There’s something missing in today’s real estate market. That’s what I hear from REALTORS^® throughout Wisconsin. There’s plenty of good news to be sure, yet something is making us feel uneasy.

The fundamentals seem good — in fact very good. Sales of existing homes in Wisconsin for July continued strong — in fact very strong. We sold 8,657 homes in July, up nearly 17 percent over last July. That’s the best start to any year since 2005 before the recession. The prices those homes sold for were up too, to a median of just under $164,000. That’s 3.8 percent higher than a year ago. In fact, since March 2012, prices have increased year over year in every month except two — and one of those was a tie. Despite the price increases, housing affordability remained the same as it was a year ago.

Property values are up as well. The Department of Revenue just reported the value of Wisconsin property increased 2.4 percent this year- to nearly $491 billion. That was the second year of growth in value after five years of decline. Commercial and manufacturing properties were up 3.2 percent while residential property increased in value 2.3 percent. Agricultural land value was up 1.4 percent. 

And property taxes were down. The state recently reported that the net property tax levy in 2014-15 was $9.49 billion, a decrease of 2.3 percent from 2013-14. As a percent of personal income, the levy was 3.6 percent, which was the lowest percentage since 1946, according to the Wisconsin Taxpayers Alliance, who credited state-mandated levy and revenue controls as having their intended effect of lowering taxes. 

Mortgage interest rates remained at historic lows, despite creeping up slightly from previous lows. And even with the prospects for short-term interest rate increases by the Federal Reserve, most analysts think the increases will be slow and steady to minimize any overly negative impacts on housing markets.

And finally, Wisconsin job numbers are also good — in fact, very good. Unemployment in July was just 4.6 percent, compared to 5.4 percent last year and 5.3 percent nationwide. 

So what’s missing? Perhaps that uneasy feeling we feel is because of our shrinking supply of inventory with very little new construction to help meet demand. There’s evidence that, at least at some level, the missing link in our supply chain is supply.

Statistics on the state’s housing supply support this feeling of concern. While new listings were up slightly for the year, they were down in July, putting pressure on inventories. In July 2014, there were 57,756 listings on the market — a 10.1 month supply. In July this year, there were 53,954 listings — an 8.7 month supply, a year-to-year drop of 14 percent. The problem is most acute in urban areas. Counties with metropolitan areas had just 6.5 months of available supply in July. This trend, combined with strong sales, is putting upward pressure on home prices here in Wisconsin and across the nation.

So why is new construction lagging? The topic was of enough concern to the National Association of REALTORS^® (NAR) that it studied the issue recently and found some interesting, if not concerning, answers.

Despite improvements in the labor markets over the past few years, NAR found new home construction to be insufficient in metro areas across the country, which is contributing to both a shortage of residential homes and a potentially unhealthy growth in prices. Its study measured the volume of new home construction relative to the number of newly employed workers in 146 metropolitan areas across the county, to see whether homebuilding has kept up with job growth over the past three years. In two-thirds of the areas studied, NAR found homebuilding had not kept up with job growth.

The study found that other factors, like slow housing turnover and a shrinking supply of distressed properties, also contributed to the housing shortage, but new construction has clearly failed to keep up with improving labor markets. And the gap between housing starts and employment is widening. The only place where limited new construction has not resulted in higher housing prices is where there’s been limited job growth. 

So why aren’t builders building at a higher rate? The industry faces some real challenges in the areas of rising costs of construction materials and a limited pool of adequately skilled labor. Limited credit availability for smaller builders and concerns about when first-time buyers will come back into the market have also held new construction back. NAR says it’s crucial that builders move away from building apartments and focus on the purchase market — and do so quickly.

Sometimes it’s easy to find clouds in the silver lining — and wild stock market fluctuations, the European debt crisis and potentially higher interest rates can shake the confidence of even the most optimistic consumer and REALTOR^®. But it’s not all doom and gloom. And if you’re like me, you believe markets work. As the job market continues to improve, millennials and other first-time homebuyers will begin to form households, which they have been holding back on doing in recent years, and hopefully begin to re-enter the housing market, giving builders and lenders the confidence to raise supply to meet this demand. If and when this happens, the missing link may be missing no more.