MADISON — Despite low inventories, Wisconsin home sales in 2018 were only slightly off the record sales pace in 2017 as median prices continued to outpace inflation, according to the most recent analysis of the state housing market conducted by the Wisconsin Realtors Association.
Statewide home sales fell 2.2 percent below the record sales seen in 2017, making 2018 the third strongest year for home sales since the WRA re-benchmarked its data collection methods beginning in 2007. Strong demand but low supply of homes for sale pushed the 2018 median price up to $184,000, which is 7 percent above prices for 2017. The month of December closed the year on relatively weak sales volume, with home sales down 13.1 percent compared to December 2017. The imbalance of supply and demand pushed the median price for December up 5.3 percent to $179,000 over the past 12 months.
WRA Chairman Jean Stefaniak echoed the incidence of solid demand in the face of lower supply numbers in a press release from the organization.
Statewide, inventory levels in December were unchanged from 12 months earlier, with just 3.9 months of supply. This is well below the six-month benchmark that characterizes a balanced housing market. All homes with the exception of those in the higher price bracket have been low in supply, which has given sellers an advantage in most markets statewide, Stefaniak noted.
A review of sales over the last year shows inventory levels between 2.9 and 4.0 months for homes selling below $350,000. Homes priced between $350,000 and just under $500,000 had 5.1 months of supply. In contrast, there were 9.7 months of supply for homes priced at or above $500,000. Only about 4.4 percent of all homes sold in Wisconsin are in that top price bracket.
WRA President & CEO Michael Theo said in the same release that demand and supply structure in 2018 created “price pressure.” Median prices rose 7 percent in 2018 compared to 2017. This hasn’t been inflationary. Declining energy prices helped to keep inflation in check, especially late in the year. The U.S. Bureau of Labor Statistics estimates December inflation rates fell below 2 percent, which brought inflation for all of 2018 in at just 2.4 percent. Theo noted that high inflation rates lead to higher mortgage rates.
The Wisconsin Housing Affordability Index shows the fraction of the median-priced home that a buyer with median family income qualifies to buy, assuming 20 percent down and the loan balance financed using a 30-year fixed-rate mortgage. Theo also noted that an economic upturn increased affordability, but price appreciation and a gradual increase in mortgage rates has counteracted that.
The affordability index fell from 227 in December 2017 to 203 in December.
Theo explained that a strong economy remains throughout the country, which means along with the paced growth in 2018, a continually low unemployment figure shows good signs for the year.
However, there are economic headwinds in 2019, including slowing growth in Europe, China and India, as well as ongoing trade disputes with some of our largest trading partners. While the WRA continues to believe a U.S. recession is unlikely in 2019, the recent decline in affordability combined with slowing economic growth will likely moderate housing demand. On the supply side, the WRA expects some small improvements in 2019.
Total listings of existing homes for sale in December were similar to the levels of December 2017, falling just 1.9 percent over the last 12 months. This is a departure from previous months where double-digit declines in listings occurred. Builders are reporting some moderate improvement in new construction, with new single-family building permits increasing 2 percent in January through October 2018 over the same period in 2017. Finally, foreclosures have remained stable at the lowest levels since the early 2000 decade.
