Southeast Wisconsin - The FoxConn Effect

[John Franczyk]

I was reviewing recent MLS listings in Racine and noticed a 3 BR, 1.5 bath 2-story house in Racine that had been listed in October 2017 for $89,900. The house did not sell at the time. It was relisted in mid-July 2018 for $119,900. By all indications, no work has been done on the house between October and July to justify a $20K increase in the asking price. The Racine housing market is difficult to comprehend, and this example adds to the confusion. I understand that the FoxConn project is putting upward pressure on prices, but I don't see a rational justification for a $20K jump in 9 months. Does the project really justify that increase or is this a realtor selling sizzle rather than steak?

[Marcus Auerbach]

@Scott Schultz and @John Franczyk hard to tell without looking at the address - in some cases it comes down to availability. If it's the cheapest property for sale in the entire neighborhood it will sell for that price - and become a comp for future reference.

I don't think the prices are nuts when you look at the bigger picture. Granted, we have seen a nice rally from the low in 2012, but we have only made up what we had lost before - in many cases I see 2017 sales at the same price the home sold last in 2007. If you look at Chase-Schiller or other stats you see this is mostly true on a macro level as well. Meanwhile we have seen inflation year over year and property values have historically always retuned to the long term trend line (which we broke in 2004 and 2005 and went way above - your first sign of a bubble). Looking at long term trend lines I think we still have a 25-30% gap to fill in the next years and short of a black swan type event that will happen, because there is no way that supply can catch up with demand. In particular in the mid segement - we are seeing more new construction as of lateley, inclusing my own business - and all of them are in the 450 to 650k range. I wanted to build in the 250 to 350 space but found it impossible between cost of land, labor and materials the math does not work. So no additional supply to satisfy the demand. And then there is replacement cost - just look at your insurance rider. Your 89,900 property has a replacement value of probably 200k or more, and that's without the land, driveway, landscaping, water and sewer laterals and garage.