Strong job growth, a confidence-inspiring economy and even the lowest mortgage interest rates in decades aren’t enough to boost home sales in Madison. Why?
Because there aren’t enough homes available to satisfy the demand. In fact, at the end of April (the latest month for which we have statistics), there were only 1,079 homes for sale in all of Dane County. This represents a 1.62-months’ supply of inventory. A 6-month supply, by the way, indicates a balanced market.
With supply and demand at work here, home prices are escalating quickly, while the number of closed sales are dropping. How did we get here and what, if anything, can be done to ease the pressure on the market?
Interest rates beckon
Despite recent hikes, interest rates remain at historic lows, beckoning especially first-time homebuyers into the housing market. When the cost of borrowing money is this inexpensive, it’s hard to put off buying a home into some uncertain future. Who knows when rates will ever be this low again?
In fact, demand is so high from first-time homebuyers that half of recent home sales have been entry-level homes, priced less than $250,000. Today, only slightly more than 15 percent of available homes are in that price point.
Homeowners aren’t budging
Before the last recession, homeowners typically stayed in their homes for about four years. Since 2008, however, homeowners are staying put for twice that long – nearly eight years, according to Attom Data Solutions.
The increase in tenure can be chalked up to the desire to regain equity lost during the recession. Low inventories of available homes, however, play a role as well. Although homeowners understand that, with escalating home prices and dwindling inventories, they can easily sell -- and for top dollar – that they will be on the buying end after the home sells, causes them to hesitate.
Madison homeowners who are considering downsizing, however, should jump into the market now. Especially if you have equity, buying your next home won’t be as challenging as you may think.
Late last month we learned that Madison, Verona, Fitchburg and Sun Prairie are the primary magnets drawing new residents to the state, according to the latest U.S. Census reports. Between 2015 and 2016, Madison gained nearly 4,000 new residents while Fitchburg raised its population by 921. Madison’s is twice the national growth rate, according to the Wisconsin State Journal’s Logan Wroge
There are a number of reasons folks want to live in Madison, including our strong economy and high quality of life. Jobs are a significant draw as well, with companies such as Epic System Corp. in Verona luring millennials to Dane County.
Realtor.com recently placed Madison in the number four slot on their list of the 10 best metros for new college graduates. These new residents have added to the demand for homes for sale in Madison and the surrounding areas.
Few new homes
Madison has a housing shortage, there’s no doubt about that, and it doesn’t look like it will ease in the near future.
Nationwide, we need 1.7 million additional homes to replace the existing stock and meet demand, yet housing starts are projected to add only slightly more than 1.25 million, according to Freddie Mac. Here in Dane County, the number of building permits issued decreased more than 10 percent over this time last year.
From a lack of suitable land at affordable prices to regulations, increases in material costs and labor shortages, we can’t look to builders to add to the inventory of available homes quickly enough.
We need homes to sell
As mentioned earlier, it’s the ideal market for homeowners who want to downsize into a smaller, less-expensive home. Regardless of why you’re thinking of selling, let us know, because we have lists of buyers sitting on the sidelines waiting for available homes.
And, while home prices are high right now, if lending rates increase either after the Fed meets this week or at next month’s meeting, and mortgage rates increase, that buyer pool will start to dwindle. When demand falls, so do prices.
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