Home sales trend not surprising, but worth watching

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After a couple years of unbelievably high home sales in the region, it’s not a surprise in the least to see some areas of Wisconsin falling behind the prior year’s pace now. It’s simply impossible to sustain record and near-record rates for too long.

The real question is whether this is a pause for the market to catch its breath or the beginning of a shift back to a buyer’s market.

Even a brief retreat on the overall number of sales seems unlikely to hurt values too much, at least in the near term. A study released in late March showed Wisconsin’s housing market remained strong, with the total value of homes on the market still well ahead of the previous decades’ norm.

That means that a reversal is only a downturn compared to recent figures. It’s still very strong compared to historical averages. And things didn’t slow down much over this past winter. A 4.7% decline in February sales sounds significant, but still totals 4,300 homes sold. And that’s only part of the 16,000 homes sold during the season.

The Wisconsin Policy Forum said revenue from the prior fiscal year, which ended June 30, 2021, came to more than $132 million. That’s an increase of more than one-third over the previous fiscal year. And, to all appearances, demand remains strong amid a limited supply.

A Wisconsin home that sold for $126,500 in 2016 has gained about $45,000 in value. Most of that increase has come since 2020 began. That’s an extraordinarily fast gain.

While the past couple years have been great for sellers, it hasn’t been quite the same for those looking to buy. Many are paying more than they anticipated for mortgages or have shifted their focus to smaller homes. Others have been priced out of the market entirely. It’s hard to say when, or if, those people will come back.

The housing market isn’t a straight line. It never has been. The market doesn’t move in a completely predictable fashion. Sure, sellers can often realize a gain over what they paid, but the same thing can be said of most conventional long-term investments. And that’s precisely what homes are. People usually don’t turn around and sell within just a year or two. When you buy one, you’re in it for the long haul more often than not.

So, while the rapid increases in home prices do raise some concerns for us, we never saw them as a reason to panic. Conditions change, and the very unusual conditions that have predominated over the past two years certainly make hasty conclusions unwise.

By that same token, we’re not reading a lot into the results of the recent reports. There’s may be a difference between a white hot market and one that is, compared to most of the past couple decades, merely red hot, but it’s hardly the same as a market in which you’re selling at a loss.

What we’ll be watching for is whether the past couple months’ trend continues or accelerates as we head into late spring and early summer. It wouldn’t surprise us if the sales continue to be below the marks set in 2021 simply because there are fewer homes available. Many of those who wanted to sell have done so, after all. Other factors, including rising interest rates, could also cool the market.

What would concern us is if a modest year-to-year decline showed signs of becoming something more. A collapse of the market would do significant damage, as we’ve all seen before. We don’t think the evidence for such a collapse is there right now, but that’s one of the things that make such events so troubling. Most people don’t see them coming.

What is clear right now is that there seems to be more unease about the economy than what we’ve seen since shortly after COVID arrived. It’s widespread, and it’s being caused by multiple factors. Inflation, housing pressure and international events aren’t comforting at the moment. There are very real reasons to feel a bit nervous.

We’ll be watching the coming months closely. But we’re not in favor of dire predictions or unsupported optimism right now. Like everyone else, we’ll just have to wait to see what comes next.

– Eau Claire Leader-Telegram