On Friday, October 11th, The Graaskamp Center hosted its annual Wisconsin Real Estate and Economic Outlook conference. The first keynote speaker, Sam Khatar, Vice President and Chief Economist at Freddie Mac, provided valuable insights into the macroeconomy and housing market. He highlighted the resilience of the US economy, driven by consumer spending and investment, while also noting weaknesses in the labor market and persistently high inflation. For the housing market, he illustrated the stark unaffordability of homeownership and the continued low inventory.
The Economy
The US economy has performed remarkably well and is growing faster than in the last two decades, largely due to robust consumer spending and investment. Additionally, household income growth remains strong.
Here are more major points:
- The economy continues to expand, but growth is expected to slow in the next few years, with long run growth projected at around 1.8%.
- The lowest quartile of wage earners has experienced the highest annual percentage increase in real wages since 2023.
- Household net worth has increased by over $50 trillion since 2020.
- Construction spending in data centers, manufacturing, and power has driven growth, fueled by AI advancements and green energy subsidies.
- Inflation in core goods has subsided, while inflation in housing remains high.
- Increases in the unemployment rate are concentrated amongst renters, whereas homeowners have seen little change.
- Credit card delinquency rate has risen, but mortgage performance remains strong.
The National Housing Market
Overall, demographics support high demand for entry-level housing over the next decade. Low supply means the market will likely remain unaffordable in the future. The extreme lack of affordability in coastal markets has prompted many homebuyers to migrate to smaller, more affordable locations.
Key observations include:
- Housing affordability remains low, with “Mortgage Lock-In” causing many homeowners to stay put.
- Home sales remain at multi-decade lows.
- Existing home sales are rebounding due to additional marginal new home inventory.
- Demand for entry-level homes is high, with 3.3 million households aged 25 to 44 earning at least $75,000 currently renting.
- Institutional investor activity has declined, and these investors are forecasted to hold 26% of the housing market by June 2024.
- New housing completions improved in 2023 but remain below pre-2008 levels.
- There is currently an undersupply of 1.5 million units.
- A chronic undersupply of single-family construction has led to elevated absorption rates and velocity.
- Home price growth is increasing at a slower pace in 2024 and is expected to remain slow in 2025.
- Strong demand from first-time homebuyers, coupled with low supply, has driven entry-level prices up by 63% more than high-end home prices.
- Home price growth is strongest in the Northeast and Midwest.
- Homebuyers continue to migrate to the South and Southwest, with increasing numbers moving to small and medium-sized cities in the Midwest and Northeast.
- People are relocating to affordable small and medium-sized markets within the Midwest.
Wisconsin’s Housing Market
Wisconsin’s midsize and smaller markets stand to benefit from migration as people seek affordable locations with strong local economies.
- Wisconsin has led the Midwest in cumulative home price appreciation over the last two decades.
- Fond du Lac, Janesville, Green Bay, and Oshkosh-Neenah are experiencing the fastest home price growth in the past year.
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