for several years down the road,” he said. Demographics aren’t expected to change significantly in the coming years, he added. Neither is the shortage of people in the building trades, which has been impacting new home construction for around 25 years.
In order to reach a balanced market, which would be six months of inventory, the Milwaukee Metropolitan area — Milwaukee, Washington, Waukesha and Ozaukee counties — needs 6,000 additional listings, Ruzicka wrote in a May homes sales report last week. In Waukesha County, for instance, new home listings actually decreased in May by about 6 percent.
As real estate agents and homebuyers bemoan the lack of available listings, homebuilders and developers have been getting back to work. In Waukesha County, there are several subdivision projects in the works, some designed to help fill the region’s need for entry-level homes.
John Wahlen of Cornerstone Development has been working on a pair of developments in Waukesha County that include newly built homes and condominiums on smaller lots that could offer price tags more in line with the budgets of younger families or retirees.
In Pewaukee, Cornerstone is in the process of developing The Glen at Pewaukee Lake. Slated to be constructed on the buildable portions of the roughly 14-acre St. Mary’s Church property, the development will include 46 ranch-style, single-family homes.
Wahlen has estimated that home and lot packages in the development would be somewhere around $450,000.
Over in Waukesha, Cornerstone is looking to develop The Glen at Standing Stone. Located off the northwest corner of the Sunset Drive and Les Paul Parkway, the 69.7-acre development is slated to have 64 double-duplex condominium homes, 28 large-lot single-family homes, and 16 smaller-lot single-family homes. The larger-lot homes are expected to accommodate houses between 1,600 and 2,600 square feet; the smaller lots, homes between 1,400 and 1,800 square feet. Home and lot packages for the smaller-lot homes are expected to be around $410,000, with construction starting sometime this summer.
“What we wanted to do is provide a variety of housing styles to try to help people get into home ownership, and still hit price points,” Wahlen said of the development.
With some of the owner-occupied condos he’s been developing, Wahlen said he had been hoping to hit price points in the high $300,000s. But with the rise in material costs, especially lumber, that just wasn’t possible.
In April 2020 1,000 board feet of lumber had an average price of $336. In May of this year, the price was roughly $1,700.
And while lumber prices are forecasted to drop to around $1,200/1,000 board feet by April 2022, there are other impacts in building costs, including higher prices for PVC pipe and steel garage doors.
‘Hurry up and wait’
For those still in the trenches, reading new home listings with bated breath and perhaps even a little exhaustion, Ruzicka encourages a bit of flexibility. Being willing to expand the area you want to live, and/or purchase a fixerupper, are just a couple of options.
“A fixer upper will require sweat equity to get the property to what your standards are, but a lot of people with houses that need new paint or siding might be willing to let them go for less, so they don’t have to make the updates themselves,” Ruzicka said.
While homes are expected to mostly hold their value, at least over the next 10 years, Ruzicka warns against desperate homebuyers taking risks that are too great. While offering a few percentage points over the asking prices is fine, an offer of 10 or 20 percent above asking is foolhardy, he said. He also cautions against waiving home inspections and appraisals.
“People need to be really careful with that sort of stuff,” he said.
The best advice Ruzicka can give buyers in this market, he said, is the old adage: “Hurry up and wait.”
“You really need to be patient in this market, and take your time, and be able to jump on something as soon as you see it,” he said.