WISCONSIN - According to a new report, rents have increased in the Milwaukee metro area by about 6% in the past year. The Milwaukee County median rent has increased by more than $100 in the past year. Renter-occupied households make up nearly half of Milwaukee's housing stock. However, Milwaukee has a wide income gap; many renter households make less than $25,000 per year. In 2016, only 9% of rental units in the county were priced at affordable levels.
Rents In Milwaukee Have Increased 6% Year-over-year
The increase is not due to a lack of demand. Rents are driven by several factors, including increasing supply and demand, inflation, and increased cost of living. Increased rent is most problematic for low and marginalized households. Often, these households have trouble making ends meet.
The demand for rental housing is strong in Milwaukee, with conversions of older buildings reaching an all-time high. The median rent in Milwaukee for a three-bedroom unit is $1,350 a month. This is a significant increase for the city, which ranked among the top 10 cities for reusing older buildings. Moreover, 35% of rental units in Milwaukee rent for between $1,001 and $1,500 per month.
Home Value Appreciation Is Rapidly Increasing
The Wisconsin housing market continues to experience strong home appreciation, and a new report from Fannie Mae predicts a slowdown through 2023. While home price appreciation will still remain double-digit through 2022, it will slow down to about 5% in the latter half of the year. This will be a positive development for those planning to buy or sell a home in the next few years.
One reason for this rapid appreciation is that Wisconsin real estate sales increased at their highest rate in 15 years. In the 12-month period ending June 30, sales totaled $132.6 million. At the same time, sales fees increased by 37 percent, matching the peak housing boom years of 2005 and 2006.
Home prices will likely increase faster in cities with a high percentage of millennials, particularly first-time buyers. Millennials are expected to grow by 200,000 more in 2023 than in 2021. Millennials tend to be the strongest in neighborhoods surrounding major cities. However, home prices tend to increase more slowly during election years. This is because a new president creates uncertainty. It may also result in buyer reluctance.
Single Detached Home Demand Is Driven By Young Millennials And Gen Xers
As millennials and Gen Xers approach their peak home-buying age, single detached home demand is also expected to rise. The housing market is set to stay strong with record-low interest rates, low inventories, and rising demand. This means that prices will likely continue to rise for at least the next few years. Moreover, demand is not confined to Wisconsin, with growth expected in cities across the U.S.
In addition, Wisconsin's housing affordability remains strong, despite a recent rise in mortgage rates. While prices have risen, they are still well below the 2006 peak. This means that young millennials and Gen Xers will be the driving force behind future demand.
As the younger generations begin adulthood, they are also moving to the suburbs. In 2016, the share of 20-to-24-year-olds living in the suburbs grew by 40 percent. The share of millennials with children is growing closer to that of the last generation. Millennials, as a group, are the most economically and socially mobile generation in the United States but are less wealthy than previous generations.
Supply Shortage
A shortage of inventory is a significant cause of rising prices in the Wisconsin real estate market. Homebuilders in the Milwaukee area have focused on higher-end houses and condos, leaving a small supply of more affordable homes. Because of the lack of new construction, prices have risen dramatically. While the lack of new housing inventory is a major cause of rising prices, an ongoing economic and demographic boom is also a contributing factor.
Growing demand for residential properties will continue to pressure prices in the state. But a recent spike in housing prices is cause for concern. It may signal the start of another housing bubble. In addition, labor shortages and supply chain issues will unlikely that new construction will significantly increase inventory in 2023.
Rising prices will dampen buyer demand and create affordability issues. With each percentage point of inflation passed on to buyers, the pool of potential buyers will shrink further. As a result, prices will begin to fall. Once inventory levels rebound, new housing will flood the market.
