Kansas City Real Estate

Lots to consider but no time to wait.

photo by James Maidhof

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   If you have a friend or relative thinking about buying a home in the Kansas City area, call them tonight and tell them to hurry. As of this spring, it’s “while supplies last.”

   The real estate market in Kansas City is described as “brisk,” “robust” and even “gangbustas.” But as conversations with top real estate professionals suggest, “good times” are a double-edged sword.

   Right now in our region, the number of quality homes on the market is so low that many buyers — even with cash and good credit ratings — are being forced to temporarily move into apartments because they can’t find a home that works for them.

   And the irony is that many are paying more in rent than they would for a mortgage.

   A modest three- or small four-bedroom home in a good suburb – priced at the Kansas City average of about $240,000 – would require a mortgage payment of about $1,200 per month. In Johnson County, one- and two-bedroom apartments rent in that price range (and much higher the closer in you are to the central city).  

   There are a number of factors involved in this housing squeeze.

   Jeff Hill, president of the Kansas City Regional Association of Realtors, points out that even when the calendar turned from 2016 to 2017, the number of homes up for sale was desperately low, and it hasn’t gotten any better.

   “Statistically, a two-month supply. That’s what we have. That means that if we didn’t have any more homes come on the market, we’d have nothing left to sell within two months.”

   Which means?

   “Right now, we’re seeing some houses being listed today and sold tomorrow — even listed this morning and sold tonight. Sometimes it’s a little crazy.”

   And it means some buyers are being left out because they don’t move fast enough.

   Hill says the right homes (clean, well-maintained and the right price) are getting full-price offers on Day 1 and often multiple offers from different buyers. Back before the real estate recession of a few years ago, multiple offers meant bidding wars between buyers that pushed a home’s price up well beyond the seller’s expectations and actual value.

   Hill, a broker at RE/MAX Premier Realty in Leawood, says we’re not at that “bidding war” point yet — and the Kansas City market has never really raged as wild as the West Coast markets — but a shortage of properties does cause issues.

   “There are lots of people in homes already who want to sell, but they’re afraid if they do sell, they won’t be able to find a good property to move to. Rather than risk it, they’re staying where they are.”

   There is also the problem of more and more seniors deciding to “age in place,” rather than move to senior living complexes. That results in even more homes being kept off the market.

   That’s how logjams are created.

   “In normal times, when the market is in balance,  we’d like to have at least six months of inventory,” he says.

   A six-month inventory suggests there is an adequate number of homes available in all price ranges, styles and amenities to give buyers a good selection to choose from.

   “Anything more than six months, you have a buyers’ market. Anything less is a sellers’ market, where the seller is in control.”

   So at the moment, at least, the pendulum has swung toward the seller, making price negotiation a challenge for buyers, if they can find a house at all.

   There are, of course, new homes always coming onto the Kansas City and suburban markets, adding to supply and helping siphon off demand. But even that pressure release isn’t as easy as it used to be.

Builders to the Rescue?

   Rosemary Vitale, a Kansas City Home Builders Association board member, says it looks like we will continue to see a steady increase in new home sales in 2017.

   However, builders are being hampered by a number of factors that cannot be quickly resolved.

   “Materials, labor shortages and land are the big ones,” she says.

   It takes lumber and wallboard, sand and stone and concrete to construct a home, and there is growing worldwide demand for all those commodities. Builders in New Zealand are competing for product with builders in California, New York and Kansas City. Shortages in China, whose building boom is only starting to cool, can cause global waves of price hikes and scarcity.

   Locally, and perhaps even more surprising, there is a chronic shortage of laborers.

   With the national unemployment rate hovering below 5 percent, many people who might otherwise work construction are finding their way into other professions.

   KCHBA says part of the issue in Kansas City is that many high school students are going on to college rather than opting out for the trades.

   And Kansas City is not alone in this problem.

   You might remember that during this year’s Super Bowl, there was an unprecedented recruiting advertisement by the 84 Lumber Company pleading for men and women in the 20- to 29-year-old age range to consider careers in construction. A company spokeswoman conceded the industry needed to “cast a wider net” and let young people know building “is a place for people who don't always fit nicely into a box. We want people interested in creating their own path.”

   Vitale also says quality land is becoming a concern.

   For the last few decades, good land to build on at reasonable prices, has been hard to come by. Unimproved land near the city is virtually nonexistent. The bureaucracy and cost involved in getting permits from local, state and federal government agencies also has slowed the process of developing new projects.

   Still, Vitale emphasizes, builders are active throughout the metropolitan area. Building permits are up 17 percent over 2016 in all categories: single family, multi-family, condominiums, affordable housing and senior housing.

   “Builders today are trying to introduce more affordable new homes to the marketplace,” she says. “They are trying to cater to [first-time home-buying] millennials, as well as to the aging population.”

   Single-family homes remain the biggest share of the market throughout the region, but Vitale, vice president of new homes for ReeceNichols, says some builders are now considering attached housing, such as row houses and townhomes.

   One of the biggest trends is infill building, tearing down an existing home in a close-in location, or an entire community is carved into a long-established area like Meadowbrook Park in Prairie Village,” she says.

Staley Farms Overland Park Kansas

Staley Farms


More and Different Amenities

   Vitale also says a challenge for builders is keeping up with an ever-longer list of amenities new home buyers are demanding.

   Walking and biking trails are highly desirable in most new homes communities, as well.

   Inside, builders have started putting laundry rooms off the master bedroom and creating “multi-functional” or so-called “flex rooms” where families can create their own space.

   Vitale says solid-surface counters are desired features in the kitchens, as well as walk-in pantries.

   Builders are offering more floor plan options, she says. “Buyers are trending toward cleaner lines, kitchens with the latest appliances, quartz and marble countertops, large kitchen islands. They’re also wanting outdoor living areas for entertaining.”

   And, of course, “buyers still wants pools and club houses, lake views, fitness centers and trees. They want walkable neighborhoods.”

   And another feature you don’t find in Mom and Dad’s old house? Plug-in stations, and lots of them. “USB ports. Connectivity is important,” she says.

Let’s Talk Politics

   Both Hill and Vitale agree the current Kansas City housing market is stable and growing at a reasonable rate, but there are a few things that could derail the current success.

   No. 1 is consumer confidence. “People are generally feeling pretty good right now,” Hill says. “They have jobs, and when people have secure jobs, they start thinking about moving up — better neighborhood, larger house. But if the economy turns, people will start hunkering down. They’ll stay in place until they see which way things are going.”

   The availability of mortgage money also may be in jeopardy.

   Mortgage money that has been available at 3.25 to 3.5 percent throughout 2015 and 2016 has now moved up to above 4 percent. Every hike in interest rates narrows what buyers can afford and has a tendency to push down what sellers can ask.

   Earlier this year, the federal government also suspended a planned reduction in the mortgage insurance requirement that would have taken it from 4 percent down to 3.5 percent. The National Association of Realtors said that move alone was enough to push at least 40,000 would-be homeowners below the threshold to qualify for a mortgage — and would cost existing borrowers tens of millions of dollars.

   There also is the critical question of whether the federal government is going to stay in the mortgage insurance business at all.

   For decades, the familiar names of Fannie Mae, Freddie Mac, FHA and other government-backed mortgage insurers have been able to float packages that, in some cases, allowed buyers to place a down payment of as little as 3.5 percent of a home’s value (and in some cases zero down) and still secure a property. But because the real estate recession of the past decade that financially crippled those programs, there is some speculation those government-backed institutions may not be available in the future.

   “And if buyers suddenly have to put 20 percent down on a house (as banks and other lenders prefer), it will just crush our market,” Hill says. “Overnight. It will just crush it.”

   Other worries include the trillions of dollars in student debt being carried by roughly 44 million U.S. college attendees, more than half of whom owe nearly $20,000 on the day they leave school. Lenders are reluctant to loan mortgage money to buyers who are paying off high college debt. The government is constantly discussing ways to ameliorate the crisis, but solid answers have been elusive.

   Another factor that could hurt home-buying rates is the availability and price of flood insurance. With climate change triggering rising sea levels and, some argue, ever-more violent and prolonged storms nationwide, flooding has become an issue, even in Kansas City.

   The government is redrawing flood zone maps. If your home is in a flood plain, even if it hasn’t flooded in the past, you will be required to buy flood insurance or a lender will not grant a loan. Flood insurance is available from the government, but it’s expensive. Even worse, the National Flood Insurance Program is a political football that constantly is being kicked around in Congress before being extended.

   When that happens, your home loan is stalled until the politicians come up with a solution.

Time to Decide

   Despite the cautions, caveats and congressional concerns, the Kansas City housing market is strong and stable, and in many ways the envy of housing pundits on both coasts.

   Home sales are up about 7 percent over 2016, and prices are up about 6 percent throughout the region — both numbers considered within acceptable norms.

   But again, it’s best not to wait too long in deciding whether to leap into the market. The average number of days a home is on the market in Kansas City about 15 days, and that number is going to come down as we move fully into the spring and summer months.

   It’s time to make a decision.