The Milwaukee housing market showed strong signs of a cooldown in June amid a national trend headed in the same direction.
Year-over-year house sales were down by 10.6% in June in the Milwaukee Metropolitan Area — which encompasses Milwaukee, Waukesha, Ozaukee and Washington counties. Rather than being tied to rising interest rates, though, the decline was seen more as a return to normality following the red-hot housing market of recent years. The majority of the sales recorded in June, according to the Greater Milwaukee Association of Realtors, were negotiated before interest rates started ticking up last month.
“June marked the fourth month in 2022 with decreased sales relative to 2021, again, due to 2021’s exceptional performance,” according to the realtors group.
June also saw fewer house listings in the Milwaukee Metro Area. Listings were down 21.5% year-over-year last month. The Greater Milwaukee Association of Realtors warned that a shortage of new housing will continue to be a source of concern, especially as more and more Millennials and Gen-Zers reach the age when they’ll be looking to buy a house.
These trends were far from confined to Milwaukee. In the Denver area, for instance, Kyle Tomcak was recently looking for a home for his in-laws out in the suburbs. He was hoping to find something for close to $450,000 (in the Milwaukee metro area, the average price of a house was $393,545 in the second quarter of 2022, up 9.5% year-over-year.)
Tomcak became dispirited as he lost out to investors fronting cash offers $100,000 over the asking price. Then mortgage rates ballooned, putting his price range out of reach.
“All of a sudden, your buying power is less … even though your payments are the same,” he said.
Tomcak has abandoned his search for now.
The Federal Reserve has aggressively raised short-term interest rates to fight inflation, which in turn helps push rates higher for credit cards, auto loans and mortgages. Rising mortgage rates have combined with already high home prices to discourage would-be buyers. Mortgage applications have declined sharply. Sales of previously occupied homes have fallen for five straight months, during what is generally the busiest time of year in real estate.
The rate on a 30-year mortgage averaged around 5.54% this week, according to mortgage buyer Freddie Mac; a year ago it was close to 2.78%. The increase in rates is leaving buyers with some unwelcome options: pay hundreds of dollars more for a mortgage, buy a smaller home or choose to live in a less desirable neighborhood, or drop out of the market, at least until rates come down.
All signs point toward the Fed continuing to raise interest rates, promising little relief for potential buyers at least for the rest of the year.
Data provided to The Associated Press by the real estate data company Redfin shows how much home a buyer could get with a $2,000 a month mortgage payment. In Providence, Rhode Island, for example an average buyer a year ago could have purchased a roughly 4,900-square-foot home for that size mortgage payment. Now that amount only gets a buyer a 2,200 square foot home.
Besides pushing would-be homeowners to reconsider their home search, rising rates are also forcing a growing number of buyers who struck a deal on a house to back out. About 60,000 home-purchase deals fell through in June, representing nearly 15% of all homes that went under contract last month, according to Redfin. That’s up from 12.7% in May and 11.2% a year ago.
For more than a decade, potential homebuyers were willing to put up with rising home prices because the cost of a mortgage was at historical lows. The average mortgage rate on a 30-year fixed-rate mortgage mostly stayed below 4.5% for most of the last decade, according to data from the Federal Reserve Bank of St. Louis.
The financial data firm Black Knight estimates that the rise in mortgage rates has increased a typical borrower’s monthly payment by 44% since the beginning of the year. Since the start of the pandemic, the average mortgage payment has doubled to more than $2,100.
Most of the pain is being felt at the bottom of the market: the first-time homebuyer, who often has the least amount of money for a down payment and is trying to make the monthly payment work for their budget. Sales of homes priced below $250,000 fell by more than 30% in June.
For those who can afford to buy a home even with higher mortgage rates, the housing market slowdown has a silver lining — more options. As homes get fewer offers, they tend to linger on the market longer. The number of homes for sale, which has been rising from ultra-low levels since the spring, increased 18.7% from a year earlier, according to Realtor.com.
Historically, late spring to early summer is peak home buying season in the U.S., but there are multiple signs that buyers have become discouraged.
The number of Americans applying for a mortgage is down significantly from a year ago. Weekly mortgage applications tracked by the Mortgage Bankers Association are down roughly 50% from a year earlier. The decline in mortgage applications could signal a slowdown in future homebuying activity, since potential homebuyers do not apply for a mortgage unless they have settled on a particular home or condo.
Joe Luca, a realtor and past president of the Rhode Island Association of Realtors, said buyers are having to refine their search, settling for smaller homes, or choosing a neighborhood further from a city center.
“People may be looking to buy a house in a really nice town in the best part of that town. Rates go up so they can’t afford that, so they need to recalibrate what they are going to buy,” he said.
– The Associated Press contributed to this article