Housing market will not yield

Speaking to an appreciative group of local realtors, an all-star panel of real estate pros gathered in mid-September to deliver some good news — the Madison and Wisconsin real estate market is not as dire as recent headlines suggest.

Yes, recent economic news is unsettling because to fight inflation, we must now raise interest rates to the point of risking an economic slowdown. I’ll try to use the “R” word sparingly because there still is a labor shortage, and that means job losses are even more of a lagging indicator of a downturn than usual.

The panelists brought some historical perspective about the ability to sell homes with mortgage rates in the current 5% range because they’ve been there and done that. Noting that the biggest impediment to home sales is not recent rate hikes but the current low inventory was Mark Eppli, director of the James A. Graaskamp Center for Real Estate at UW–Madison; Dave Stark, president of Stark Company Realtors; and David Simon, president of Veridian Homes.

Eppli did not downplay the toll inflation is taking and chided the Federal Reserve for its previously rosy economic scenarios. He also threw water on the notion that higher interest rates will crater home prices, noting there is a slightly positive correlation between the two. But even with continuing price appreciation, inflation is a problem that is going to be hard to bring back down, and he predicts a five- or six-month hibernation period before the housing market picks up.

Stark took aim at what he called the media freak out over higher interest rates. In November 2018, rates were at 4.87, and as recently as April of this year, they were at 4.98. He noted that so far in 2022, home sales have underperformed historic norms every month, in part because of something Eppli said — baby boomers have chosen to age in place. “We don’t have an issue with mortgage rates and buyers,” says Stark. “We have an issue with sellers.”

Simon recalls that FOMO (fear of missing out) drove the low-rate market over the past two years, and even though he likes Eppli’s short-term forecast, a housing comeback could take a bit longer. “I love your slides about a six-month hibernation and life goes on, but I don’t have a lot of faith that we’re not going to get a harder landing because it may take a little more work to stomp out inflation.”

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