Young, first-time homeowners getting priced out in increasingly tight housing market

Posted: 04.21.23

    Andrew Dowd Leader-Telegram Apr 20,2023

    EAU CLAIRE — Younger, first-time buyers are facing a growing disadvantage in Wisconsin’s housing market as prices continue to climb amid an ongoing inventory shortage.

    Wisconsin Realtors Association leaders highlighted affordability issues that are hindering those looking to move out of an apartment and into a starter home.

    “The current housing shortage is depriving young individuals of the wealth-generating benefits of homeownership,” Michael Theo, the association’s president and CEO, said Thursday in a news release.

    His comments coincided with the association announcing the state’s housing market data from March, which showed how low the inventory of homes for sale has sunken. There were 13,342 homes listed for sale last month, which was 20% less than March 2022. The median price of a home sold last month was $272,500 — up $17,600 from a year prior.

    While that amounts to an average 6.9% increase statewide, the price differences for a typical home varies greatly by county.

    In the dozen counties that make up the western region for the Wisconsin Realtors Association, the average price increase was 5.3%.

    However, the price difference between last month and March 2022 was much greater in Eau Claire, Chippewa and Dunn counties.

    The median price of a home sold last month in Eau Claire County reached $311,500, which was $51,500 more than a year before.

    In neighboring Dunn County, the median home price got to $330,000 during March, up $55,050 from the same time last year.

    A slightly smaller increase of $45,000 was seen to get to the $287,500 median price of a home sold last month in Chippewa County.

    Higher prices coupled with higher mortgage rates makes it especially difficult for people who need financing to afford homes.

    “Millennials are typically first-time buyers. They have smaller down payments compared to repeat buyers who can use the proceeds of their previous home sale to increase their down payment,” association chairman Joe Horning said. “This results in heavier reliance on mortgage financing by millennials, so the higher mortgage rates more quickly price them out of the market than other buyers.”

    Julie Flor, president of the Realtors Association of Northwestern Wisconsin, said that buyers who need financing are at a significant disadvantage when competing with cash offers on the same home as sellers usually favor the latter.

    “If you are getting a mortgage and competing against cash offers it is very challenging to win,” she said Thursday to the Leader-Telegram.

    Flor, who co-owns Six Lakes Realty in Chetek with her husband, said while mortgage rates have gone down from the levels they were at in January and February, they’re still higher than a year ago. And each additional percentage point on a mortgage cuts into how much a person can afford to spend on a home.

    Last month the average for a 30-year fixed-rate mortgage was at 6.54% — up from 4.17% in March 2022, according to Freddie Mac.

    Even if borrowing costs do go down, realtors say there needs to be a significant increase in homes on the market to provide a better chance for buyers.

    “If there was more inventory, we’d have a more balanced market,” Flor said.

    A balanced market is believed to have the right amount of homes available for sale so neither the buyer or seller has a notable advantage.

    Getting there will take a significant increase in new construction or people deciding to sell.

    “At the current pace of sales, we would need the available inventory to increase by nearly 24,000 homes, which is an increase of 178% from current levels, to get back to a balanced existing home market,” Theo stated.

    While it has become tougher for homebuyers, especially first-timers, Flor still points out the benefits of buying property as a way to build wealth.

    “Buying a home is still a safe investment,” she said.

    For those who are going to buy this year, Flor advises them to pick a realtor, lender, home inspector and title company now so they are ready to pounce when they see a home they want.

    “With first-time homebuyers the absolute key is to be prepared,” she said.

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