Our 2015 Madison Real Estate Predictions
December 19th, 2014
As 2014 wanes and we look toward 2015, what do we see as far as real estate is concerned? Nothing very exciting as it turns out. And while boring might be bad on a first date, as far as housing is concerned, it’s a good trend, especially considering how far we had to climb upwards to leave the Great Recession behind us.
The first thing we have to consider is that Madison is not the rest of the nation, or even the rest of Dane County for that matter. We are not completely impervious to the reported economic trends here, but when it comes to things like affordability and unemployment rates, Madison looks very different from the bigger markets that drive the statistics. Our local market is effected by our specific demographics. We’re a highly educated bunch with access to amazing health care and education. Millennials are moving here in droves thanks to companies like Epic, while Baby Boomers are choosing to move closer to downtown and work longer, instead of retiring to SunBelt locales (take that, you Polar Vortex you!) Thanks to a strong high-tech industry, several hospitals, a large and well-respected university and the fact that we’re the state Capitol, we are still, and will remain, a vibrant community.
So what do we expect to happen in 2015?
1) Millennials will have a bigger impact on the market. Yes, we see all the apartments going up around us for the Epic employees. And we know that Millennials (ages 20 – 35, btw) are choosing to rent vs buy thanks to witnessing what happened to their homeowning parents. But as Millennials age, they’re lifestyles will change. They will eventually get married and have children. Both those things are driving forces in real estate. And because Madison isn’t laid out like a typical city with suburbs, they may just as easily choose to buy a home near west, near east or in Middleton, as they are to purchase a condo downtown. Since it’s a 15-minute drive to anywhere in our city (not including those trying to get through the Isthmus during rush hour), home purchases are driven by schools and affordability. Baby Boomers are not out of the market by any means. In fact, in Madison, they still rule it. And though they have more money than Millennials (partly thanks to $1Trillion in student debt), they are still trying to make up lost money from the recession. Which leads us to our next point. . .
2) Affordability will decrease a bit. As home prices go up slightly (3 – 4%), but wages stay stagnant or increase less than home appreciation, fewer people will be able to afford to move. Mortgage rates are projected to raise to no more than 5% by the end of 2015 – still incredibly affordable compared to years past, but not as low as we’ve seen this year. We are looking at what appears to be a normal market – no bubble in sight. According to an expert quoted in an Emerging Trends of 2015 report put out by Price Waterhouse Cooper and Urban Land Interests, the market has returned to the classic principles of supply and demand. Despite the cost of housing outpacing wages. . .
3) Existing home sales will increase. Why? Because the number of home buyers is increasing. We already gave our nod to the Millennials (who make up 24% of Madison), but others are entering the market thanks to a stabilized market and the knowledge that prices and rates are increasing. Another reason the market will open up to others is an easing of standards in the underwriting process. Banks are becoming a little more forgiving of debt. Add to that the programs being touted by Fannie Mae and Freddie Mac that allow for only 3% down, and first-time home buyers may be able to get a home sooner then they thought.
4) The condo market will see an upsurge. Again, thanks to younger buyers with easier access to credit and a stronger economy, some of those renters will realize it’s smarter to buy. In Madison we see a lot of apartments because of Epic employees and students, but those looking to settle in to the community may be seeking condos.
Admittedly, there’s no magic 8-Ball when it comes to predictions, but barring some global event that impacts the economy, we’re calling it steady as she goes.