This is my first attempt at making a quarterly report for the city of Madison, WI. I'll be posting one at the end of every quarter for the foreseeable future, so PLEASE LEAVE ME YOUR FEEDBACK so I can continually improve these until I have a working template that can be easily replicated quarter after quarter.
One thing I plan to include in future reports is a breakdown of each of the asset classes included in the build. For now, the data is for all types of properties that fit within the three major asset classes, as listed in the Report Build below.
Report Build:
I've taken the data from every Q2 going back to 2000 which include the statistics of the three major residential asset classes: Single Family, Condo, and Multi Family. I then compare the data in three charts:
- Total Homes Listed
- Avg Sale Price vs Avg Days on Market
- Percent Sold vs Percent Expired
I then compare these over two time periods, the last 10 years (2010 - 2019) and since 2000. Finally I compare YTD numbers using the same methods described above, over the same two time periods.
TL;DR - There is no immediate sign of slowdown for the local market. If the pre-recession data is any indication of future housing recessions, then we are still a couple years away from seeing anything significant in that regard.
Q2 REPORT - MADISON, WI
Total Homes Listed:
Total properties listed shows a story those of us familiar with Madison know all too well... Very little inventory to meet the growing demand for properties. Especially properties in the sub-$300k range. Based on the previous 2 years, it appeared that we might have been on the way to seeing more inventory available, but that clearly isn't the case, at least so far into 2019.
If we can use the previous decade as any indication, it appears we should start seeing significant jumps before expecting any major change in the market dynamics. We see that in every Q2 from 2003-2006 there were significantly more properties becoming available than the previous year. In addition (as shown on the chart below) competition levels continued to boost prices, albeit, at a much slower pace than pre-2003.
Sale Price vs DOM:
Q2 of 2019 continues the pattern we've seen for the past 3 years, which is accelerated growth. The overall growth since 2010 is 48.36%, which is 5.37% annualized. Since 2016, however, we've seen this jump to an annual growth percentage of 7.88%. This is compared to the 2.47% annual growth we saw from 2010 - 2015
The Avg DOM for properties sold is a bit of a surprise and breaks the streak of 6 straight Q2's that have dropped. Is this uptick concerning? Let's consult the pre-recession numbers and see if there are any takeaways.
The first thing I notice is that, though the recession officially begins in late 2007, we see a huge uptick in Avg DOM in Q2 of 2006, which breaks with the tight range of the 6 previous years. We've yet to see that huge jump in Avg DOM, so that is something we'll be looking at as we continue these reports.
Also, despite the slight rise in Avg DOM from last year, we still haven't seen an increase in inventory. As shown above, total listed properties was down by 6.71% from Q2 2018. The increase in Avg DOM could be due to buyers exiting the market as it is becoming too competitive. From here, I'm not expecting a downward shift in price or level of competition until we start seeing more inventory on the market, more buyers dropping out, or both.
Percent Sold vs Percent Expired:
I hope I'm not packing too much into this one chart. The Gap represents just that, the gap between percent sold and percent expired. Please let me know if this format is too distracting/confusing. Either way, here are my takeaways:
Over the last 10 years, the market has stabilized and led to the lowest level of expired listings that Madison has seen in recent memory. The percent of listed homes which sold during Q2 remains toward the top, but still below the high set in 2016 of 94.38%. 2018 saw the lowest level of expired with 6.52%, while 2019 ties 2016 for the 2nd lowest expired rate during this time frame of 6.92%.
When taking the view from 2000 to present, we see that the gap between percent sold and percent expired remains higher than any pre-recession Q2. The middle is obviously the worst, as the great recession led to worse numbers.
A good sign could be that despite the spike and subsequent drop in percent sold in 2016, the numbers appear to have stabilized. That said, 2019 has a lower Gap than the previous 4 Q2's. Another potential positive marker is that, even before the recession hit, the signs were beginning to show.
Q2 of 2005 saw a 5% drop from the year before in home sales, while expired also dropped slightly. Q2 of 2006 however shows a steep decline in homes sold with a 16% drop from the year before, while expired numbers spiked upward nearly 15%. We have yet to see any drastic movements of these levels, but the huge gap between sales and expired (72.48%) does make me wonder how long these numbers can continue to stay at these levels.
YTD:
In this section, I'm just going to layout all three charts, as the YTD numbers gave me fewer overall takeaways. I'll then layout everything that I noticed.
As mentioned above, the YTD does not provide much new insight, that I noticed at least. However, the final charts did make me notice something. By including Q1 data, we see that percent sold might be showing signs of regression. Since the high point in 2016, we have seen a steady decline in the YTD numbers. While this was also shown in the Q2 numbers, it did not jump out as much to me there because the trend was an initial spike and fall, and appeared to be leveling off. Here, it appears that a consistent downward pattern may have started.
The percent expired is still not showing a consistent rising pattern, but if we are seeing fewer homes sell, then it makes sense that we should eventually see more homes expire. We shall see if this is the case in the coming quarters.
Conclusion:
When comparing the current state of the market with pre-recession numbers, I am not seeing many signs that point to the coming recession that all analysts and experts are expecting. The current time frame is set as late 2019 and early 2020. If the historical numbers are worth anything, then these dates seem a bit early to start seeing drastic changes in the local Madison market.
That said, it is completely possible that the coming recession is not going to look like the last one, and therefore the lead up may not look like the last one. Especially considering the last recession was started by the build-up of sub-prime loans within the residential lending industry. The coming recession, from what I've been reading, is expected to come more from corporate debt than residential housing debt. This may mean that housing will not take as significant a hit as it did a decade ago.
I still expect the historic numbers we're seeing normalize over the coming years. I don't think that is terribly controversial to state since even the pre-recession years (which are a part of a huge housing bubble) do not compare to the numbers we are seeing today. The gap between percent of homes sold and expired is still above pre-recession highs.
Two big questions remain for me: Are we seeing the beginning of that normalization period now? How hard will housing prices be hit when the next recession inevitably comes?
Perhaps one day I'll have better answers when faced with these questions. For now, I'll wait and see and keep studying.
