Milwaukee - State of the Market
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
Milwaukee - State of the Market
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesOriginally posted by @Taylor Chiu:
@Marcus Auerbach Thank you for posting this! Interesting that inventory is down so much, despite high demand. Have any theories as to why?
Also, do you have any stats on population growth for the last year or two?
one thing I see is in these bigger cities in the mid west much of the urban core is more renter dominated than other urban cores.
and landlords are doing a better job with their work so you don't see as many failed landlords or burnt out landlords as in the past.
so that inventory is not hitting the market
39 Replies
- Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes7y
Originally posted by @William S.:
As a former renter/home buyer/investor in Milwaukee I have a few things to add.
- It is very difficult to find quality rentals in Milwaukee (as a renter). The "standard" is very low in Milwaukee compared to other areas. Milwaukee also isn't very dog friendly which narrows things even more. Quality rentals are very high considering the income levels.
- Because of the lake/not much land/crime you essentially have to find a little pocket within a specific neighborhood. Not many options to choose from. The result is a lot of competition. Houses do not stay on the market very long at all!
The weather is brutal though!!! I can see people moving there from other rust belt states who are used to it, but if you didn't grow up in that weather I doubt you'd last long...
Well, I lived in Overland Park for a time too! You are both right and wrong. The standards you speak of are about the same in both metro areas IMO. The KC metro market is much cheaper to buy a house in. Of course Overland Park, being in Johnson County, the second wealthiest county in the US when I lived there, is going to have a higher standard. Go ahead and travel to just east or west of downtown, in KCK or KCMO respectively, and you'll find the same thing you experienced in Milwaukee, which is a certain segment of housing at the end-phase of the building life-cycle and nearing the point where it will get fixed up or bulldozed, starting the cycle over again. Cities in the US are still too young to understand this cycle, which is roughly a 100 year cycle. Cities in Europe and Asia have been going through that stuff for centuries, over and over again.
The real difference between the two cites are 1) KC metro is a massive circle - many people do not know that KCMO is the largest city in the US, in terms of acreage, and KCMO is only one city in the massive metro area. The Milwaukee metro is similar in that way, where the metro is quite large, covering nearly 9 counties really (compared for example to Des Moines, which has dirt roads in view of the skyscrapers). The big difference is the layout, where Milwaukee starts at the lakefront and does a big half-circle from there, just like Chicago.
As far as the weather well, KC does have a nice spring and fall, brutal summer, and you can have all that freezing rain, I'll take the snow over that any day!!! LOL. That said, the length of winter here can be annoying. We have melting snow today - good grief.
People have said KC is a great market for investors and having lived there for a few years, I can certainly see why people think that. There is absolutely plenty of all levels of housing to be had all over the city. Want a junker for next to nothing? No problem. Want a massive mansion, got those too.
The one thing I would agree with is that KC has more really large apartment complexes. I don't think that exactly equates into a significantly larger rental market, but there are certainly more of that type. Seems to me Milwaukee has a lot more duplexes and four families. I dunno...I'm getting that from driving around, not from a stat sheet.
Anywhos... Good Luck in KC!
PS - My brother still lives there at Lake Lotowana. He got a second tier house for $60k some years ago. He would move up here, but he could never touch what he has down there up here. I don't know why he won't get into buying houses down there. He does own a vacant lot in Tarsny Lakes (Blue Springs?) - lol - talk about a long term play!!! Look that one up for laugh. He had a trailer on it until the meth-head renter disassembled his brand new furnace while on a binge - lol. That was the end of that for him.
- Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes7y
Originally posted by @Stuart Grazier:
@Marcus Auerbach great info! Thanks for the perspective on population growth. I've read a lot about people and businesses leaving Chicago and moving to Milwaukee. Are you seeing that in any of your research?
There is some of that going on, businesses moving that is, and as Illinois sinks deeper into the quagmire of high taxes and mismanagement, Wisconsin looks better and better (though Wisconsin can't seem to make up it's mind either when it comes to that stuff). That said, the true dynamic is that Chicago and Milwaukee really are almost the same city. Chicago (metro) is of course the massive high-density powerhouse, and is roughly 10 times the size of the Milwaukee metro (in terms of population, not acreage). However, it is almost one large city from Gary to Milwaukee. Lake County of Chicagoland (north-side), into Kenosha, into Racine and finally into Milwaukee has been growing steadily forever. The megalopolis is really beginning to show itself today. Lots of people who work in downtown Chicago live in Kenosha, Racine and even Milwaukee. Check out satellite images of the lights at night for reference of how huge and connected the area really is (like parts of the east coast, on a smaller scale). Milwaukee has always been Chicagos little brother. In fact, the northern part of Illinois, including Chicago, was originally part of Wisconsin territory. Then a bit of political stuff happened and the border got shifted to where it is today. Today it's Cheeseheads and FIBs - our respective terms of endearment for our cousins. Also why we have so much fun with our sports rivalries.
- Flipper/Rehabber · Milwaukee, WI · Member since 2016 · 153 posts · 84 votes7y
Originally posted by @Marcus Auerbach:
Originally posted by @Stuart Grazier:
@Marcus Auerbach great news for Milwaukee investors! What area of the city/suburbs do you see the most growth and new development? Down near Racine?
Milwaukee is not a typical growth play compared to let's say San Antonio. Racine get's a lot of attention because of Foxconn, but a lot of money has already been made there and I am not a huge fan of most of the existing housing stock in that area. In terms of economic growth you see a lot going on downtown and also in the suburbs. But that's mostly new construction, the best opportunities are median priced properties. We have a good stupply of low end rentals and a very good supply of brand new 5 star appartment developments with fantastic on site anemnities $$$$$ rents. What is undersupplied are nice properties with good size and updated finishes. Generally we don't have enough inventory, buy or rent, as you can see from the numbers above. The issue is that new construction starts at 450k and thats too high for investors and most first time home buyers.
This is the exact thing I’ve been thinking for a couple years now. It became apparent as I was looking for a new apartment a few years ago and it was either a new building and outlandishly expensive or a crap hole. No one is serving the middle market well (at least in quantity). I think there’s opportunity out there to rehab some older buildings (especially 2-4 units) in decent neighborhoods and start grabbing that middle section of the market that wants a nice place to live that is also affordable. That’s exactly what I’m doing with my current duplex and hope to repeat. Great commentary!
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes7y
@Brett Kash agreed, I think the middle of the bellcurve is the place to be - for many reasons! It's a volume segment, so you have ahuge pool of eople to draw from. You are dealing with quality people who have their act together a little bit more. The revenues are better, you are turning more dollars per tenant and per loan. And I think the segement will fare better during a recession in comparison the the top end luxury segement, perhaps also better than the bottom end.
The duplex housing stock offers better opportunities; many of the classic 1960 Milwaukee brick four family buildings were mass produced one next to the other and are in lower income areas. They are built as 1 and 2 bedroom units, which does not help the cause either. In the midrange, people want more square footage, 2-3 redrooms, open concept and nice kitchens preferrably with a breakfast bar or an island. Duplexes are typically better suited to accomodate these features.
- Real Estate Broker · Milwaukee, WI · Member since 2016 · 121 posts · 81 votes7y
Thank you for the detailed break down; it was very well presented and I feel you've hit many of the main topics/issues right on the head. The units within the four family buildings aren't large enough to accommodate the lion's share of renters. 2-3 bedroom duplexes are best suited for the bulk of the current rental population, especially with the low barrier of entry with owner occupant loans. House hack, rinse and repeat.
- 7yKen EckPro MemberRental Property Investor · Colorado Springs, CO · Member since 2018 · 46 posts · 16 votes
I am originally from just north of MKE, now living in Texas but have been interested in possibly starting to invest back in WI. I recently read a Forbes article (slide show), that linked to a larger outside article, "40 Cities in Danger of a Housing Crash." It discussed, the percentage of underwater mortgages and median home values as well as the percentage of foreclosures (for some cities at least).
The article listed MKE as 37/40 with 15.7% of mortgages being underwater, median home value of 121,600 but with values expected raise 5.8% over the next year. The article itself is obvious speculation but what is the validity of numbers they provide? The other question would be are these strictly SFH mortgages or is it the sum of all mortgages? Link below:
https://www.gobankingrates.com/investing/real-estate/cities-in-danger-of-housing-crisis/?utm_source=forbes.com&utm_medium=referral&utm_campaign=witchcraft#5
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes7y
Originally posted by @Ken Eck:
I am originally from just north of MKE, now living in Texas but have been interested in possibly starting to invest back in WI. I recently read a Forbes article (slide show), that linked to a larger outside article, "40 Cities in Danger of a Housing Crash." It discussed, the percentage of underwater mortgages and median home values as well as the percentage of foreclosures (for some cities at least).
The article listed MKE as 37/40 with 15.7% of mortgages being underwater, median home value of 121,600 but with values expected raise 5.8% over the next year. The article itself is obvious speculation but what is the validity of numbers they provide? The other question would be are these strictly SFH mortgages or is it the sum of all mortgages? Link below:
Hi John, I sometimes wonder how Forbes does their research. For once we have the city of Milwaukee, which is smaller than the county of Milwaukee, which is smaller than the metro area of Milwaukee. Stats for the city usually look pretty bleak - big parts are inner city with lot's of problems and low priced homes. Milwaukee metro is a totally different picture, economically and socio-demographically, but you'd have to include 4 more counties. Milwaukee has gotten a skyline, downtown commercial projects are in full swing with more to come and and there are more 5 star apartment buildings in the makings than I can keep track off. Meanwhile we are short on inventory, in particular below 350k.
There is no hard data on mortgages under water, as you would have to send out an appraiser to every property. Sometimes they use city assessments, which are pretty meaningless in terms of value. We have seen 7 consecutive great years with values going up, usually in the 5-7% range, early on it was more. Meanwhile lending standards have been very tight post crash - 2009 to say 2017, in the past years we have seen some easing up. Of course on the low income market you have a lot of FHA loans and some VA, which naturally don't have much equity, but anything that has been closed in the last 5 years has to be in the green. If you look at aggregated pricing we have gotten caught up to pre-crash levels in fall of 2017 - so basically 10 years with zero appreciation. The last two years we have been gaining ground.
Between the solid economic growth, very diversified and not depending on one industry, the shortage in housing and low rates I really don't see what the guys at Forbes are seeing!
- Property Manager · Milwaukee, WI · Member since 2014 · 113 posts · 144 votes7y
If there were to be a spark to light the fire, I'd say it would come from the low - middle portion of the investor market. Most local commercial lenders that I know of cut off lending to out of state investors in 2018. There was rising concern in the lending community that the over-leveraged, hard to appraise, investor boom was happening all over again.
The prices that out of state investors have been paying for Milwaukee real estate has been (in my opinion) significantly bloated. Now sure, you can argue the cash factor and the affordability of the MKE market... but I've yet to find an investor that is counting on Milwaukee as an appreciation play. We receive 5-10 OOS investor leads a week, and NOT ONE in the last 6 months has identified Milwaukee as an opportunity for anything but the entry price point.
The unfortunate math that most forget to calculate... those construction costs that @Marcus Auerbach reflect renovation work too; just becuase your unit rents for under $1 / sq ft doesn't mean your paint, carpet or finishes cost any less. And in fact, there is a direct corelation between rent price and maintenance cost... or an inverse corelation I should say. The lower your rent, the higher your maintenance/unit turn costs. There is a happy equilibreum that most of our clients settle on, but it's not that 2% deal you brag about at the bar.
C and lower properties have a very predictable cycle. Someone buys them cheap, rehabs them and rents them. Eventually that turn will come and costs more than the OOSI expected and collecting the rent has been more challenging that expected, so they sell to get their capital back to the next OOSI to do it all over again. When prices keep rising and new OOSI keep coming to the market, the cycle flows just fine. When the prices stagnate or drop, then you see inventory start to climb. - Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes7y
Originally posted by @Matt Maurice:
If there were to be a spark to light the fire, I'd say it would come from the low - middle portion of the investor market. Most local commercial lenders that I know of cut off lending to out of state investors in 2018. There was rising concern in the lending community that the over-leveraged, hard to appraise, investor boom was happening all over again.
The prices that out of state investors have been paying for Milwaukee real estate has been (in my opinion) significantly bloated. Now sure, you can argue the cash factor and the affordability of the MKE market... but I've yet to find an investor that is counting on Milwaukee as an appreciation play. We receive 5-10 OOS investor leads a week, and NOT ONE in the last 6 months has identified Milwaukee as an opportunity for anything but the entry price point.
The unfortunate math that most forget to calculate... those construction costs that @Marcus Auerbach reflect renovation work too; just becuase your unit rents for under $1 / sq ft doesn't mean your paint, carpet or finishes cost any less. And in fact, there is a direct corelation between rent price and maintenance cost... or an inverse corelation I should say. The lower your rent, the higher your maintenance/unit turn costs. There is a happy equilibreum that most of our clients settle on, but it's not that 2% deal you brag about at the bar.
C and lower properties have a very predictable cycle. Someone buys them cheap, rehabs them and rents them. Eventually that turn will come and costs more than the OOSI expected and collecting the rent has been more challenging that expected, so they sell to get their capital back to the next OOSI to do it all over again. When prices keep rising and new OOSI keep coming to the market, the cycle flows just fine. When the prices stagnate or drop, then you see inventory start to climb.Agreed Matt! Sooner or later there will be a down turn of some sort to complete the cycle and the neighborhoods that came up in value last will be the ones to fall first. They don't have a good school district or a histortically good reptutation to hold on to. All they have is the notion that prices have gone up a lot in the last years, and everyone remembers that for past decades no house on the street sold for over 50k - that will work against them. (The other segement I am monitoring is the luxury market - over $700k - supply is a lot higher, especially dated 5000sqft mansions from the 80s in need of work; inventory has tightened down here too as of late - it will be among the first to rise again.)
- 7yKen EckPro MemberRental Property Investor · Colorado Springs, CO · Member since 2018 · 46 posts · 16 votes
Originally posted by @Marcus Auerbach:
Originally posted by @Ken Eck:
I am originally from just north of MKE, now living in Texas but have been interested in possibly starting to invest back in WI. I recently read a Forbes article (slide show), that linked to a larger outside article, "40 Cities in Danger of a Housing Crash." It discussed, the percentage of underwater mortgages and median home values as well as the percentage of foreclosures (for some cities at least).
The article listed MKE as 37/40 with 15.7% of mortgages being underwater, median home value of 121,600 but with values expected raise 5.8% over the next year. The article itself is obvious speculation but what is the validity of numbers they provide? The other question would be are these strictly SFH mortgages or is it the sum of all mortgages? Link below:
Hi John, I sometimes wonder how Forbes does their research. For once we have the city of Milwaukee, which is smaller than the county of Milwaukee, which is smaller than the metro area of Milwaukee. Stats for the city usually look pretty bleak - big parts are inner city with lot's of problems and low priced homes. Milwaukee metro is a totally different picture, economically and socio-demographically, but you'd have to include 4 more counties. Milwaukee has gotten a skyline, downtown commercial projects are in full swing with more to come and and there are more 5 star apartment buildings in the makings than I can keep track off. Meanwhile we are short on inventory, in particular below 350k.
There is no hard data on mortgages under water, as you would have to send out an appraiser to every property. Sometimes they use city assessments, which are pretty meaningless in terms of value. We have seen 7 consecutive great years with values going up, usually in the 5-7% range, early on it was more. Meanwhile lending standards have been very tight post crash - 2009 to say 2017, in the past years we have seen some easing up. Of course on the low income market you have a lot of FHA loans and some VA, which naturally don't have much equity, but anything that has been closed in the last 5 years has to be in the green. If you look at aggregated pricing we have gotten caught up to pre-crash levels in fall of 2017 - so basically 10 years with zero appreciation. The last two years we have been gaining ground.
Between the solid economic growth, very diversified and not depending on one industry, the shortage in housing and low rates I really don't see what the guys at Forbes are seeing!
Marcus,
That is great information, thank you. This is the exact reason I was curious and wanted to ask; to get the opinion of somebody knowledgeable on the local market. I've been out of the area for years and have only gone back periodically to visit family, but I have been getting more and more interested in investing in or around MKE.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes7y
Here is an update about Greater Milwaukee including end of April 2019 fresh out of MLS.
Inventory is extremely tight and well below 2 months worth of supply (6 would be normal). That's basically the new normal for years, but nobody expected inventory could tighten much more from last years levels. March inventory was down 21% over last year, which is an extreme number. April shows some increase we we are down "only" 10% over last year, new listings -8.2% is also pointing to the same direction of some improvement. The situation is now almost as extreme as it was back in 2010 - just inverse; back then we had tons of inventory (22 months) and no buyers, now we don't have enough sellers and a large amount of buyers.
The growing segments are higher price points 250k-300k and 300k to 400k are the only significantly growing classes. As long as supply and demand continue to be massively out of balance (and nothing too crazy happens with the world economy) we will see prices go up.
Let's take a look at appreciation. The table below is showing both median and average numbers and while this is a large data set (greater Milwaukee with suburbs) the median is IMO the better indicator. What is remarkable is that Sellers are beginning to really drive the prices up now - median list price is up almost 11%. The median sales price is following reluctantly held back by savvy Buyers and their appraisals at about 9%. These numbers are remarkable for a market that is historically not know for appreciation. Existing homes are on average still 30% less than new construction. In the lower price segments under 400k there is almost no new construction, so supply is limited to what has been built in the 1920 and it the 1960s and as long as we are short in supply prices may continue to approach the cost of new construction.
This is great news for buy and hold investors with existing inventory, but makes finding good deals a little bit more challenging. However, deals are still to be found on MLS, even though they go within hours after listing - I had three accepted offers last week, one is a BRRR for myself and two are buy&hold's for investor clients.
- WI · Member since 2018 · 123 posts · 69 votes7y
There are 4 new build ranch duplexes going up near my neighborhood in Richfield. Last I checked they wanted 350k PER SIDE!! for a 2 bed/ 2bath. B school district.
- Milwaukee · Member since 2018 · 5 posts · 0 votes7y
@Jeff Wujek This is interesting and good to be clued in on. He is experienced investing in the Milwaukee area
- 7yJason BottPro MemberInsurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
Originally posted by @Marcus Auerbach:
Here is an update about Greater Milwaukee including end of April 2019 fresh out of MLS.
Inventory is extremely tight and well below 2 months worth of supply (6 would be normal). That's basically the new normal for years, but nobody expected inventory could tighten much more from last years levels. March inventory was down 21% over last year, which is an extreme number. April shows some increase we we are down "only" 10% over last year, new listings -8.2% is also pointing to the same direction of some improvement. The situation is now almost as extreme as it was back in 2010 - just inverse; back then we had tons of inventory (22 months) and no buyers, now we don't have enough sellers and a large amount of buyers.
The growing segments are higher price points 250k-300k and 300k to 400k are the only significantly growing classes. As long as supply and demand continue to be massively out of balance (and nothing too crazy happens with the world economy) we will see prices go up.
Let's take a look at appreciation. The table below is showing both median and average numbers and while this is a large data set (greater Milwaukee with suburbs) the median is IMO the better indicator. What is remarkable is that Sellers are beginning to really drive the prices up now - median list price is up almost 11%. The median sales price is following reluctantly held back by savvy Buyers and their appraisals at about 9%. These numbers are remarkable for a market that is historically not know for appreciation. Existing homes are on average still 30% less than new construction. In the lower price segments under 400k there is almost no new construction, so supply is limited to what has been built in the 1920 and it the 1960s and as long as we are short in supply prices may continue to approach the cost of new construction.
This is great news for buy and hold investors with existing inventory, but makes finding good deals a little bit more challenging. However, deals are still to be found on MLS, even though they go within hours after listing - I had three accepted offers last week, one is a BRRR for myself and two are buy&hold's for investor clients.
Great info Marcus. Thanks
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