Rising Inventory Slows (But Doesn’t Crash) Wisconsin Housing Market

The Wisconsin State Journal reports that although the south-central region of the state incurred a housing slowdown in 2006, the bubble didn’t burst and the market didn’t crash.

Nevertheless, a period of record growth lasting nearly a decade came to an end in Greater Madison. The number of existing home sales dropped about 7 percent to 14,670 in the six-county region covered by the State-Journal, and declined 11.1 percent in Dane County to 7,097.

The inventory of unsold homes swelled to 10,712 in the region by the end of 2006, up 26 percent from a year earlier, and up 30 percent in Dane County to 5,211.

The high inventory meant even attractive homes in desirable neighborhoods sometimes had trouble finding buyers. As a new year begins, real estate agents find optimism in the fact that the unsold home inventory has been declining gradually in the Wisconsin housing market in past months.

One seller whose story the State-Journal tells is David Schield, who put his house on the market too late to cash in on the housing boom. He bought the house two years ago as an investment to fix up, sell and (in theory) make some money.

After the renovation was finished, he listed the house in with a for-sale-by-owner company in April. When it didn’t sell by August, he hired a real estate agent. He reduced the price to $224,500, but the house still hasn’t sold, and ongoing expenses may push him under the break-even point.

“It took me a little longer to do the work I wanted to do,” Schield said. “I hit the market when it just dried up last year.”

Despite Wisconsin mortgage rates that remain low, the higher inventory also has led to more competition, lower prices and homes that stay on the market longer.

Another story is that of a woman who lived next to Jane Fitchen’s duplex and sold her unit after a week on the market last June for the $250,000 asking price, making Fitchen herself think it was be time to put her own unit up for sale.

The other woman’s unit didn’t have a remodeled kitchen and bathroom like Fitchen’s unit, so Fitchen priced her unit higher at $269,000. It didn’t sell during the summer or fall and now it’s priced between $239,000 and $259,000.

“It’s been really dismal,” Fitchen said. “What’s really frustrating is the one next door had not been updated at all.”

A tougher market has slowed but not reversed price increases. The median sale price was up 2.5 percent in the region to $178,000 last month from a year earlier and up 2.8 percent in Dane County to $220,000.

Madison often escapes (or at least avoids the brunt of) national or regional economic downturns, but that good fortune didn’t exempt the area from the national real estate market slowdown that gripped this nation in 2006.

What’s puzzling is that the local downturn came even as mortgage loan rates have been stable and employment has remained strong, two conditions that usually signal a strong housing market.

“I don’t know why things have slowed down here. I can’t explain it other than people have gotten a little nervous,” said Chad Wuebben, president of the Madison Area Builders Association.

Greed, fear and publicity were three factors that contributed to the end of the housing boom, said John Tuccillo of Arlington, Va., former chief economist for the National Association of Realtors.

“A lot of people out there decided that housing was a get-rich-quick scheme. Ultimately, greed overwhelmed the market,” he said.

When massive amounts of investors and speculators pulled out of hot markets like California and Florida, home values in those areas began to wane.

Many homeowners were afraid they had missed the chance to cash in on their home’s value, and a lot of people became saddled with adjustable-rate mortgage and even interest-only loans. As they put their homes on the market and looked to bail, that built up inventory and reduced prices.

He said news of the boom ending on the coasts seeped across the U.S. and began to affect even traditionally stable markets like the greater Madison area. While the high inventory of unsold homes in south-central Wisconsin has begun to recede, it’s still a matter of concern to experts.