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Local housing market doesn’t seem to have troubles of national trends

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JAMES P. LEUTE
May 25, 2008
— Nationally, new home construction fell at the sharpest rate in more than 25 years.

Sales of existing homes dropped nearly 13 percent.


Foreclosures jumped 75 percent to more than 2.2 million filings.


All that in 2007.


The Janesville real estate market is down, too, but local homebuilders and real estate agents say it’s nowhere near the free-fall of the national housing market.


In Janesville, they say, new home construction was down 12.6 percent last year compared with a 24.8 percent drop on the national level.


Sales of existing homes in Janesville dropped 5.5 percent, but the average price of the homes sold rose 2.4 percent to the highest level ever.


And only one Wisconsin home in every 1,118 was in some stage of the foreclosure process, compared with a national rate of one in every 519.


“This is not a crash-and-burn market,” said Dan Kruse, president of the Rock-Green Realtors Association. “This is a market that continues to move along steadily, and the sales and prices reflect that.”


Existing home sales

Realtors sold 927 single-family homes in Janesville last year, a number lower than the previous four years.


While the annual sales number interests real estate agents, it’s of little concern for consumers, who are more interested in the prices of the homes sold.


On a year-to-year basis, the average price of homes sold in the Janesville is an indicator for appreciation in the housing market, said Jerry Morse of The Morse Co. in Janesville.


Last year, the average price of the 927 homes sold in Janesville was $143,635, up from the 2006 average of $140,302. In the last 28 years, the average price increase of the homes sold in Janesville has been 4.3 percent.


The Office of Federal Housing Enterprise Oversight goes one step further and combines home sales and appraisals written for mortgage refinancings to determine appreciation or depreciation in the nation’s housing markets. Its numbers show that for the last 22 years, the Janesville housing market has appreciated by an average of 4.9 percent per year.


In the same time frame, the federal agency said home values in both Wisconsin and the United States increased an average of 5.2 percent each year.


This year, however, real estate agents are off to a slower start. Through May 8, they sold 240 homes in Janesville at an average sales price of $128,729. Through the same date last year, they’d sold 321 at an average price of $141,884.


Morse said there’s little doubt that national economic concerns are weighing on the minds of local buyers and sellers. Those concerns, coupled with tough winter weather, are the primary reasons for the sluggish start to this year.


“It’s not a bad time to buy or sell, but we are in a correcting market,” Morse said. “With all the national news, move-up buyers are kind of cautious right now. With the foreclosure situation, there are also people out there just looking for bargains.


“But in most cases, owners aren’t going to sacrifice price. I can show them what the market is doing, but they say that if they can’t get their price, they’ll wait it out.”


Morse said he expects the local market will need another year to rebound from the sub-prime mortgage mess, which kicked in about 2003 and fueled record sales. Too many loans were made for too much money to people with questionable credit scores.


“The lending underwriting requirements are much tougher today, and the appraisers are being much stricter in their work,” Morse said. “Because of that, if you’re buying a home today, I think you have a much higher level of security.”


Morse said there is some concern in the local market with General Motors’ decision to cut production in Janesville and eliminate 750 positions. But a pending attrition program and other factors make it unlikely that hundreds of homeowners will leave Janesville, he said.


“Many of them don’t even live in Janesville, and most of those that do have strong roots here,” he said.


Kruse said the local economy has diversified to the point that job losses at GM create much less of an impact than they would have decades ago.


“There are still a lot of good things happening here,” said Kruse, who works in the Beloit office of Century 21 Affiliated. “With GM, I think people could see it coming, and it wasn’t necessarily the big shock that it would normally be.”


Rising gas prices also are a concern, particularly since Janesville has become a bedroom community for people who work in Madison and Rockford.


“Quite a few people have purchased here because the housing prices are lower,” Morse said. “But with the price of gas and the headaches on the Interstate, some people are choosing not to do that.


“I’ve got one client who did that but is now moving back to Madison.”


That may be, Kruse said, but a commuter would have to burn through a lot of gas to see a cost benefit in the Madison market, where the average price of a home is $75,000 more than Janesville.


When the numbers are totaled for 2008, Morse and Kruse said they expect to sales comparable to 2000 and 2001. With a tough winter behind them, local real estate agents are starting to see indications that the local market is emerging from hibernation, they said.


Houses are averaging 84 days on the market—below the industry benchmark of 90 and about the same as last year.


“The bad news we’re hearing nationally is a reflection of some particularly nasty markets,” Kruse said. “Each market is unique, and that’s true for Janesville.


“There is a lot of opportunity for first-time buyers to get into the market at the same or even less than what they’re paying in rent. The local market is continuing to move along.”


New home construction

Last year, the city issued building permits for 216 new single-family homes, duplexes and duplex condominiums. That’s down 12.6 percent from the previous year and more than 30 percent from the boom years of 1999 and 2004.


The average value of last year’s building projects was about $151,000, which is a conservative estimate and does not include the cost of the lot the home is built on. Values are assigned when permits are pulled, but they often go higher as owners make changes during construction.


“Last year’s numbers were down, but they weren’t that far off from what we saw in 2000 and 2001,” said Tom Wellnitz, president of the South Central Wisconsin Builders Association and an owner of Wellnitz & Sarow Builders in Janesville.


One reason for the dip, Wellnitz said, is a local hangover from national news about slumping housing markets and the sub-prime mortgage mess.


“There have certainly been changes in the economy, and a lot of it has to do with how people feel,” he said. “They read the local newspaper and see AP (Associated Press) stories about the housing crisis.


“But they only read the headline and don’t read any further to see that the problem is in Missouri or Timbuktu.”


Wellnitz said the local homebuilding market has been hit hardest in the middle market, where new houses cost around $250,000. Local builders, he said, have been doing better with either low-end or high-end projects.


Wellnitz said continued low interest rates will help the market rebound. He also expects the inventory of new homes will tighten as fewer builders put up “spec” homes, which are homes built without a contract from a buyer.


“With the middle-market problems, I won’t be doing any $250,000 spec homes,” Wellnitz said. “I may do two $150,000 homes instead.”


Instead of building new, many homeowners are opting for remodeling and additions.


“Remodeling is a sign of the times, one we’ve seen coming for about three years,” Wellnitz said. “Instead of buying or building a $300,000 home, people are hunkering down and maybe just doing an addition or extensive remodeling.”


Wellnitz said he has a customer putting a $100,000 addition onto a home that originally cost about $52,000.


This year’s SCWBA-sponsored Parade of Homes will reflect that trend. Of the 20 homes entered so far, six are being remodeled. Last year’s parade featured 19 new homes and three that were remodeled.


“The local market had a tough year, but home values continue to increase,” Wellnitz said. “When home values start decreasing, that’s a bad sign.


“Things will get better as we continue to bring businesses to town that aren’t oriented to the car business and we continue to promote the economic viability and safety of Janesville.”



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