Frederica Freyberg:

Like agriculture, another sector of Wisconsin’s economy is riding a wave. New data shows a surge in home sales for October and new home starts are expected to rise in the next year. Real estate is a key economic indicator because of its wide reaching impact on other sectors like landscaping, home furnishings and appliance sales. Mike Theo is president and CEO of the Wisconsin Realtors Association. He joins us this week as we take a closer look at the state of Wisconsin’s real estate sector. Thanks very much for being here.

Mike Theo:

Thanks for having me.

Frederica Freyberg:

How would you describe the state of Wisconsin’s real estate sector? Particularly in existing home sales right now.

Mike Theo:

Sure, well, we recovered from the recession of a few years back and we continue to do that in 2014. We’re not going to have sales quite as robust as 2013. That was an extraordinarily good year. We have a slingshot effect of demand coming out of the recession, but we're going to do real well. We had about 69,000 units sold in 2013. This year in the first 10 months we’re at 59,000. So we won’t quite catch up, but it’s a very, very strong year.

Frederica Freyberg:

How low did we go in the depths of the recession?

Mike Theo:

Boy, we dropped down significantly. As important as the drop in sales was the drop in values, of course, that put a lot of people that were in existing homes under water where they owed more money than they had in value. And so that really had a long-term kind of impact on the housing market in the state.

Frederica Freyberg:

What’s the status of clearing out the dead wood of foreclosed homes and those circumstances?

Mike Theo:

We’re doing very well as far as supply and inventory goes. Most economists will say about six months of supply of housing on the market is a balanced market. Right now in Wisconsin in the metropolitan areas we have 7.5, 7.1 months of inventory on the market, which is getting close to a real balanced market. In our rural areas however, it is almost twice as much. It's still a buyers market in the rural areas of the state. But we’ve chewed through that depressed and foreclosed properties in the state and have come out of that pretty nicely on the other end.

Frederica Freyberg:

Even in places like Milwaukee that had such a big problem with that?

Mike Theo:

They did. They went through it relatively fast. That pent up demand came out quickly. And so we see in other parts of the country as well. California and things where we thought that demand wasn’t quite as strong to chew through that inventory, it did quite rapidly to the point now that hopefully in 2015 we're going to start putting pressure on for new development. We’ve eaten through the inventory to the point that we can have more new construction.

Frederica Freyberg:

Because how important is new construction toward kind of boosting the overall economy?

Mike Theo:

It’s very important. You know, real estate generally is about 11% or 12% of the gross state product overall. If you add construction in there, new construction, that goes up three or four percentage points. So you think, for every new home built there is a multiplier effect, not just in the revenues to the economy for the construction, the loans, the insurance, the new furniture and paint that you mentioned, but also for revenues for local units of government. Property taxes still provide a large source of revenue for local governments, and that creates our fire and safety protection, our garbage collection, our snow removal. All the things you add into a quality of life comes from the sale or construction of a home.

Frederica Freyberg:

How slow did new construction get again in the depths of the recession?

Mike Theo:

It almost came to a stand still. I mean, the numbers both nationally and the state were dramatic. And again, that’s a function of supply and demand. When so much supply went on the market through foreclosures and other existing real estate, that has to– We have to get through that before new construction demand goes up again. I think we’re right at that cusp now.

Frederica Freyberg:

Now, Wisconsin though, never suffered kind of the highs or the lows, right?

Mike Theo:

That’s true. You have to take this recession in Wisconsin. It was a little different than the national economy as a whole. We– Our highs were never quite as high as some of the other states like California, Arizona, Florida. So we didn’t have as far to fall when that recession hit. Our highs and lows are in a much more narrow band, mainly because people in Wisconsin still buy homes to live in them. We don’t buy them to flip them or for an investment instrument. So we didn’t quite fall as far, but still, there was a lot of angst in the Wisconsin housing market for those years.

Frederica Freyberg:

Yeah, for sure. How much have low mortgage rates helped the real estate markets?

Mike Theo:

It’s one of the key fundamentals. You know, we look at jobs and the job market, but we look at the interest rate. We’re hovering now at 4%. From a historic standpoint, excellent interest rates, and been there for a long time. Moving forward now– That’s a 4% on a 30-year fixed mortgage product. Moving forward, the federal reserve has indicated they will be ratcheting that up. We expect that to go to the high 4%s, maybe the low 5%. Again, by historic standards really, really good, but that’s going to put some upward pressure on the marketplace.

Frederica Freyberg:

What about the second home market up north? Your saying that in rural areas already there's a big supply, and then you have all these kind of lake homes and stuff.

Mike Theo:

Yeah, and that as you might expect, kind of lags the primary housing market. Although in October, the sales in the northern region of the state were the highest of anywhere. They were up 22% compared to the October of a year ago. But that is the whole housing market, not just the second home market. So as you might expect, that lags a little bit behind, and we’re hoping to see that pick up as the general primary housing market recovers.

Frederica Freyberg:

All right. Going forward, we have reason for optimism in real estate?

Mike Theo:

We do, we’re very optimistic. We think 2015 is going to surpass 2014, hopefully get up to the 2013 levels in both sales. We found our sweet spot, I think, in housing prices that are going up about 2-1/2% over the year, the first 10 months of this year. Not so much to hurt affordability but enough to be a good hedge against inflation, a good investment for families and individuals.

Frederica Freyberg:

All right, great news. Thanks very much.

Mike Theo:

Thanks for having me.

Frederica Freyberg:

New information shows the median price for a home in Wisconsin rose in October by nearly $6,000. The median price of a Wisconsin home now stands at $148,000. Waukesha County has the highest median home price at $240,000, while Florence County in northern Wisconsin has the lowest at $73,000 according to the Wisconsin Realtors Association.