Wisconsin's property values have significantly grown over the last year, rising more than nine percent to reach approximately $427 billion, the Wisconsin Taxpayers Alliance announced in a study released early last week. Additionally, residential values alone are even higher, comprising a staggering 157 percent of total personal income.
Figures produced by the Department of Revenue revealed a nearly $308 billion increase in total property values between 1986 and this year, resulting in prices which, when adjusted for inflation, amount to all-time highs, even surpassing those of the '70s economic boom.
Boosts in property value reached double digits in 26 of Wisconsin's 72 counties, while only seven counties observed increases of fewer than 5 percent. The counties demonstrating little growth tended to be centers of traditional agricultural and manufacturing industries. Showing a 16.8 percent increase, Grant County topped the list, along with a number of other western and northern counties.
"[The] fastest growth is in the Northern part of the state, where there [are] a lot of vacation homes and recreational land," Research Director of WisTAX Dale Knatt said. "There [is] a big demand for lakefront property."
While the jump in market value seemingly bodes well for investors and property owners, critics caution unsustainable appreciation, in which incomes fail to rise relative to growing property values, can lead to the formation of what economists call a "housing bubble."
These figurative bubbles, like any tangible one, inevitably pop, resulting in either stagnation or depreciation, sometimes drastic. However, there has been no expert consensus on whether or not an actual bubble currently exists.
"We're not necessarily saying there [is] a bubble," Knatt clarified. "We're saying that there are indications that we may be nearing a bubble."
Richard Heymann, UW adjunct professor of law, further suggested that whether a bubble exists might be a moot point.
"[It is] sort of like investing in the stock market for the long run. So what if values fall? They might go right back up again," Heymann said, adding that although this may be over-dramatizing the point, the value of a home essentially matters only when it is being sold.
If a bubble is indeed in the making, there are a number of factors that could cause it to rupture.
Three probable causes, Knatt explained, include the continuance of property's disproportional value in comparison to income, the significant increase of mortgage rates, or any occurrence that could drastically impact the real-estate market.
"We shouldn't panic but should be a little cautious and not think that prices are going to [indefinitely] continue to grow," Knatt said. "If you look around the country, there [are] a lot of economic experts talking about a bubble in home values."
Although real estate has long been viewed as one of the best assets in which to invest, Heymann, also a fellow at the School of Business's Center of Real Estate, says the study should not come as a great surprise, as "[property values are] subject to the same economic phenomena" as other assets.
"The value of real estate is not completely unlike the value of stocks or anything else," Heymann explained. "[P]rices reflect supply and demand or speculative interest which can and always will change."
While no national study has been released with which to compare Wisconsin's statistics, most experts agree that although the state has seen substantial property-value growth, it is still much lower than that of the eastern and western coastal regions.
Specifically, Madison's property values are not as high as those near coastal cities like Los Angeles or Boston, but are nevertheless "high for a community this size," Heymann added.
