Unemployment, Mortgage Rates & US Elections - Milwaukee Real Estate Market Update: October 2024

Welcome back, everybody. Good to have you. Whether you're currently living in the greater Milwaukee area or you're thinking about moving here and are looking for some level-headed information, you came to the right place. This is the October 2024 market update. We're in the middle of the fall season, one month ahead of the presidential election, which, of course, has a big impact on the real estate market, but maybe not what you're thinking. We'll talk about that, about mortgage rates, what's going on with inventory, big changes here, and also I want to take you on a quick spin through the economy and how that is impacting the real estate market now and in the months to come. As always, let's get started with a quick look at the latest numbers straight out of the MLS. Inventory is up 33%. If you remember last year's summer, we dropped below 2,000. So whether you were looking at the North Shore and Wauwatosa, Brookfield, there was hardly anything on the market and anything that popped up was gone right away. So from a buyer's perspective, having twice as much inventory is a huge change. So the marketplace looks totally different, but we're still in a seller's market. Take a look at September 19th before COVID. We had almost 7,000 units on the market this time of the year. So that puts it a little bit in perspective. In terms of units closed, very small number here. We're down 14%. That is the impact of the presidential election because we don't know who's going to be the president. And in the face of uncertainty, people tend to just freeze and not do anything. Of course, for the savvy ones, this is an opportunity, but relatively low number here. Our team, by the way, did great in September. We closed 14 deals and we are a very small team, so just a handful of agents. And that means we have a lot of exposure to the market. We see a lot of deals and we see it every day when we do listings, when we talk to other agents. And so what I'm trying to share here with you is not only the numbers, but also our team's experience and what we see and feel every day being in the market. So we'll get to that in just a bit. Eight days on market. So we're up from five this summer. So the velocity of the market is coming down a little bit, which is a good thing, but still relatively fast paced. And with that prices, $336,000 is now the median home price, up 8.39% over last year in September. We are down from the peak that we see every year in May and in June. If you look back over the last 10 years, Milwaukee home prices have basically doubled. What are some of the market trends that we're seeing? I feel like I have to give you an update on the NAR settlement and on the new commission rules, how agents get paid. If you want to know the details, I uploaded a video last week with the new system, what you should be looking for when you choose an agent. So go and take a look at that. But overall, the markets have not impacted that much. Wisconsin has always been a very transparent market. The paperwork has changed a little bit, but overall not that much of an impact. The lower rates have brought back buyers and sellers into the market. You might be wondering why are sellers back in the market? A lot of them have been what we call rate locked. So when they had a mortgage on their old house for, let's say, 3% and they're looking at 7% or 8% last year in fall, they didn't really want to move because they would go from a very low mortgage to a very high mortgage. And that was withholding inventory from the market. Now rates have come down. That is allowing sellers to come back into the market. The interesting thing here is that mortgage rates have actually started dropping a month before the Fed has dropped their rates, which is illustrating how the Federal Reserve is not really controlling the mortgage rates. They're kind of running in parallel a little bit, but they're not really in control of it. But once the Fed went on the news and said, we're cutting rates that got the attention of a lot of people, and they started looking up mortgage rates again and were positively surprised. So we are actually seeing a lot of people resurfacing that have dropped out of the home buying cycle for a while when rates were so high. They're back in the market. They're not buying yet, but they're looking again. And it's not impacting the numbers right now, but I have a feeling that is going to impact the spring market quite a bit, especially if rates are going to continue to drop. In terms of supply, we have seen true to the season, supply starts softening. So especially in the first 10 days here in October, we are seeing still a good amount of listings coming on the market, but it's already getting a little bit fewer. And also the market overall is softening. So we're seeing fewer offers and we're seeing more contingencies. So good news for buyers, good news for home inspectors, because we finally get to put home inspection contingencies into offers again, and that's definitely a good thing. Now let's take a look at what's going on with inventory. So the blue line here is active listings. This is total inventory, and we are up over 4,000. So this is a huge change, and it's not a flash in the pan. If you've been following my market updates all along here, you've been hearing me talk about getting more inventory. And this has really been an inflection point because we haven't seen this amount of inventory basically since 2019. 2020 was already very, very low. So this is significant. This marks really a shift in the landscape. In terms of new listing coming on the market, we're holding very stable with a good amount of supply here. So the red line is what's hitting the market every month. And in terms of what can we expect in the next few months, I think last year is giving us some good indications. So we will follow this trend. New listings in October and November and December are going to become less and less and less. Nobody who has a choice is going to list a home between Thanksgiving and Christmas. They would rather hold off and wait until the spring market. And this is really where the annual huge disconnect between buyers and sellers are happening. Buyers are literally jumping on the internet on January 1st because they've been talking to their family about buying a home in the new year. And January 1st, they're out there looking, and there's no inventory out there, just the leftover junk from last year, basically, that nobody wanted. And new listings are not coming out yet. And that takes a while. When you look here, January, almost nothing, February, a little bit more. And then it starts end of March and in April, where more inventory is coming on the market. The issue is that buyers at that point have been trying to get a house on the contract, but their anxiety is growing because they have made offers and didn't get anything accepted. So that always creates that crazy dynamic that we see in the spring market. Speaking about competitiveness, let's take a look here at the sale to list ratio. If you're new to the channel, a super important indicator to take a look at this basically is telling you how much on average people end up paying over or under list price. And over the last few years, we have seen every year in the summer, people on average paying over list price. So we peaked out at 102.5%. Now we are down to 100.5%. Very typical for the season, exactly what you would expect. The competitiveness is coming down, but on average, buyers are still paying over list price. What's going to happen here next month, we'll probably see something like last year, and the competitiveness is coming down. There's going to be some room to negotiate a little bit here. The only caveat, this inventory at that point will be already very picked over. So the new supply is kind of drying up and you only have the choice of properties that nobody wanted before. So that's the caveat here. I should probably also point out that competitiveness is of course not uniformly distributed here in the Milwaukee area. We have certain markets that are always hotter than some others, and we're tracking this. This is where local market knowledge comes in. Of course, speaking of local market knowledge, YouTube is telling me that the majority of my audience is here in Wisconsin, but it doesn't go that granular. I'm dying to know where you live. So do me a huge favor and put your municipality or your neighborhood in the comment section below. I would really love to know where my audience is. And of course, if you have any questions that you want me to talk about in the next monthly market update, then you can put them down there as well. And I'm always happy to pick up interesting topics. Let's take a look on the competitiveness, because that's a question that I get a lot. And here's the data. So how many homes are actually selling over list price in a percentage? So we have here 50 to 60%. That's kind of the range here. And the two lines are red for national and green for Milwaukee. So what this chart is telling us that we have seen nationally and locally here in Milwaukee, a very, very competitive market. During the COVID years, we call it the unicorn years because they were really an outlier. Extremely hot competition. Almost two thirds of all homes sold over list price. The national market has cooled off since. The Milwaukee market has remained relatively competitive. So we are still quite a bit over 50%, over half of the listings are selling over the seller's asking price. So what is that doing to prices? Again, in red here, the national prices. And after the crazy run we have seen here during COVID, things are kind of going sideways a little bit. The Milwaukee market, as you would expect, is following the previous pattern. And we're just seeing every year there, the seasonal swings between winter and summer here. So a very predictable market here locally. Home prices here in Milwaukee are still quite a bit less than the national average. And that is only the average. So that's not considering East Coast or West Coast where homes literally cost a multiple of what they're costing in Milwaukee. So long term, I'm expecting that these two curves will get closer and closer together because if you travel a little bit, Milwaukee is not a below average city and it certainly does not deserve below average prices. So I think that over time and with remote work, these two lines will come together. Milwaukee prices will probably inch up. By the way, if you want to have a conversation with me about your specific moving plans, please reach out to me. I can only help you if we're getting in contact. The easiest way is always to just send me an email at m.aurerbach at kw.com. You have my contact information in the video description below, or you can also go to our website on pointrg.com. We have a lot of helpful resources there. You can download our buyer's guide. You can download our relocation guide. You can even request access to the MLS there or book an appointment with me. We are onboarding new clients all the time, and I'm looking forward to hearing from you. And with that, let's take a look what's going on with the economy. Big announcement was the Fed is saying they are in no hurry to cut the rates further after September's rate cut, where they went down half a percent in the federal funds rate. Let's take a look why this is happening. So the big number that came out in September was from the jobs market. We had about a quarter million new jobs created. You can see that's quite a bit more than what we have seen during the summer. Now, the Fed has been trying to cool off the economy because they're trying to get inflation under control over the last two or three years. So they're trying to cool off to chill the economy. Now, the Fed does not want this to go crazy. They don't want to put gasoline on the fire and have the economy run hot again because that would trigger more inflation, and that's exactly what they're trying to get under control. So that's the reason why they're holding off of further rate cuts for right now. So we will see in a few months how that shakes up. In terms of unemployment, I have here unemployment in red for the US average. So that has come down a little bit. That also goes in the in the same direction. This is why the Fed is taking a careful stance here. And of course, I have to point out, very proud of Wisconsin, we have only 2.9 unemployment rate in Wisconsin. So we're doing better than the national average, to the point where it's actually hurting our businesses because it's really hard to find people. And we can't almost bring more people into the state because we don't have the housing. More on that in also just a second. What's going on with mortgage rates? 30-year fixed is down. We are currently seeing the lowest rates we have seen in a year, even though in the last 10 days or so, things have started going up a little bit, but a lot better than what we were a year ago. The outlook is that we're going to expect mortgage rates to trend a little bit lower next year. Not a huge change. Maybe we're going from the sixes into the fives, which will already help a lot because psychologically, we know from surveys that as soon as mortgage rates go back into the fives, a lot of people will change their position. They're currently on the sidelines and they will be coming back into the market. 6.125 is currently the lowest rate for a 30-year fixed that I know of from a local bank. The Fed is also saying something about the housing crisis. They said the government or the Fed are not really in a position to fix the housing crisis or the chronic housing shortage that we have. If you're wondering where is that coming from, it doesn't have anything to do with buying or selling houses. It is literally how many houses we have in the US. I think this chart is so important to keep in mind because this shows you the annual completion of new construction homes. How many houses we're building on average, it's usually a little bit over a million. This is the 50-year average. When you look after 2007, we really have slowed down and we didn't build a whole lot of new houses. We basically underproduced for 14 years. If you undersupply an economy for 14 years with new inventory, at some point, it is going to show. Basically, we are short about 4 million houses nationally. It depends which estimate you believe the banks are estimating between 3 and 5. I think there's some estimates of 6 million, but it's somewhere in there. Let's say around 4 million houses. If you break that down, that would be about 68,000 new homes that we needed in Wisconsin. If you look around, there is basically very little new construction. We have a little bit in the surrounding counties going on, but at any given point of time, we barely have 200-250 new construction homes for sale here in the area. That is not even a drop in the bucket. That's the reason why we do have a housing shortage and there is currently nothing on the radar that is going to change that. What are we expecting for the next few weeks here in the Milwaukee market? I think rates will trend roughly sideways between 6-6.5%. This is going to be the norm. I think we're going to see new listings coming on the market in the next few weeks, but not as many and then even fewer in November. From a buyer point of view, the next 30-60 days are probably the single best time in 2024 to buy a house because the market is less competitive than it was in spring, but you still have a good amount of inventory. That's the sweet spot. The Fed has brought down the rates, which brought public awareness to lower mortgage rates, which is bringing people back, but there's always a 3-6 month delay of these things because people don't buy instantaneously. They're just taking an interest again in the real estate market and I think that is a precursor for what we're going to see in the spring market. The election uncertainty is slowing down the market currently, but we also know that from historic elections that they usually don't have a big impact on the real estate market, so regardless who is winning the election, I don't think it will impact the Milwaukee market very much or at all. If you're thinking about selling, you basically have two choices, either right now or getting ready slowly for spring. Despite everything I've said, things are getting a little bit better for buyers. Don't make a mistake, we're still very deep into a seller's market. Your yard still looks beautiful, so right now is still a very good time to put your house on the market. Or if you're opting for spring, then I would say let's go out and take pictures right now because if you're bringing your house on the market in February or March, if you have green and lush looking outdoor pictures, that makes your listing definitely stand out. And with that, if you want to get a hold of me, easiest way is always to send me an email m.aurerbach at kw.com. I'm looking forward to hearing from you. That's all I got for you today. Thank you very much for watching, and I'll see you next time.