In the midst of all of the talk about Federal Reserve Chairman Ben Bernanke’s sighting of green shoots in the economy, and Warren Buffet’s insistence that in spite of his recent cataract surgery, he still can’t see them, comes the grim news that employers cut 467,000 jobs in June, pushing the unemployment rate up to a 26-year high of 9.5 percent. This surely signals some depressing times ahead for the economy as a whole, and for many individual sectors like real estate.
In fact as unemployment goes, so goes the real estate market. In areas with the highest numbers of out-of-work residents, the real estate market has plummeted to some all time lows because people are leaving to find work elsewhere. However, in Madison, Wisconsin, maintaining a stable employment market has been the secret weapon in the fight to keep the real estate sector alive.
Steve Schuster, Real Estate Consultant for Re/Max Preferred, summed it up this way, “In our market here in Madison we’re still doing okay. We have a number of things that help fuel our market such as the University, numerous hospitals, government employees, several large insurance companies, and a good number of corporate headquarters.” Of course, conditions aren’t as good as they have been, Steve added. In a recent meeting with his agents, they reported that real estate transactions were half of what they were three years ago when the real estate market was in its prime. So, while there are definitely some green shoots in the Madison economy, they’re just a little brown around the edges.
Another problem facing many U.S. housing markets that has left Madison unscathed is a glut in the number of available apartments. Real estate research firm Reis Inc. reported that the vacancy rate for apartments across the country rose to a three-year high in the first quarter of 2009, resulting in a downward spiral for rent prices. The situation is predicted to get worse as more apartment buildings are slated to open this year.
The Madison market, on the other hand, still seems to be maintaining that delicate balance between supply and demand, according to Steve. “Property managers I talked to said supply/demand is still pretty much in check in this area. From what I’m told rents have actually increased and landlords are being increasingly choosier about their tenants. I know in our area the closer to downtown Madison the higher the rent. The rent for a 3 bedroom, 2 bath apartment 20-30 minutes from downtown would typically be $900-$1000.00 per month. Whereas a similar property closer to downtown would be $1500.00, and in the downtown area itself, it could be as much as $2-3000.00 per month.”
Even though rents have increased, there are factors that offset the higher cost and keep demand for apartments steady: • The drop off in the purchase of homes because the lending requirements have gotten a lot tougher. • The increasing foreclosure rates, which force former homeowners to rent because their credit scores were lowered due to a short sale or foreclosure action. • The growing trend to shy away from purchasing, especially if the individual hasn’t owned previously, due to the economic uncertainty.
As economists around the nation continue to argue about whether or not the worst is passed, Steve remains optimistic about his little corner of the real estate world. “Although our market has fared much better than others, if rates stay favorable and government incentives keep showing up, I think real estate will come around in the near future.”
But Steve sees an even bigger obstacle than the economy in reviving the market. “I do believe, however, that a good share of our problem is the media scaring the daylights out of people. People come to me with a preconceived notion that you should be able to buy any property for half the listed price. Now I do believe there are some potholes like that out there. But in my market, if people were willing to sell properties for that, investors would buy them before they hit the market and rent them until the market comes back.”
That last statement pretty much exemplifies Steve’s solution for surviving the current real estate slump. If you can’t find the green shoots, look for the lemons, and then squeeze enough of them until you can make a big pitcher of lemonade.