What’s going on in the world with Milwaukee real estate?
President, home builder,
Project designer and coordinator, Bartelt. The remodeling resource
Owner and Broker, Jay Schmidt Group, Keller Williams Realty
AVP Regional Director of Mortgage Sales, North Shore Bank
LISTEN TO THE CONVERSATION
Milwaukee Magazine: Home inventory is at an all-time high in metro Milwaukee right now. How does this affect your industry?
Scott Thistle: It certainly drove up the prices. Things are busier now than they have ever been. I sold 100 houses in the first quarter of this year. I thought I would sell 60 and be happy. The market simply does not produce enough units.
Matt Retzak: The scale of renovation projects has increased over the past two years. This is because there are no houses to buy for people who want more space. They could sell their house in half a day, but they have nowhere to go. It set our phones on fire with people wanting to add some to make their homes more functional.
Jay Schmidt: Forty-five percent of home purchases in the Milwaukee metro area last year were made by first-time buyers. With these millennials increasing the purchase pool, this puts
pressure on stocks. And baby boomers stay in their
longer homes and remodeling.
ST: This millennial demographic is bigger than baby boomers have ever been. Right now, based on the numbers you’re looking at, they represent a good third of the housing market. They buy new homes, they buy used homes, they renovate. This demand could easily continue for 10 more years unabated, and we do not have the housing stock to meet this demand.
Michael Murphy: The time between a pre-approval being completed and a buyer finding a home is much longer now, so we need to ensure that we maintain pre-approvals and that the information we use is always up-to-date.
MilMag: How do these rising rates affect affordability?
MM: At the start of the year, rates were close to 3%. Now we see 5%. Someone with a budget of $1,500 for a mortgage payment in January might qualify for a loan of around $366,000. Now they would be entitled to around $288,000. That’s a $78,000 drop in purchasing power.
JS: Buyers are much more aware of tariffs now. I think the savvy buyer realizes that real estate is historically a 4% increase in value year over year. Stocks, bonds, 401K, you get 8-10% over 10 years. Whether you’re looking to buy or renovate, even with rising interest rates, real estate remains a solid long-term investment strategy.
MilMag: How does remodeling play a role in this investment strategy?
SIR: With the market he’s gone to, I can tell people something that I’ve never been used to saying. If you invest $100,000 in your home, you could sell your home for another $150,000 the day we do.
ST: COVID has created so much demand for renovations. All the things that were nice to have before COVID are things people need during and after COVID.
SIR: The home office was at the top of the list: convert an unused area of a garage or an unused dining room. The open concept is not a livable scenario when everyone is together all the time. Demand increased with COVID, but it caught fire from there with the real estate market, and I don’t see it slowing down.
MilMag: Which areas of the Milwaukee metro area are the hottest right now?
JS: West Allis is extremely strong. The city of Milwaukee is white hot. Grafton – there is nothing to sell. It’s in all price ranges, all municipalities. As interest rates rise, instead of 15 offers on a house, there may only be three or five.
ST: Since Jay mentioned Grafton, every month I run my own statistical analysis on the markets I trade in. At the end of February, there were exactly four homes on the market in all of Grafton under $450,000. People are shocked when they hear these numbers.
MilMag: Scott, you work in the home building industry. What are some of the benefits of building a new home in this market, as opposed to remodeling or buying an existing home?
ST: You can build whatever you want. You don’t have to deal with a 30 year old water heater or furnace or roof or anything else. There are fewer costs associated with owning a new home. We need municipalities to take an active role in solving this affordability and inventory problem. The way to solve it is through better land use and flexibility in zoning codes. This idea that we can burn all the land in Waukesha County with traditional zoning and solve this problem is, I think, a mistake.
JS: We [Jay Schmidt Group] represent Lakeshore Commons, a development in Oak Creek. It has independent houses, adjoining villas and even townhouses. These small lot sizes are popular with young couples and families. Not everyone wants a half-acre lot and the upkeep that comes with it. I think these smaller lots are reaching a buyer base that traditional subdivision development doesn’t appeal to. It’s a trend in many other states, and based on our initial success, it’s happening in Milwaukee.
MilMag: Mike, what types of home loans are the most popular in the current state of the market?
MM: We find that people are choosing longer term variable rate mortgages more often [ARMs], because fixed rate mortgages are higher right now with rising interest rates. But there is a risk in taking an ARM because there is no guarantee that interest rates will fall over the next few years.
Bridging loans are becoming increasingly popular. If a client is building a house right now, there’s really no place to rent while they’re building, because rental rates are rising as fast as mortgage rates. We offer cross-guaranteed bridge loans. We basically finance the whole lot for the land and the house, then once the buyer sells their current home, they pay us an agreed amount of equity on the proceeds. If you are buying an existing home and getting a cross-collateral loan, you can write an unconditional offer to sell. This makes your offer more attractive.
MilMag: What are some common mistakes that buyers, sellers or owners make?
ST: Don’t wait to buy a house. The prices don’t go down. Interest rates are not falling. Over the past 10 years, the average price of a home in the Milwaukee metro market has increased by $150,000.
JS: Sometimes people remodel their homes in very specific ways. If you’re renovating your home with the intention of selling it in five or 10 years, talk to your renovator and a real estate agent, so they can advise you and say, “Hey, I know you like the color red. , but bright red cabinets might not be the smartest investment.
SIR: Jay is absolutely right. Cabinets, countertops, and flooring are expensive to redo, so stick to a timeless look for these. If you want to add style, work with plumbing fixtures, lighting, or even just paint—elements that are easy to replace.
MM: I think the most important thing we focus on is making sure people know the difference between a pre-approval and a pre-qualification. For pre-qualification, a buyer will call the finance department, who will pull their credit and ask about their income and wealth, then give them a letter based on unverified information. It is a dangerous way to proceed. Buyers can underestimate, overestimate their finances. For pre-approval, which is all we do at North Shore, the information provided by the customer is fully subscribed and verified. We collect all documentation. Get a solid pre-approval instead of pre-qualification and it can save everyone in the deal a headache.
Using a local lender is even more important now with market volatility. If you’re going with someone without local representation and there’s a ball in the deal, you might be calling a 1-800 number to someone out of state. If you have a local lender, you can call them directly or drop by their office and they will be responsive because they are invested in the community.
JS: I would like to reiterate Mike’s point on the real estate side. If we see a pre-approval from a lender on the Internet or from a TV ad, we know it is unverified. These offers may have excellent conditions, but will be placed in the middle or bottom of the stack. Using a local lender like Mike equals getting your offer accepted and the finish line.
In all of our industries, I think shopping for who’s cheaper is a mistake. If you had a medical problem, you wouldn’t look for the cheapest doctor. Real Estate, whether it’s remodeling a home, buying a home, or building a home, those who buy the cheapest don’t get the best option.
Real estate is your greatest form of wealth creation, so make sure you choose the right renovator, the right builder, the right real estate agent, not the cheapest.