Apr 25

I was having a conversation with a buddy today about the accuracy of the most recent City of Milwaukee assessments and where values are truly headed. I thought it was relevant enough that I turned my email to him with links supporting my views into this post.

The Milwaukee Journal quotes Alderman Mike Murphy who believes our housing market has hit bottom:

“I do think we’ve hit the bottom,” said Ald. Michael Murphy, chairman of the Common Council’s Finance & Personnel Committee. Murphy, Mayor Tom Barrett and Assessment Commissioner Mary Reavey all said they were hopeful that property values would start to slowly rise again over the next few years.

It would be wonderful if that in fact was correct, however there are many indicators that the bottom may still be a ways off.  The Feds are considering forced reductions of mortgages to appraised value.  This will allow owners to sell for less than today and remain financially  unscathed.  Previously if you owed $150k on your home you would fight like heck to get at least $150k, otherwise you would have to pay out of your pocket to sell.  If this becomes policy it will allow owners to sell for much less than they owe today, creating a general downward pressure on all home prices.

Then there is the phenomena of  people who can pay their mortgages, but are simply walking away.  It used to be dishonorable not to pay your debts.  Now it has the cute name of “Strategic Defaults.”  This along with short sales undermine our entire economic system as well as real estate values.  There just isn’t the social pressure to pay what you agreed to anymore.

Finally there is a large shadow market of homes and other real estate that are foreclosed but not on the resale market.  As these enter the market it will further drive down prices. If you want to see the shadow market in action write down the addresses of the obviously foreclosed buildings and homes that do not have broker signs in front of them, look up the ownership on the city site, then look for the property on MLS.  Many will be lender owned, but not actively marketed.

The Milwaukee Journal article reports the Assessor claims the decline in values over last year to be a meager 2.4%  One reader of the Journal article makes a very valid comment:

“Ask any realtor, appraiser, banker, buyer or seller of a home over the past 24 months how much values have dropped, 2.4% is a joke they need to remove the decimal point the acutal number is closer to 24%.”

I concur with this person that the real values of properties, at least in the neighborhoods we own in are dramatically less than the assessed values.  Milwaukee has typically overvalued the lower value neighborhoods in what I believe is a regressive tax scheme to lower the taxes of the more affluent white neighborhoods at the expense of these who can least afford higher housing costs.  The city assessor justifies this by excluding many comps as invalid, while being quite happy to use those homes purchased by first time buyers using down payment grants etc. that hid the true value of the purchase.  Today many of those homes are in foreclosure.

So while Milwaukee officials are hopeful that the end of the decline is nigh, and I too wish this was true as I happen to have a large financial interest in this subject, it probably isn’t so.  Many well studied economist and others believe that the Milwaukee area home prices will return to 2007 values in the fourth quarter of 2017 These same experts found that we are currently 15% off the mark today, not the 2.4% the Assessor has given.  They also predict the slide won’t stop until fourth quarter 2011.

But the city has strong motivation to artificially keep assessed values inflated:  That of course is to maintain artificially high property taxes while at the same time being able to claim that have only raised the mil (amount per thousand dollars of assessed value) by a small percentage.

So while many, including the city officials and  me, “hope” for a housing price recovery soon, hope is not a workable strategy. Please post your comments and challenge my views.  We all have a lot riding on making he best guess here.

3 Responses to “Tim Ballering’s Views on the Milwaukee Real Estate Market Today”

  1. Alan Kroll says:

    This is a very informative post on when your local market will recover. Hopefully the market will recover sooner. A good dose of pragmatism and being well informed are key to participating in any market. Thanks for an informative post.

  2. While we are on the Tim Ballering’s Views on the Milwaukee Real Estate Market Today |Tim Ballering – Just A Landlord subject, Maybe it’s cheap at the moment because the area is rather unpopulated or unappealing to tourists but the area is beginning to gain a growing amount of tourism each year and is looking to become a hot spot in the future?

  3. Jimmy says:

    Tim – Just found your blog here and am very happy I did! It’s funny that the same “experts” who are certain that the real estate market has now hit bottom were somehow unable to tell when it had hit the top….JIMMY in MD

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