Cheer the KC Housing Market’s Rocket Red Glare



So …                                  

It turns out that real estate really is like rocket science. It can go up, and it can crash back down, but if everybody does their part right, it can go up and settle into a nice, sustainable orbit.

That appears to be what’s happening in the Kansas City region now, but while the numbers currently suggest the re-launch of the market has achieved a steady, predictable flight path, no one is guaranteeing that home prices will still be up a year, two years or even five years from now.

To be sure, there is much to be positive about since the real estate crash of 2010-11, but the recent liftoff hasn’t been easy, and there are still some dark clouds to get through. Another decline is not inevitable, but keep in mind that too rapid a rise isn’t necessarily desirable either.

Maybe …

“That depends on whether you’re a buyer or a seller,” says Kathy Minden, president of the Kansas City Regional Association of Realtors (KCRAR), which encompasses Cass, Clay/Ray, Jackson, Johnson, Leavenworth, Miami, Platte and Wyandotte counties. “Sellers like to see prices that are going up. Obviously, buyers don’t.”

OK, so where are we now?

 “I don’t know that the real estate market is ‘soaring’ yet,” Minden says. “But we are in recovery from the recession when prices were going down. We’re still somewhat below where we were at the peak of the bubble (in 2005-06), but it’s clear that the market is moving in the right direction.”

Minden reminds that Kansas City home values never fell off a cliff like in Las Vegas, where real estate agents pegged the median existing home price at $315,000 in the middle of 2006, only to see it plunge to $110,000 by the end of 2012. (And even now, in the “recovery,” the Las Vegas median still is just slightly above $175,000.)

In the KCRAR region, the median sales price of an existing home was $175,018 at the beginning of June in 2006. That number dropped to nearly $130,000 by January 2009, but has now recovered to just above $173,000.

But that’s not to suggest Kansas City homeowners have been unharmed. National foreclosures monitor RealtyTrac, based in Irvine, Calif., calculates that near the height of the real estate bubble in April 2006, there were only 382 foreclosure filings in the Kansas City area on homes with mortgages. By March 2010, that number had ballooned to 3,643 homeowners who could no longer make their payments. At the end of 2013, that number was back down to 541.  

What’s behind the current upward motion is a new confidence by consumers that not only is the nation getting back on track economically, but that good things are happening in Jackson, Platte, Wyandotte and Johnson counties.

The Census Bureau reports population of the four metropolitan counties is about 1.5 million and still growing, compared to many urban centers that are shrinking. The unemployment rate is very competitive at just over 5 percent.

Even better for area housing, the law of supply and demand is reasserting itself, moving the market toward a balance of homes for sale and buyers willing to buy them.

“Overall, consumer confidence is better,” Minden says. “Buyers and sellers are more comfortable about being back in the market. The inventory of homes for sale is still down a little, but that’s giving more homeowners confidence to put their homes on the market.”

MORE HOMES COMING

If the latest report from the Home Builders Association of Kansas City is any indication, the seller-advantage of buyers not having many homes to tour is about to be wiped out.

The association announced in January that 2013 was the best year for homebuilders since 2007, and things are looking even better for 2014.

According to the organization, 4,087 single and multi-family (apartments and condos) building permits were pulled in 2013, nearly 3,000 of them just single-family homes.

That was the highest number since 2007 and a 24 percent increase from 2012. (Keep in mind that 2007 was a banner year for builders in which more than 6,300 single and multi-family permits were drawn.)

Still, the Kansas City area has largely avoided the specter of so-called “zombie subdivisions,” where in 2005 optimistic developers ran paved roads across farm land and installed street lights, only to have their developments go belly-up when half built-out, or sometimes with only model homes and big signs in place. It is estimated that as many as 2 million entitled lots now sit empty in New Mexico, Arizona, Colorado, Utah, California and Nevada.

The Midwest exercised more restraint, and is poised to grow now.

“As we look to 2014, buyers will be pleased they have greater choice from a more balanced new home inventory,” said Kansas City HBA Executive Vice President Sara Corliss in a statement. “Builders will be watching pending contract and sales activity going into the spring for clues about what this year will bring.”

The breakdown on single-family permits for the area last year was:

  • Kansas City, Mo. 675
  • Olathe 528
  • Overland Park 422
  • Lee’s Summit 334
  • Lenexa 217
  • Platte County 181
  • Shawnee 153
  • Kansas City, Kan. 144
  • Blue Springs 139
  • Leawood 119

SO WHAT CAN GO WRONG?

While everything looks encouraging for the region, experts caution that lots can still go wrong.

A widespread economic downturn could hurt Ford, Sprint, Hallmark and a host of other major employers in the area. The real estate maxim is that people who don’t have jobs don’t buy houses.

Also, mortgage interest rates are waffling but generally heading up — up about a single percentage point since hitting bottom around 3.5 percent a year ago. The higher the rate, the harder it will be for some people to qualify for loans.

And qualifying for loans already has been more difficult for most Americans as banks have tightened lending standards. Lenders are giving their best rates to those willing and able to put 20 percent down on a property. The lower the down payment, the higher the lending fees and the fewer the people who will be able to make moves.

That last point is especially significant.

Historically, the housing industry has depended on new young buyers purchasing modestly-priced “starter” homes. That constant pressure on the lowest housing tier has allowed existing homeowners to sell their properties and move into more expensive dwellings.

Now, however, the phenomena of student loan debt is entering the picture.

According to the Project on Student Loan Debt (projectonstudentloandebt.org), 59 percent of Kansas college graduates are leaving school with an average of $23,677 debt on student loans. In Missouri, 63 percent of graduates have an average debt of $23,030 on the day they leave school.

Making matters worse, many of those students with high-quality degrees have been unable to find high-quality jobs. The combination of high debt and under-employment is making lenders even more reluctant to take risks.

If young people cannot buy into the lowest tier of housing, the tremor rumbles all the way up the housing chain to make to make it harder for older homeowners to sell their properties and downsize to retirement.

Any combination of these factors can bring the housing market spiraling back to earth.

BE YOUR OWN ECONOMIST

What all real estate professionals agree on is that local homebuyers and sellers should ignore what they hear on the national news.

Every week, new national housing numbers are released — housing starts, pending home sales, existing home sales, new home sales, foreclosures, interest rate projections, etc. — indicating what the broad housing market is doing on the national level.

Real estate, however, is local. What’s happening in this region, and even your own neighborhood, is far more important than what some pundit is spinning in Washington or New York.

Even highly regarded housing economist John Tucillo, former chief economist for the National Association of Realtors, says it’s important to be your own expert when it comes to housing. And all you have to do is pay attention.

“First and foremost,” he says, “are jobs. Ask the local chamber of commerce for the top 10 employers and then track their employment trends.

 “Second, watch the listing trends. If fewer homes are being listed, it means the market is getting tighter.”

That could mean more competition for fewer homes, and resistance by sellers to negotiate prices.

“Next,” Tucillo adds, “watch the average number of days homes are on the market. If the average is coming down, it means the market is swinging from a buyer’s market to a seller’s market.

“And finally, check the ratio of actual sales prices to the original asking (listing) prices. If sellers are getting pretty close to their asking price, you’re seeing a swing to a seller’s market.”

Be sure to get month-to-month comparisons, Tucillo says, to help pick out trends.

Typically these numbers are all available in the Kansas City Star or from the KCRAR website, KCRAR.com.

AND ONE CAVEAT

There is not a real estate professional in the world — not a broker, builder or lender — who recommends that the average person try to “time the market.” Even those who have made a living in real estate for years cannot spot the right time to buy or sell.

If the time is right for your family to make a move, don’t try to guess where the market is going to be next week or next month.

The important thing is to get on with your life.