Soaring Home Prices Squeeze First-Time Buyers

Sold sign. Photo by Dave Reid.

The second straight year of 14% increases in home values statewide, and mortgage interest rates near 7%, continued to illustrate the squeeze faced by individuals trying to buy their first home or wanting a bigger home as a family grows.

The annual Wisconsin Department of Revenue (DOR) report on “equalized” property values – values adjusted for sales of similar properties, reassessments and other factors – estimated the value of residential property statewide at $613.8 billion, a 14% gain over 2022. Last year’s report had a one-year increase of 14.9%.

“Homeowners are in the driver’s seat,” said David Clark, a Marquette University emeritus economics professor and consultant for the Wisconsin Realtors Association (WRA). “For buyers, it’s a real challenge – especially for first-time buyers,” since they have no equity built up and must rely on gifts or savings to buy that first home and consider a 30-year mortgage interest rate of about 6.8%, Clark noted.

WRA’s numbers document that squeeze. The median-priced Wisconsin home went up by 8.6% — from $280,000 to $304,000 — between June 2022 and June 2023. It was the first time that a median-priced Wisconsin home exceeded $300,000, Clark noted.

When three factors — higher home prices, only slightly higher median family incomes and mortgage rates — are considered, Clark said WRA’s “affordability index” dropped by 13.8%. That meant a family could afford to pay 125% of that median-price home in June of this year – down significantly from 145% from June of last year..

“Certainly, affordability has gone down,” Clark said.

Overall, the DOR reported, the total estimated value of all Wisconsin property was $842 billion this year – a healthy one-year increase of 13%. Commercial property went up 13%; manufacturing, 12%, and agricultural, 11%.

Surprisingly, two northern counties — Taylor and Menominee — had the strongest one-year gains in their residential property values. Taylor County homes went up by 33% and Menominee County homes by 25%.

DOR’s new report continued the trend of Dane County property being worth more than property in Milwaukee County, despite the huge gap in population (Milwaukee has about 350,000 more people). DOR estimated all Dane County property values at $99.1 billion and Milwaukee County’s total at $96 billion. The value of residential property in Dane County increased by 12% and Milwaukee County homes by 10%, DOR estimated..

The new property values go to school district and local government officials who will soon prepare their 2024 operating budgets. The higher values are one factor that determine December property tax bills, which will be difficult to predict because more state aid will be going to local governments in 2024.

Why is this a state Capitol issue? Two reasons.

First, Democratic Gov. Tony Evers and Republicans who control the Legislature are trying to find ways to help solve the workforce crisis — too few workers for too many job openings — and respond to housing trends that include soaring rents and young families unable to buy their first or second homes.

In his February budget message, Evers asked for $150 million to “maintain and develop workforce housing” and $200 million to renovate and restore existing homes with “low-interest and forgivable loans.” Republican legislators rejected both proposals.

Second, homeowners will be opening those dreaded property tax bills in only four months.

Clark noted the “imbalance” between Baby Boomers, a “pretty healthy lot” who have often invested in their homes and are deciding  to “age in place” as their home values go up, and potential first-time home buyers, who are often forced to keep renting, which drives up rents.

“Millennials were kind of late to come into the home-buying market,” Clark said, noting that the Great Recession of 2008-10 was a “terrible time to be buying a home.” Job losses, college debts and other factors kept them from buying homes then.

The Realtors Association data estimated that median-priced Milwaukee County homes went from $235,500 to $250,000 in a year, a 6% increase.

The DOR’s increases in residential property values in Milwaukee County municipalities: The City of Milwaukee, 12%, Cudahy, 13%; Franklin, 11%; Glendale, 12%; Greenfield, 12%; Oak Creek, 10%; South Milwaukee, 7%; Wauwatosa, 10%, and West Allis, 8%.

Other regional DOR changes in residential values: Waukesha County, increase of 13% and City of Waukesha home values, up 11%;  Racine County home values rose 13%, with City of Racine values increasing 11%; Ozaukee County home values were up 12%; and Washington County home values rose by 14%.
Clark doesn’t expect the “imbalance” between homeowners and first-time home buyers to soon close. “It’s going to take a while for that to play out.”

Steven Walters started covering the Capitol in 1988. Contact him at stevenscotwalters@gmail.com