The Madison housing market is suffering the same fate as the rest of the country; that is, local home sales are slowing down due to tight inventory and lower affordability. Most notably, the Federal Reserve’s latest attempt to combat inflation has stalled the national housing sector, and the Madison real estate market is no exception. Home values continue to test new highs, and rental rates are becoming prohibitively expensive. Nonetheless, demand remains persistent. Home to the University of Wisconsin, Madison has a low unemployment rate and plenty of demand for student housing. The unique convergence of pent-up demand and insufficient supply will continue pushing prices higher, which begs the question: Is Madison, Wisconsin, a good place to invest in real estate? Let’s take a closer look at the Madison housing market to find out if it is a good place to invest in today’s economy.
Madison Real Estate Market 2022 Overview
Median Home Value: $370,890
Median List Price: $369,967 (+8.3% year over year)
1-Year Appreciation Rate: +10.7%
Median Home Value (1-Year Forecast): +0.7%
Weeks Of Supply: 10.8 (+0.2 year over year)
New Listings: 137 (-27.0% year over year)
Active Listings: 1,496 (-29.1% year over year)
Homes Sold: 143 (-31.2% year over year)
Median Days On Market: 47.3 (-5.5 year over year)
Median Rent (1 & 2 Bedroom Units): $1,432 (+14.7% year over year)
Unemployment Rate: 2.6% (latest estimate by the Bureau Of Labor Statistics)
Population: 269,196 (latest estimate by the U.S. Census Bureau)
Median Household Income: $67,565 (latest estimate by the U.S. Census Bureau)
Total Active Foreclosures: 11
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Madison Real Estate Market Trends 2022
Today’s Madison real estate market trends are the culmination of years of both micro- and macroeconomic pressures. If for nothing else, real estate in Madison was widely shaped by the pandemic and the Federal Reserve’s response to it. In recent history, home prices have soared on the heels of inventory shortages and pent-up demand. Today, however, the Fed is tightening its grasp on the market and shifting Madison real estate market trends, not the least of which include:
Supply Trends: With somewhere in the neighborhood of 1,496 , the Madison housing market has about 10.8 weeks of available inventory. Therefore, if sales continue at their current pace, inventory would run out in less than three months if no new homes were added. A balanced market usually has about six months of inventory, so Madison is far from a balanced market. That said, inventory is increasing as mortgage applications drop from higher interest rates. Inventory should continue to increase for the rest of 2022 and well into 2023. If inventory rises, there’s a good chance prices will rein in a little more than they already have.
Home Price Trends: Home prices in the Madison housing market have done nothing but increase for the better part of ten years. Appreciation started when the housing sector began to remove itself from the Great Recession and never looked back. Over the course of the pandemic, in particular, prices increased at an historic pace. Today, however, the Fed is fighting inflation with higher interest rates and slowing activity in the housing market. The decrease in mortgage applications should temper appreciation, and may even drop home values over the next 12 months.
Interest Rate Trends: The average commitment rate on a 30-year fixed-rate loan has increased 3.86 points year-over-year and now sits around 6.95%. At the beginning of this year, the average commitment rate on a 30-year fixed-rate loan was about 3.22%; that means rates have more than doubled year-to-date. Rates have risen fast to fight inflation, and there’s no reason to think the Fed will stop rate hikes until inflation is under control. As a result, acquisition costs will remain high and continue to slow activity in the Madison housing market.
Investor Trends: Higher acquisition costs have eaten into profits margins and pushed investors across the country towards long-term rental properties. With rents reaching all-time highs in many markets, it makes more sense to rent units out, especially in Madison. As the home of the University of Wisconsin, Madison has a significant rental market; one investors should still be able to capitalize on.
Over the course of the pandemic, foreclosures steeply declined on a national level due to municipal aid and moratoriums. The government took every step possible to avoid another housing bubble like the one in 2008. That said, assistance is expiring and a recession looms heavily, increasing the likelihood of more distressed property owners.
According to ATTOM Data Solutions’ Q3 2022 U.S. Foreclosure Market Report, “there were a total of 92,634 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — up 3 percent from the previous quarter and 104 percent from a year ago.”
Despite the latest increase, foreclosures have yet to reach their pre-pandemic levels. “Foreclosure starts, while rising since the end of the government’s foreclosure moratorium, still lag behind pre-pandemic levels,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “Foreclosure activity is reflecting other aspects of the economy, as unemployment rates continue to be historically low, and mortgage delinquency rates are lower than they were before the COVID-19 outbreak.”
The Wisconsin real estate market, as a whole, has fared well with regard to distressed inventory. With 905 foreclosure filings in the third quarter, Wisconsin ranked in the top 10 states with the fewest foreclosure starts. Foreclosures in Wisconsin in the third quarter were up 14.3% year-over-year. The increase in distressed homes has had an impact on the Madison real estate market, but not a drastic one. According to RealtyTrac, Madison is only home to about 11 foreclosures.
Madison Median Home Prices
The median home price in the Madison real estate market is $370,890. Today’s home value is reflective of more than a decade’s worth of appreciation. This time ten years ago the median home value in Madison bottomed out during the Great Recession around $214,009. Since that time, real estate in Madison has appreciated for ten consecutive years, to the tune of 73.3%. For some perspective, the median home value in the United States is $357,810 and appreciated as much as 89.1% over the last decade.
While real estate in Madison has appreciated for more than ten years in a row, the fastest rate of price growth took place throughout the pandemic. Since the first quarter of 2020, real estate in Madison has increased an average of 30.0%. The United States real estate market, on the other hand, increased 41.1% over the same period of time.
Moving forward, the Madison housing market is expected to continue appreciating—albeit at a slower pace than residents have grown accustomed to. In the last year, local homes increased an average of 10.7% because of supply and demand constraints. However, sellers are starting to lose some of their power over the market because of the Fed’s interest rate hikes. Due to less demand, the median home value is only expected to increase a modest 0.7%.
Madison Real Estate Market Forecast 2022 – 2023
Madison real estate market trends have mirrored their national counterparts for at least a decade. Not surprisingly, most Madison real estate market forecasts project a similar trajectory. With the Fed tightening on the national housing market, Madison is expected to face the same headwinds as every other market. As a result, the most likely Madison housing market forecast will look a lot like this:
Home Values Will Rise: The majority of today’s Madison real estate market forecasts will call for continued appreciation. If for nothing else, the same indicators which caused prices to increase in the past are still in place. That said, a slow down in mortgage applications will temper the rate homes appreciate at. Instead of the double-digit increases local homeowners are used to, home values may only increase an average of 0.7% over the next 12 months.
Rents Will Rise: Rents in the Madison housing market are going to follow national trends loosely. As a result, rents may decline due to seasonality, but the lack of affordable housing in the area should increase demand for rentals; that, combined with the University of Wisconsin, will likely push rents higher once spring comes around and people go back to school.
Interest Rates Will Rise: Interest rates have more than doubled year-to-date. Despite the increase, the Fed still has a long way to go to bring inflation back down. The continued fight against inflation will likely lead to more increases in the future.
The Madison real estate market has seen a decline in activity. The Fed’s decision to increase interest rates has simultaneously prevented buyers from buying and sellers from selling. That said, there’s still plenty of pent-up demand to stir up competition. Sellers still have the advantage, which means prices will keep rising, but less activity is signaling a shift in sentiment. Prices will rise for the foreseeable future, but not at the rate residents got used to. As a result, there may be a window of opportunity for Madison real estate investors to take advantage of.
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