SPECIAL REPORT
Housing Bubble? The Dynamics of the Real Estate Market in Central Wisconsin
By David Schalow, Ph.D., CLU, ChFC, CFA, CFP UW-Stevens Point School of Business and Economics
About 10 years ago I did a version of this report and the real estate environment was totally different. At that point, the real estate market had gone through a steep decline, and everyone was wondering where the bottom was going to be. Today, the big question is, “When will the bubble burst?” This report will cover the key determinants of value and then apply those principles to the National, Regional, Central Wisconsin, and then the local areas of Wausau, Stevens Point, Marshfield, and Wisconsin Rapids. Real Estate Cycles Unlike the business cycle which has fluctuations over a relatively short period like 3-7 years, the real estate cycle is generally 10-20 years. As you will see, the difference between the 2010 period and the present will be an excellent example of going from a bottom, toward a top in the cycle. Further we can segment into either a Seller’s Market (the upswing) or a Buyer’s Market (the downturn). Each of these can be divided into either a stage 1 or stage 2. The first step to understanding where a market is going is to understand where the market is in the cycle
Buyer’s Stage 1: (10 years ago we were here) • Excess Supply of Properties • Prices are Down, Rents are Down • Demand is Falling/Unemployment is High • Days on Market (DOM) Dramatically Increasing/ Peaks/Reversing/Foreclosures Up • New Construction is Suffering • Investment Property Prices Dropping to Lows Buyer’s Stage 2: • Market Absorbing Over Supply • DOM Dropping • Unemployment Dropping • Rehabbing going on/Rents Starting to Increase • Investment Values Increasing • Foreclosures Decreasing (Competitive) Seller’s Stage 1: Rising Demand and Rising Prices (Early Seller’s Market) • Lowering Supply of Homes • Building Increases • Low Unemployment • Prices and Rents Rising • Demand for Housing is High • Median Days on Market (DOM) Still Declining (Based on the current data, we are probably in the latter part of Sellers’ Stage 1)
Seller’s Stage 2: • DOM Rise Dramatically • Number of Properties on Market Rising • Still a lot of Speculators • High Housing Starts (Over Building) • Prices for Construction Materials Rising • Business Slowing and Job Growth Slowing
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Central Wisconsin Report - Fall 2020
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