Madison Real Estate Assessments Decreased 3% last year

The headline story in the Wisconsin State Journal today is an article saying real estate prices in Madison declined 3% last year. It’s good that they’re reporting this in a city where the some bubble-clouded thinking persists. There are few points, though, where the article is could have investigated deeper.

1. The article attributes the decline to the recession. It does not address whether the national bubble could be playing a role.
2. The article accepts property assessment values as accurate (at revealing price fluctuations of neighborhoods) without giving any justification.
3. The headline says this is the first decline in 35 years, but it does not look at inflation-adjusted numbers. I suspect that adjusted for inflation there was at was other decrease in the past 35 years.
4. The article accepts the assumption that it’s good for houses to be expensive.

My impression is that the bubble is still present in Madison and just starting to deflate. Most residential properties on the market are priced such that they would not cash flow at today’s interest rates unless they were purchased with a down payment significantly greater than 20%, which to me is the hallmark of an RE bubble.

Assessed prices appear to lag actual prices, so I suspect the decline we have had so far is well over 3%.

If mortgage interest rates rise significantly, it will push prices lower. Since rates are expected to rise, I’m surprised this risk isn’t priced into the market.

All of this means Madison will be experiencing price declines similar to what Minneapolis experienced in a few years ago.