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

[Marcus Auerbach]

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