Madison Wisconsin 2019 Q4 and YTD Report
I’ve been working on creating an easy to read quarterly report for the city of Madison, Wi. I tried one out for Q2, but revamped it for the end of year update. At some point I may include other markets, such as Milwaukee and Janesville.
I'm always open to feedback so please leave any questions and/or comments regarding the report, especially if there is something you feel is missing or could be expanded.
Data Source and Methodology
All data comes from the Statistical Reporting section of our local MLS. These numbers do not include any FSBO or other "off-market" sales which do not appear on the MLS.
The data includes all Single Family, Condos, and Multi-Family from 2000 to the present. I have identified 7 indicators that I believe give the best picture of our market. These indicators are:
- Total Units Listed
- Total Units Sold
- Average Sale Price
- Average Days on Market
- Percent Sold
- Percent Expired
- Gap (Difference between Percent Sold and Percent Expired)
Using these indicators, I compare the median value (using data going back to 2000) against what the Q4 and YTD numbers show. I find the median to be a better metric than the average, since some of these indicators swing wildly depending on the time of the market.
Summary
Very strong Q4, setting records in Total Units Sold (832), Average Sale Price ($316,980), and Percent Expired (20.06%). Average Sale Price was highest for any quarter on record, while the other two were Q4 records. Total Units Listed (668) set a post-recession high, and all other indicators remained near the records set by previous quarters.
The YTD numbers are a bit more subdued. Average Sale Price ($307,181) is the only indicator that set a new record. All other indicators remain either near record levels or post-recession record levels. Despite the respectable YTD numbers, the main takeaway is that without a record setting Q4, the annual numbers might be raising a few more eyebrows.
Strong Q4 Performance Sets Stage For 2020
Shown above is every Q4 since 2000. Also shown (by color) are the Highs (green) and the Lows (red) for every indicator since 2000.
Coming Recession?
Seems like a lot of experts are suggesting that the next national downturn is right around the corner. While this may be the case, our local market doesn’t appear worried about a coming recession. That is, if we can trust the years from 2000-2007 as an accurate guide to the future.
We arguably just had our strongest Q4 on record. We saw all-time highs for Number of Sales and Price as well as an all-time low for Percent Expired. Meanwhile Percent Sold, Average Days on Market and Gap are near their respective all-time highs/lows.
Despite all of these indicators looking great, there is one that stands out the most: Total Listed.
After hitting a low point in 2017, Total Listed hit its highest level in the post-recession era. If we look at the pre-recession years, we see that the Total Listed quickly sky rocketed in the years preceding the crash.
Let’s take a look at a chart to explore this further.
All of the indicators in this chart are represented by the distance from their respective median values. This allows us to compare which indicators deviate the most from the median, and which stay within a tighter band.
In this case, we see the tendency of Total Listed to hang close to the median value… That is, aside from the years 2004-2008. What this tells me is that we should see a sharp rise in Total Listed in the years leading up to the next downturn. So why did I point out Total Listed when the indicator is sitting right at the median?
This is the second straight year that Total Listed has risen for Q4. Not only that, but we nearly saw Total Listed rise above the median value for the first time since 2009. The story around Madison when talking about housing always seem to center around lack of inventory. Rising inventory was the first indicator to really begin shifting in the years leading up to the recession. If we’re beginning to see a rise now, then I think this points to at least a few more years of rising prices before the market finally shifts.
Also, Number Sold is at the highest point that we’ve ever seen while Average Days on Market is in the 4th straight year of the lowest point that we’ve ever seen. These metrics lagged slightly behind Total Listed, yet they still preceded the recession. I’m expecting a sharp reversal for each before prices begin to fall.
Now let’s take a look at the other indicators with respect to their medians.
In 2004, the same year that Total Listed first jumped, we see the Percent Sold and the Percent Expired converge while the Gap between the two begins to plunge. What we see leading into 2020 is a record low for Percent Expired, which helped push the gap back up.
On the surface, these Q4 numbers support our hypothesis from the first graph that a drop in prices is a few years away. After all, the indicators with the widest deviation from the median (Num Sold, AVG DOM, Pct Expired, and Gap) show little sign of regressing. These swings only show 1/4 of the full story, however. We still have to take a look at the YTD numbers, to see what might be in store fore 2020.
2019 YTD Numbers Don't Pack The Same Punch As Q4
When looking at these numbers it is a bit harder to get excited about too many more years of constant growth in price. They aren’t bad, by any means, but show that things might be slowing down.
Looking at Total Listed suggests we shouldn’t yet worry. Inventory is still down and doesn’t appear to be rising anytime soon. The annual for Total Listed dropped, and the drop would have been more significant had Total Listed for Q4 not been so large.
Why the concern then?
Number Sold, Percent Sold and Gap all had a weak 2019. That is, in comparison to the other boom years that define the post-recession recovery.
2015 appears to be the first year of big expansion. The recession was over and our market was moving up. Number Sold is the lowest it has been in that time. Percent Sold and Gap are still higher than 2015, but they both fall short of their 2016-2018 levels.
It appears to me that we may be hitting a rounding period in our market. We’ve taken a nice ride up, but like all roller coasters, we will eventually find the top and rocket back down. If we accept that the top is rounding off, the question then becomes, how quick will the fall come?
Let’s see if the charts can provide any clarity.
As discussed above, Total Listed remains pretty flat. However, Total Sold has two straight years of decline, while Avg DOM rose for the first time since hitting a high in 2012. Is it possible that price is hitting a level where buyers are dropping out of the market? If this is the case, then the market dynamic wont necessarily shift with Total Listed this time. It may start with a closing between the historic gap between Number Sold and Avg DOM
The market dynamic is not exactly as it was in the years leading up to the recession. The years leading up to the last recession felt much more like a mania. Everyone “knew” house prices go up forever, so better buy before the prices go up even more. And since restrictions on who could get a mortgage were very loose it was much easier for the average person to buy a house.
This time around, we’re seeing a lot of interested buyers, but not a lot of inventory. We can see this with the historic gap between Total Listed and Total Sold. And with tighter mortgage restrictions, buyers are finding it harder to qualify with the rising prices.
Historically, Total Listed has either been even with, or well above, the Number sold (relative to their respective median’s). Since 2015 we’ve seen Number Sold remain significantly above Total Listed, suggesting this rise is due to a shortage of inventory. The Avg DOM adds to that story, showing a historic low that has only now begun to shift. These gaps appears to be shrinking, perhaps signaling that some buyers are dropping out of the market.
Do the other indicators tell the same story? Are we seeing a shift in market dynamics that suggests fewer buyers entering the market?
Here we really see the rounding of the top. Similar to Avg DOM, the Percent Expired grew for the first time since starting its descent in 2008. On top of that, in the nine years preceding 2019, the Gap between Percent Sold and Percent Expired rose every single year except one (2014).
Can we assume that we’re seeing a market reversal based on one down year?
Not necessarily. However, the rate of change in these indicators has been falling since 2014. Based on the rounded tops (and bottoms) that these indicators exhibit, my forecast is that we are beginning the next phase in the market cycle. This does not mean that we will see price begin to drop in the near future. 2020 still likely ends with another high for Average Sale Price.
Even if it is not the same exact picture as before, I expect to see some drastic shifts in these indicators before price starts to be negatively affected.
Forecast
Please keep in mind that this final section is merely my opinion. I am publishing this (and future reports) with the hope that others find them useful, however that is not my main reason for writing. It is to capture my thoughts at a moment in time so that I may look back and see where I was right and where I was wrong.
In other words... Take these predictions with a grain of salt.
With that out of the way, here are my predictions for each indicator for 2020:
- Total Listed increases to its highest point since 2013.
- Number Sold falls below 3,500.
- Percent Sold ends near 80%
- Average Price Sold rises for the 8th straight year.
- Average Days on Market hits at least 40.
- Percent Expired hits at least 15%.
- Gap finishes below 70%.
I’ll use these predictions as I make quarterly updates to see how my numbers stack up to the actual market. I’m hoping to develop more accurate prediction methodology than simply making an educated guess (i.e. having a model predict on my behalf). Until then, you’ve got a regular ol’ human at work here.
If you enjoy this report, please share with anyone you know who might be interested. Also fell free to reach out to me anytime!