Tag Archive for: Midwest Economic Forecast Forum

By Tom Larson, Wisconsin REALTORS® Association with insights from David Clark

After peaking at more than 91,000 existing home sales in 2021, the next two years saw a contraction of home sales, with just over 78,000 closed homes in 2022 and about 64,500 homes sold in 2023. Fortunately, if the pace of sales established through the first ten months of 2024 continues through year’s end, we should see just over 67,000 homes sold, which is an annual increase of 4.1% over 2023.

Inventory improvements are one reason for the growth in sales. Months of supply compares the number of inventory of homes available for sale in a given month with the average monthly sales over the most recent 12-month period. A rule-of-thumb used by housing analysts is that a market is balanced when there are six months of available supply. Using that benchmark, Wisconsin has been classified as a seller’s market for more than seven years. On an annualized basis, the average months of supply fell from 5.5 months in 2017 to just 2.6 months in 2022, indicating a very strong seller’s advantage in the market. Fortunately, we’ve seen modest improvements the last two years, with an average of 3.1 months of supply in 2023 and 3.5 months through the first 10 months of 2024. Furthermore, our new listings of existing homes began improving in August of 2023 and has shown positive growth for 11 of the past 13 months. Simply put, home sales improved because there are more homes on the market.

Although the inventory growth is a positive sign, the unmet demand from millennials has kept significant pressure on home sale prices. Through October of 2024, year-to-date median prices are up 8% which combined with persistently high mortgage rates and relatively flat income levels has created significant challenges for affordability. The WRA Housing Affordability Index measures the percent of the median priced home that a buyer with median family income qualifies to purchase, assuming a 20% downpayment and the remaining balance financed with a 30-year fixed-rate mortgage at current rates. The index fell to 115% in June 2024, which is the lowest level recorded since WRA began computing the affordability index in 2009. Although the index increased to 127% in October, this is well below the levels of just three years earlier when it stood at 203%. Unfortunately, the severe affordability problem has sidelined some potential first-time buyers who need mortgage rates to come down to effectively compete in this tight market.

In the immediate aftermath of the short but steep pandemic-induced recession in spring 2020, the Fed lowered the short-term Federal Funds rate to near zero to avoid a more serious economic crisis. Unfortunately, these low interest rates combined with significant increases in deficit spending created strong inflationary pressures, and the Fed began aggressively increasing rates in March 2022 to fight inflation. It eventually increased the Federal Funds rate by 5.25% over the next 17 months. The good news is that core inflation has come down, and although it remains above the Fed’s 2% target rate, the Fed decided it needed to begin lowering the interest rates to avoid creating a recession. Through the first three quarters of 2024, real (inflation adjusted) GDP has been positive suggesting that the Fed has achieved a soft landing (i.e., slowing the economy enough to tame inflation without causing a recession).

The incoming Trump administration has indicated a commitment to lowering the regulatory burden to increase economic productivity and maintain full employment, while also increasing domestic energy production to further reduce inflationary pressures. Hopefully, the administration also will make progress on the deficit, since deficit spending puts upward pressure on longer term interest rates like the 10-year treasury yield. Reducing deficit spending can help bring down other long-term rates like the 30-year fixed mortgage rates.

State and local policymakers need to also do their part. Pro-business policies should keep Wisconsin employers competitive and promote income growth for Wisconsin workers. However, we also need to offer affordable housing options for the next generation of workers. Keeping the property tax burden low and promoting new residential construction will help alleviate the shortage and fuel continued growth in the state economy.

Larson is president and CEO of the Wisconsin REALTORS® Association (WRA) | Clark is professor emerituts of Economics at Marquette University | Founded in 1909, WRA is one of the largest trade associations in Wisconsin. It represents and provides services to more than 15,000 members statewide.

By Eric Borgerding, Wisconsin Hospital Association

As we look ahead to 2025, hospitals across Wisconsin are under unprecedented financial pressure. Rising inflation, labor costs and flat reimbursement are severely impacting hospital margins and access to care.

In the last two years, supply costs have grown by 17% and labor costs 11%. Despite these mounting expenses, hospitals are reimbursed at rates that do not reflect the true cost of care, particularly in light of rising patient volumes and increasingly complex cases. As a result, in 2023 one-third of Wisconsin’s hospitals, nearly all of which are non-profit and treat all patients who come through their doors, operated in the red.

In early 2024, two hospitals in Chippewa Valley closed. The vast majority of patients served by those hospitals were covered by Medicare and Medicaid, government programs that reimburse hospitals well below the cost of providing care and patients from which many for-profit hospitals and surgery centers refuse to care for. In fact, the two hospitals that closed in 2024 lost $56 million in the two years leading up to their closure. Service lines, such as labor and delivery care, are also shrinking in parts of the state. At least 14 hospitals have had to stop delivering babies since 2014.

Hospitals are also burdened with growing bureaucracy and the cost of health care “middlemen”—insurance companies, third-party administrators and many others that occupy the space between patients and health care providers. They introduce unnecessary layers of bureaucracy that drive up administrative expenses without improving, and sometimes harming, patient care. Insurance denials, delayed authorizations and complex claims processes create inefficiencies that hospitals must absorb, further adding to the cost of care and exacerbating workforce challenges.

Looking ahead, the demand for health care services is expected to intensify, driven by Wisconsin’s aging population. By 2030, one in four Wisconsinites will be over the age of 65, further heightening the demand for health care. Meanwhile, hospitals will continue grappling with workforce shortages, making it even harder to meet the growing demand for care. Administrative burden will only exacerbate this situation, as hospitals are required to spend valuable staff and resources navigating increasingly complex, care-denying insurance systems and regulatory requirements.

We can begin addressing—and even reversing—some of these challenges by enacting public policies that enhance reimbursement from Medicare and Medicaid services, investing in the health care workforce, and increasing transparency around the role of “middlemen” in health care and the resources they drain from the system.

By tackling these issues head-on, we can help ensure that Wisconsin’s hospitals remain financially viable and able to continue delivering essential care to our communities. The health care landscape is evolving, but with the right policies in place, we can navigate these changes and ensure a healthier future for all Wisconsinites.

Borgerding is president and CEO of the Wisconsin Hospital Association | Advocate. Advance. Lead. It’s what the Wisconsin Hospital Association (WHA) does for its member hospitals and health systems so they can provide high-quality, affordable, accessible health care for Wisconsin families and communities.

By Bradley Uken, Wisconsin Farm Bureau Federation

While the agricultural economy continues to evolve under the weight of significant global pressures, inflation, and a variety of domestic policies that are out of date and exacerbating existing issues, there are few bright spots for Wisconsin Farmers.

Significant improvement in milk prices over the past year has been welcome news, but revisions to the Federal Milk Marketing Orders now pending at the U.S. Department of Agriculture (USDA) will substantially reduce returns for farmers selling Class 3 milk (milk for cheese). For dairy farmers in the upper Midwest, the net impact of the various changes in the order, had they been in place from 2020 to 2023, would have reduced payments to farmers by $75 million a year.

Meanwhile, other commodities face a combination of increasing input costs, reduction in market prices and high volumes of existing holdover stocks putting downward pressure on prices. Grain prices were projected to fall ten percent in the most recent USDA forecast, and with holdover stocks just shy of thirty percent higher than last year and a bumper crop expected, agricultural economists are making bearish projections for pricing.

These developments come at the end of a year when the country has been operating on an extension of the outdated 2018 Farm Bill. While provisions in the bill have allowed some modest adjustments to account for market changes, bill authors at the time had no way to anticipate the impacts of a global pandemic, the highest inflation in forty years, or major geopolitical developments hitting prices for the products farmers buy and sell. Farm safety net programs like the Price Loss Coverage Program and Dairy Margin Coverage Program are tied to statutory reference prices and other standards set in law that must be updated for the programs to function as intended. Clearly, we need a new Farm Bill.

Unemployment rates remain historically low, and on-farm labor costs have continued to rise. According to USDA National Agricultural Statistics Services, farm labor rates were up 2-3% in October from the year prior, a lower increase than the 4-10% in the prior year, but still a substantial increase. (The range is dependent on the area of farm work.)

As much as farming is impacted by policy, the weather can have a more determinative impact. This year a very wet spring caused significant delays in planting, with some farmers not finishing until early July. The wet start gave way to a dry late summer and fall, creating unusual issues with shallow rooted corn. Even after the late start, the dry and warm extended fall had many farmers finishing harvests earlier than they have in years.

Wisconsin Farm Bureau continues to work to support farmers across the state. Having successfully lobbied for a very agriculture-friendly Wisconsin state budget, Wisconsin Farm Bureau has been directly involved in implementing the newly created Agricultural Roads Improvement Program (ARIP). Additionally, our members have seen the benefit of increased funding for the Ag in the Classroom program, and several programs within the Department of Agriculture, Trade, and Consumer Protection to improve the function and efficiency of Wisconsin farms.

Wisconsin agriculture is now a $116 billion industry that provides more than 350,000 jobs with nearly one in ten Wisconsinites employed directly in the industry. The farms and processing facilities that blanket much of our state come in all shapes and sizes and are anchor employers in our rural communities. The dollars that come from these facilities are spent over and over in local communities around the state. What’s good for Wisconsin farmers is truly good for Wisconsin.

As we come to the end of 2024, Wisconsin farmers face continued challenges. Wisconsin Farm Bureau will continue to work with policymakers and our agricultural partners to make sure Wisconsin is a place where farms not only survive but thrive, so we can continue to pass down our heritage and our ability to feed our state, nation and world, to future generations.

Uken is chief administrative officer (CAO) of the Wisconsin Farm Bureau Federation | The Wisconsin Farm Bureau Federation is the largest general farm organization in the state and serves as a voice for farmers. WFBF’s mission is to lead the farm and rural community through legislative representation, education, public relations, and leadership.

By Rose Oswald Poels, Wisconsin Bankers Association

As Wisconsin’s banking sector looks ahead to 2025, there is a sense of both optimism and caution among industry professionals. Bankers will be closely watching how national policies under President Trump’s administration may bring much-needed regulatory relief, while remaining mindful of the challenges the economy may continue to pose in the near future.

Overall, Wisconsin’s banking sector remains very strong. Data released by the FDIC shows that Wisconsin banks remained in a healthy position through the third quarter of 2024 (the most recent numbers available as of this writing). Lending held fairly steady or increased in the third quarter of 2024 over the prior year in all categories (commercial, residential, and farm loans), as banks responded to the borrowing needs of their customers. Deposits also increased 3.53 percent year over year, due in part to the high interest rates offered on CDs and money market accounts. Finally, the net interest margin, a key indicator of a bank’s profitability and growth, for Wisconsin banks remained steady at 3.18% in the third quarter which was an increase from the prior quarter (3.14%), but a slight decrease over the prior year (3.19%).
Wisconsin banks are also leveraging investments in technology and innovation to drive growth. Digital banking platforms, mobile payment systems, and AI-powered tools for staff and customers are becoming essential for operational efficiencies as well as for attracting and retaining customers.

Regulatory burden at the federal level remains an ongoing concern for the banking sector. In the new administration, bankers are optimistic that there will be a pause on the introduction of new regulations, allowing the industry to focus on its core business rather than new compliance burdens. In addition, the industry is hopeful that overly burdensome regulations will be rolled back to a more reasonable level. One area of significant concern is the new Section 1071 requirements issued by the Consumer Financial Protection Bureau (CFPB). These rules, designed to collect more data on small business loans, have been criticized by many in the industry for imposing an excessive administrative burden on both the banks and their small business customers. The requirements go far beyond the original intent of the Dodd-Frank Act and could negatively impact small businesses by making access to credit more complicated and costly.

Despite these regulatory hopes, bankers remain cautious about the broader economic landscape. The path to economic recovery is still uncertain and a significant rebound may take longer than expected. The third-quarter data released by the FDIC shows that past-due loans for Wisconsin’s banking sector were elevated year over year (19.30%) as inflation and the high cost of living impacts borrowers. Past due loans were also higher quarter over quarter (6.55%), and the current level of past-due loans remains above recessionary levels.

One area of concern is the current state of the housing market. Mortgage rates are unlikely to drop significantly in the immediate future, and the high cost of housing, coupled with a limited supply, continues to challenge both buyers and sellers. This ongoing imbalance between supply and demand could lead to a slower recovery for the housing market and, by extension, for the broader economy.

Similarly, interest rates for commercial and ag borrowers are unlikely to be dramatically lower in 2025. As a result, loans that will re-price in 2025 could put greater financial strain on some commercial and ag borrowers. A typical duration for commercial and ag loans is a five-year fixed term with a balloon payment due at maturity. As a result, many customers renewed loans in 2024 and will renew in 2025 at interest rates higher than what the borrower had been paying.
For certain agricultural producers, adding to the strain of elevated interest rates is the fact that commodity prices are dropping to multiyear lows. With these decreases, the overall ag economy and farm income outlook continue to weaken.

Ag producers always expect and experience variable farm income; however, large declines in farm income can quickly pressure cash flow and impair debt repayment capacity. As commodity prices retreat from their highs, ag producers are working with their lenders to adjust expenses and update cash-flow projections.
In conclusion, the banking industry is entering 2025 with a mixture of hope and hesitation. While the year may bring incremental changes rather than sweeping transformations, Wisconsin banks remain well capitalized to support the local needs of their customers and communities.

Oswald Poels is president and CEO of the Wisconsin Bankers Association | Founded in 1892, the WBA is the state’s largest financial industry trade association, representing 180 commercial banks and savings institutions, their branches, and nearly 30,000 employees.