Mortgage executive explains why his midwestern market is behaving like Austin or Tampa
Milwaukee, Wisconsin, doesn’t come up on many lists of America’s hottest housing markets today. The city, for all its charms, has struggled like so many other midwestern metro areas over the past several decades.
In 2019, its unemployment rate was above the US average and its recent job growth numbers were well below. Per capita income was almost $10,000 below the US average and household income was nearly $20,000 below the national average. Even as COVID-19 spurred movement towards smaller cities, most of that migration has focused on warmer metro areas in the Southeast and Southwest, meaning Wisconsin’s largest city isn’t getting much economic momentum from that either. Despite all these economic headwinds, one local mortgage pro says the biggest problem he faces is simply that there’s too much housing demand and not enough supply.
John Stearns (pictured), senior mortgage loan originator with American Fidelity Mortgage Services Inc., explained that in his local Milwaukee market, he’s facing the same challenges as mortgage professionals across the country. His borrowers are having to fight against multiple offers when they want to purchase a home. Homes are selling for tens of thousands of dollars above asking, and buyers are feeling the whiplash of a market running at a breakneck pace.
“You need to act fast, and you need to be aggressive with the price. If they’re asking $300,000, then $300,000 won’t get it done,” Stearns said. “This is a phenomenon we’ve never really had before, and I’ve been doing this for 27 years. In the early 2000s, prices were inflated but you didn’t have to offer above to get a house.
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“I have a client now who is selling their home - they listed it at $380,000, got a couple offers at $390,000, one at $420,000 but the one they accepted was at $450,000. That’s $70k above asking price! They did their research and found out that this buyer can even make up the difference if the house appraises around $380,000.”
Stearns explained that, unlike many other cities, this rush in Milwaukee isn’t being driven by a wave of wealthy out-of-state buyers leveraging California real estate prices to buy big in Wisconsin. Rather, it’s local churn and local demand. He noted that his clientele skews more white-collar and higher-income, rather than many of the blue-collar workers who have faced more economic hardship and whose struggles are indicated in Milwaukee’s broader economic data. However, he’s even seeing small business owners from hard-hit industries like restaurants getting back on their feet and ready to buy up. There is a mixture of economic recovery and stronger personal finances among those employees less impacted by COVID-19.
He reconciled the activity in Milwaukee’s housing market against its macroeconomic headwinds by highlighting the more intangible appeal of a midwestern city like his. Milwaukee salaries might not be close to what an employee can find in Chicago, but the cost of living is that much lower and the pace of life that much slower to make buying a home, even $70,000 above asking, an enticing prospect for many.
Like mortgage pros across the country, Stearns is preparing his clients for this hot market by running the numbers upfront. He talks through their max budget and makes sure to factor in downpayments and closing costs. Despite the activity and rapid price appreciation in the market, Stearns is confident that the loans he’s writing are good and his borrowers are strong, with no indication of a 2008-esque crisis emerging from this hot market. As the pace of the housing market in cities like Milwaukee seems to mirror markets like Austin or Atlanta, Stearns is more worried about how the whole country can fix its housing shortage.
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“I don’t know how this housing shortage gets solved anytime soon,” Stearns said, noting he doesn’t see enough new home construction in his market yet. “I feel sorry for some buyers. I’ve got people who have been pre-approved for two years and they’re still looking. I don’t know what it’s going to take to fix this now.”
