Market update - what's going on across US: going up or turning?

Question

With all the speculation on where we are currently in the real estate cycle and some more or less anecdotal evidence supporting a market crash or still more golden years to come I wanted to know the numbers and facts and recently pulled some data out of our local MLS to get the facts and data. While I am bullish for the Midwest, I am skeptical for many of the coastal metro markets. I can only get good data for Milwaukee, it would be great if other agents or investors could post their September 2018 numbers about the following categories (high level is fine):

1.) Inventory, Absorption Rate

2.) Sold Prices, List Prices, Trends by Price Segment

3.) List vs Sold

4.) New Construction vs Existing Homes: Number of Units and Prices

5.) Where do you think your market is going?

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MILWAUKEE

Here are the September 2018 numbers fresh out of MLS.

I am looking at Milwaukee County, which includes the city of Milwaukee but also some of the in-demand areas like Wauwatosa and The Lake Shore municipalities. And then we have (my home base) Ozaukee county 20 minutes outside of downtown, which I will use as a representation for the higher priced suburbs. Let's start with

1.) Inventory:

Active listings are down:

Milwaukee - 10,046 homes for sale now, vs 11,028 a year ago (-8.9%)

Ozaukee - 1355 homes for sale now, vs 1420 a year ago (-4.6%)

Absorption rate (how many months to sell all active listings): around 6 months is a balanced market, anything below 6 is considered a seller's market. As you can see we are clearly in a seller's market.

Milwaukee 2017 YTD: 2.96 (Year To Date)

Milwaukee 2018 YTD: 2.17

Ozaukee 2017 YTD: 3.58

Ozaukee 2018 YTD: 2.98

Both markets have tightened up and accelerated, while the number of units sold remained almost identical. Homes are selling faster and are on the market shorter on average.

2.) Sold prices:

Both markets have seen significant appreciation. Like in past years, better areas and school districts appreciate faster than lower quality neighborhoods. Ozaukee Co is of course a much higher priced market than Milwaukee and has also seen higher appreciation rates:

Median Sales Price Ozaukee 2018 YTD: $328,263 - that's 9.42% more than the previous year

Median Sales Price Milwaukee 2018 YTD: $162,963 - up by 5.82% for 2017

Shift in price segments: when you look at the break down, you see a clear shift of volume to higher prices. Milwaukee has less homes sold in the lower price brackets and more in the higher priced brackets: all groups between 0$ and $140,000 are down in volume significantly and that sales volume has shifted to higher price points. The segments between $140k and $180k, as well as $200-$250k are up in volume. Overall volume is up by 0.7% to now 6,538 sold units.

Ozaukee shows a similar effect, all segments under $500k are down, over half a million is up by 38.7%. This is partially driven by new construction, mostly in the $500-700k range. Rising interest rates in the last 12 months have not been able to cancel out increasing demand.

3.) Sold to List ratio -

Reflects the discount sellers are willing to negotiate on average:

Milwaukee Sept 2018: over 96% (from 94%)

Ozaukee Sept 2018: over 97% (from 95%)

Looking into the details it's clear that in the first 3 weeks (>21 Days On Market) most properties sell for list price or over; after 21 DOM sellers are more willing to accept less than asking price, after 60 DOM we see some significant discounts (5-10%).

4.) Existing Homes vs New Construction:

This became very clear to me while I was building a spec home - the cost of new construction is substantially higher than existing homes, as it should. However the difference used to be around 10% (in 2005 is was 9% on a national level). Naturally a lot of people will opt for new construction considering the small difference. As of 2017 we are looking at a 31% gap - driven by the cost of labor, materials and land. This makes existing homes a clearly more attractive choice for many buyers, who are often willing to invest in remodeling.

On a national level we are still short about a million homes to close the gap between supply and demand we have opened in the last ten years, when a lot of builders and trades people had to close doors for good. This gap is currently maintained and not close, because of the cost gap. So we will be stuck in a short inventory situation for a while. The only way out will be that with existing home prices creeping up at the current rate, we will narrow the gap, which will make new homes an interesting option again in about 2-3 years. Then it way take another 4-7 years to for supply to catch up with demand and resolve the current conundrum.

Another remarkable fact is that there is no new construction available in the Greater Milwaukee area for under $300,000. Existing homes sell at a median of $162,500. Anything new less than 30 minutes commute starts at 350k. The majority of new homes are sold between $400 and $600k. Total built (sold+for sale) in 2018 is only 371 - which is up significantly for 244 in 2017.

In other words, any existing SFR under $300k is a commodity with finite supply and cannot be re-created anymore at this cost in Milwaukee. If you believe that the sales price of new items influences the sales price of used items you arrive at the following conclusion. At a reasonable 15% discount to new construction existing homes in great condition should sell eventually for about $255k to 300k, which is significantly higher than the current median sales price.

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Here are the top 100 MSA's that would be relevant (Milwaukee is #39 yeah!): New York-Newark-Jersey City, NY-NJ-PA MSA Los Angeles-Long Beach-Anaheim, CA MSA Chicago-Naperville-Elgin, IL-IN-WI MSA Dallas-Fort Worth-Arlington, TX MSA Houston-The Woodlands-Sugar Land, TX MSA Washington-Arlington-Alexandria, DC-VA-MD-WV MSA Miami-Fort Lauderdale-West Palm Beach, FL MSA Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA Atlanta-Sandy Springs-Roswell, GA MSA Boston-Cambridge-Newton, MA-NH MSA Phoenix-Mesa-Scottsdale, AZ MSA San Francisco-Oakland-Hayward, CA MSA Riverside-San Bernardino-Ontario, CA MSA Detroit-Warren-Dearborn, MI MSA Seattle-Tacoma-Bellevue, WA MSA Minneapolis-St. Paul-Bloomington, MN-WI MSA San Diego-Carlsbad, CA MSA Tampa-St. Petersburg-Clearwater, FL MSA Denver-Aurora-Lakewood, CO MSA Baltimore-Columbia-Towson, MD MSA St. Louis, MO-IL MSA Charlotte-Concord-Gastonia, NC-SC MSA Orlando-Kissimmee-Sanford, FL MSA San Antonio-New Braunfels, TX MSA Portland-Vancouver-Hillsboro, OR-WA MSA Pittsburgh, PA MSA Sacramento–Roseville–Arden-Arcade, CA MSA Las Vegas-Henderson-Paradise, NV MSA Cincinnati, OH-KY-IN MSA Kansas City, MO-KS MSA Austin-Round Rock, TX MSA Columbus, OH MSA Cleveland-Elyria, OH MSA Indianapolis-Carmel-Anderson, IN MSA San Jose-Sunnyvale-Santa Clara, CA MSA Nashville-Davidson–Murfreesboro–Franklin, TN MSA Virginia Beach-Norfolk-Newport News, VA-NC MSA Providence-Warwick, RI-MA MSA Milwaukee-Waukesha-West Allis, WI MSA Jacksonville, FL MSA Oklahoma City, OK MSA Memphis, TN-MS-AR MSA Raleigh-Cary, NC MSA Richmond, VA MSA Louisville–Jefferson County, KY-IN MSA New Orleans-Metairie, LA MSA Hartford-West Hartford-East Hartford, CT MSA Salt Lake City, UT MSA Birmingham-Hoover, AL MSA Buffalo-Cheektowaga-Niagara Falls, NY MSA Rochester, NY MSA Grand Rapids-Wyoming, MI MSA Tucson, AZ MSA Tulsa, OK MSA Fresno, CA MSA Urban Honolulu, HI MSA Bridgeport-Stamford-Norwalk, CT MSA Worcester, MA-CT MSAOmaha-Council Bluffs, NE-IA MSA Albuquerque, NM MSA Greenville-Anderson-Mauldin, SC MSA Bakersfield, CA MSA Albany-Schenectady-Troy, NY MSA Knoxville, TN MSA McAllen-Edinburg-Mission, TX MSA New Haven-Milford, CT MSA Oxnard-Thousand Oaks-Ventura, CA MSA El Paso, TX MSA Allentown-Bethlehem-Easton, PA-NJ MSA Baton Rouge, LA MSA Columbia, SC MSA North Port-Sarasota-Bradenton, FL MSA Dayton, OH MSA Charleston-North Charleston, SC MSA Greensboro-High Point, NC MSA Stockton-Lodi, CA MSA Cape Coral-Fort Myers, FL MSA Little Rock-North Little Rock-Conway, AR MSA Colorado Springs, CO MSA Boise City, ID MSA Akron, OH MSA Lakeland-Winter Haven, FL MSA Winston-Salem, NC MSA Ogden-Clearfield, UT MSA Syracuse, NY MSA Madison, WI MSA Deltona-Daytona Beach-Ormond Beach, FL MSA Des Moines-West Des Moines, IA MSA Wichita, KS MSA Springfield, MA MSA Provo-Orem, UT MSA Toledo, OH MSA Augusta-Richmond County, GA-SC MSA Palm Bay-Melbourne-Titusville, FL MSA Jackson, MS MSA Harrisburg-Carlisle, PA MSA Durham-Chapel Hill, NC MSA Spokane-Spokane Valley, WA MSA Chattanooga, TN-GA MSA Scranton–Wilkes-Barre–Hazleton, PA MSA

Jay Hinrichs · Answer

well i could not figure out in 2 minutes how to work our mls stats page.. so i tried.. LOL

Marcus Auerbach · Answer

@Marisa Rowe looks like we have a very similar story! I have not been there many times and know very little about the city, but since the days when Josh Dorkin was bashing Detroid I could not help to think of it as a future turn around story.. What made you shift from Atlanta to Detroid? I believe that the downtown area is comming back fast - similar to Milwaukee - is that what you see? I was reading about Detroid in National Geo Mag and it sound slike the city will bulldoze abandonned homes if the property tax is not paid and then seed grass and gift the lot to the neighbor who is stipp paying taxes. I remember a picture of an entire block that looked like a soccer field with one house on it. Good for that guy!!

Marcus Auerbach · Answer

@Jay Hinrichs you should have asked your wife for the mls stats lol ! I would love to see some OR or NV or NC numbers!

I am looking at the market fundamentals for the midwest and the only conclusion I can draw from all the data I have is that we are going to continue to see at leasta few more years of health appreciation, before we get closer to new construction prices and out of the supply dilemma we are in.

Please - someone proof me wrong and shoot some holes in my logic!!

Maybe we see different scenarios in different States? We have seen the last housing cycle play out much differently (softer) in the midwest than in the highflyer MSAs. I don't see a reason why the development of thr midwest has to be teathered to the coastal markets. Real estate is local. So maybe it is possible that we will see prices in the Bay Area level off and the midwest continues to appreciate? After all that would only correct the value differences we have - the same small SFR ranch will cost in Palo Alto about ten times of what an identical house will sell in Milwaukee (plus a basement). Income levels are higher in the Bay, but certainly not by a factor of ten!

@Jack Medford I would say the answer is in your question - a property is only a comparable if it is similar, that includes the age. Think of a used car vs a new car. Granted housing works a bit different, but I do believe that new construction prices have an influence on existing home prices. The caviat is of course loaction - even though new home prices are justifiably higher than existing homes on the street you still need a buyer, willing to pay what you ask in the given location. So in your example, if you buy a distressed home in a 200k neighborhood for 100k and then raze it and build new for 300k - you are all in for 400k and should sell for 475k - it will be tough to find a buyer that is willing to accept such a price gap - 200k street vs 475k new home. Now if existing homes on that street rise to 350k you have adifferent scenario. Usually you are also looking at neighborhood demographics (who lives here?) and home sizes and features (how many bed/bath/garage spaces/sqft etc)... This is the challange when building a spec home, you have to be certain that the final product fits well into the neighborhood and you are building on a prime location. I would not dare to build on a B or C lot and risk to be stuck for 30 years with a home nobody wants to buy!

Jay Hinrichs · Answer

there is some robust new construction in infill areas of the A areas of Detroit.. with exit prices matching sq ft price in the Portland Oregon market.. which is about 1/2 of seattle market. for instance

Jay Hinrichs · Answer

thanks I about went crossed eyed trying to find the MSA s i deal in LOL.

I see this as highly regional.. and there is no question in the mid west markets were you have areas of declining value and have had for many years that exsiting is far cheaper than new builds.. in some markets this keeps new construction either non existant or only for those building their own custom home.

but in many cities the homes that are so far below new construction pricing the areas are tough rough and schools not to swift.. and that dictates pricing not the replacement value .. but just the fact that a builder is not going to risk building in some neighborhoods were the new home buyer simply would never consider becasue of these factors.

So all cities have there hoods or less desirable areas.. However if I take PDX there simply is not that big of gap and some of the super cool inner city neighborhoods the price of existing is FAR greater than the price of new builds 5 air miles away. Same with Charleston SC were I build.. its all over the map.. and condition of the home matters and location as stated above.

having relocated to Vegas 82 and sunny today by the way !! new construction has come roaring back and it has lifted up existing values.. If i look at the townhouse i bought a few years back i believe before i remodled it ( my wife did) we bought it for less than replacement costs in todays dollars.. now that is spruced up.. full gut remodel.. we are probably right at about what new construction would be.. and the house is basically new at this point. but we bought like so many others for location first price second.

Marcus Auerbach · Answer

Here are a few more data points compiled by KCM - again national averages; I believe we may see quite different regional scenarios e.g. Detroit is not the same as Atlanta or Milwaukee..

Marisa R. · Answer

@Marcus Auerbach

Hi Macus

Why am I in Detroit ?? basically because I am seeing this market rising, however caveat on this,..... you need to buy in the right neighborhoods.

I am really trying to repeat what I did in Atlanta which is buy low, hold for cash flow and appreciation is a bonus.

In saying this from all the research I have conducted there is plenty of evidence to indicate Detroit is on the rise, market and business sentiment is positive. We are now seeing big business injecting huge $ into this market.

Detroit will always have a stigma, but those who can see the opportunities and rise above this will make money. This is typical of the investing world I guess.... as they say "Fortune favors the Bold"

Happy investing everyone

Marisa R. · Answer

Hi All

I am absolutely no expert, but the way I gauge it is pretty simple, I start looking at pent up demand and if there is not enough stock to meet this demand ..... its probably a winner.

Then it comes down to looking at some statistics, what is selling, who is buying, what is the average days for selling a property.

Then I talk to many realtors, people on the ground to find out exactly what is happening, are they getting multiple offers, what is happening a particular State/neighborhood, what is driving this market, why is it rising

At the moment I am jumping into the Detroit market, B grade neighborhoods, I am loading up as I see this market is starting to move in the right direction.

I will tell you in 12 months time how I go, in the mean time I will also post my deals

Jay Hinrichs · Answer

let me pop on the Portland MLS system and see if i can find some data like you posted.. I never really look at that stuff as we were in such a robust selling market that it did not matter we built it they bought it.. however

I do believe we are leveling off on appreciation and days on market have increased some of that though is seasonal.. fall tends to be a pretty slow time of the year every year in the markets i work..

what will be telling will be what does the market do come this spring.. that to me with be the barometer.

Jack Medford · Answer

Thanks for the great post @Marcus Auerbach! I have a question about this remark from your post:

"Existing homes sell at a median of $162,500. Anything new less than 30 minutes commute starts at 350k. The majority of new homes are sold between $400 and $600k."

It sounds like you are saying new homes are selling way above market, even if comps for comparable (yet older) homes are for much less. Is this correct? Are you seeing this even in neighborhoods that have values well below the median price?

I have just been talking with a distressed seller who has a property that likely needs to be torn down and rebuilt. I assumed the cost was too much, but it sounds like that may not be the case.

Market update - what's going on across US: going up or turning?

Market update - what's going on across US: going up or turning?

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