April 2018 Home Sales Report

Weak Inventories Continue to Hamper Sales and Boost Prices

Date: May 21, 2018

MADISON, Wis. — For the second straight month, home sales have fallen on a year-over-year basis even as strong demand has put upward pressure on home prices. April home sales were slightly off the pace of 2017, falling 0.4 percent in April 2018 relative to that same month last year, according to the most recent examination of the housing market by the Wisconsin REALTORS® Association. The strong economy continues to fuel the existing home market, which has increased median prices 5.9 percent to $180,000 over the last 12 months. On a year-to-date basis, sales were up modestly, rising 1.6 percent compared to the first four months of 2017, and median prices rose 6.7 percent over that same period.

"The economy is very strong, and under normal circumstances, we would be seeing robust growth in home sales," said WRA Chairman Peter Sveum. Indeed, the Wisconsin seasonally adjusted unemployment rate has been below 3 percent the last three months, falling to 2.9 percent in February and March this year, and it fell even further to 2.8 percent in April. This is the lowest level seen since the U.S. Bureau of Labor Statistics began recording statewide unemployment rates in January 1976. "These are unique times, with strong demand but very weak supply," said Sveum. The state had just 29,296 homes available for sale in April, and that is 19 percent below the level that existed in April 2017. This equates to just 4.2 months of available supply, which signals a strong seller's market. "The year started off strong, but it's tough to maintain that momentum once we get into peak periods," said Sveum. Sales for the first two months of 2018 outpaced the combined January and February sales in 2017 by 4.7 percent. However, it's important to note that there are only about 10.4 percent of annual sales that typically take place during the first two months of the year. "The winter is an inconvenient time to move, and motivated buyers can get a jump on the market by buying at a time when there are fewer competitors," said Sveum. "That strategy doesn't work as we get later in the spring and the market heats up," he said. More than half of all home sales in Wisconsin take place between April and August.

"Tight supply and strong demand are a recipe for strong price appreciation, and that is exactly what we are experiencing in Wisconsin," said WRA President & CEO Michael Theo. He noted that median prices are up 6.7 percent for the first four months of 2018 relative to that same period in 2017, and these strong price pressures continue to erode affordability. The Wisconsin Housing Affordability Index shows the percent of the median-priced home that a family with median family income can afford to buy, assuming a 20 percent down payment, and the remainder financed with a 30-year fixed-rate mortgage at current rates. "With prices rising so quickly on top of increased mortgage rates, even modest improvements in family income can't keep pace," said Theo. The April index fell to 195, which is the first time that the index has been below 200 since June 2010. In fact, the Housing Affordability Index has fallen 10.1 percent over the last 12 months.

"Unfortunately, we don't see many signs of immediate relief, so we expect monthly sales to struggle to reach the levels of 2017 as we get into the heat of the summer market," said Theo. The new listings of existing homes in April were 14 percent below April 2017. One bright spot is new construction. Seasonally adjusted permits for new residential construction were up 8.4 percent in April, relative to April of last year. "We certainly hope that new home construction will continue to improve, but we need to see a similar spike in existing home listings before this inventory crisis improves," he said. Using a REALTOR® who is experienced is still the best option for buyers and sellers. Buyers need to have their financing pre-approved and need to be prepared to compete aggressively for homes; while sellers need to have their housing plans in place so they are prepared for a quick sale in this red hot market.

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