By Kenneth in Lees Summit, MO on 5/23/2006
I would say in the Midwest it is definitely cooling off. There is still considerable new home construction, and the subs seems to be quite busy, but the resale market is starting to soften up. Since most people need to sell their existing house to buy a new house, this will eventually translate into the new home market as well, although it is not readily apparent just yet.
Shift takes some heat out of home sales
Oversupply and softening demand turn the KC area into a buyer’s market
By KEVIN COLLISON
The Kansas City Star
This is peak season for selling homes, but Joey King has had his four-bedroom, 3 1/2 -year-old home in western Shawnee on the market since mid-January.
He already has dropped his asking price from $309,950 to $289,950. Now he is willing to throw in the family’s home theater setup that includes a 55-inch, high-definition television.
King and his wife, Brooke, a pharmacist, have two young children and are expecting a baby. They are building a house on 18 acres near Louisburg, Kan., that is scheduled to be finished in late July.
“We’ve tried a multiple of things,” said King, a 32-year-old computer software salesman. “We’ve lowered the price, put in incentives to the agents, and the buyer can even take the refrigerator.”
Join the growing crowd. After years of record-breaking home building and surging sales and prices, the Kansas City-area real estate market is awash in homes for sale.
Inventories for new and existing homes are at historic highs while demand is reverting to historic norms. The result is that homes are sitting on the market longer than they have in years, price appreciation is ebbing and stealthy incentives increasingly are becoming part of the negotiating process.
It’s all supply and demand — and it’s becoming a buyer’s market.
On the supply side, there were a record 21,104 new and existing homes listed for sale in April, a 30 percent increase from a year earlier, according to the Kansas City Regional Association of Realtors. That figure did not include homes being sold privately by owners.
On the demand side, meanwhile, sales softened. In April, the Realtors reported 3,090 closed sales, still healthy but down 13.5 percent from a year earlier. The average sale price for a new or existing home in April increased 2 percent, to $180,128, from a year earlier.
What is happening, real estate professionals say, is a shift to a more normal market after several years of red-hot real estate. They say there are fewer discretionary buyers who took advantage of the exceptionally low interest rates of the last few years to move up the housing ladder. As a result, the inventory of available new and existing houses has swollen significantly — and it will take time to work it off.
“The people who wanted to buy entered the market during the past five years when rates were more favorable,” said Jim Gamble, an agent with Reece & Nichols Realtors and past president of the area Realtors association.
“Now, the people who have to buy are driving the market: people moving into town, people getting divorced, people having more children — all the things that happen in life. It’s a more balanced or average pool, and the inventory is sitting on the market longer.”
A buyer’s market
When there is less than six months of inventory for sale, Real estate agents consider it a seller’s market. Above that constitutes a buyer’s market.
By that standard, April marked a buyer’s market, with 6.8 months’ supply of new and existing homes on the market. There were 6.2 months of existing-home inventory for sale in April, while there were 9.1 months of newly constructed home supply for sale.
Some industry experts have warned that sales competition would make it tough for people trying to sell larger, recently built homes near outlying subdivisions where similar larger houses continue to be built.
That appears to be what is hampering the Kings in selling their home in the Maplewood of Crimson Ridge subdivision in Shawnee.
“There are so many new spec homes sitting out there, which I think is hurting resell,” Joey King said.
Tim Underwood, executive vice president of the Home Builders Association of Greater Kansas City, said builders had noticed the shift in the market.
So far this year, permits for future construction are down 13 percent from last year, but inventories remain high. The local industry is coming off four consecutive years of building more than 10,000 houses annually.
“The number of finished unoccupied homes is 35 percent higher than a year ago,” Underwood said.
To be sure, no one is predicting that the housing bubble will burst in Kansas City in the way that some expect in such hot coastal markets as Florida and California, where prices exploded in recent years and unsold inventory now is piling up even faster.
Indeed, industry studies and the financial press regularly cite Kansas City as a comparatively safe housing bet because of its steadier growth and price appreciation in recent years.
Even so, the local real estate market is adjusting to the new supply-and-demand equation. One early indicator is the appearance of stealthy incentives to attract buyers.
Homebuilder Bruce Rieke, for example, is offering buyers a free two-year lease on a BMW 325. He has sold four homes since the promotion began in mid-April and has two sales in progress. His homes range from $300,000 to more than $1 million.
“There’s more competition than before,” said Rieke, who has built homes in Johnson County for 17 years. “You have to differentiate yourself from the competition.”
Despite the increase in incentives, housing prices generally are holding up, according to the Realtors association. Price appreciation is expected to continue — albeit at slower rates.
The average price for a new house in the Kansas City area was $264,574 in April, up 8.5 percent from the previous year. The average sale price of an existing home was $158,199, up 1.3 percent.
“We’re not seeing the appreciation we had seen,” said Dan Whitney, president of Landmarketing Inc., an area housing research firm. “Builders and developers don’t have the elasticity to move up their prices. It’s a difficult time because costs are rising rapidly.”
One key expense that is affecting buyers and sellers alike is mortgage rates.
The typical interest rate on a 30-year mortgage has climbed about one percentage point in the last year to nearly 6.75 percent. That means the cost of repaying a $150,000 home loan is almost $110 more per month than it was a year ago, said James B. Nutter Jr. of James B. Nutter & Co. mortgage bankers.
“We’ve completed the move to a buyer’s market,” Nutter said. “More and more people are so informed about this. They understand that supplies are up and sales are down. They’re going to try to get the best deal they can.”
A slowdown in the national housing boom — which some economists credited for helping create four out of 10 new jobs in recent years — would affect the broader economy. Although the U.S. gross domestic product surged at an estimated 5.3 percent annual rate in the first quarter, it is expected to slow in the latter half of the year.
David Lereah, chief economist for the National Association of Realtors, said he expects a “soft landing” for the national housing market. The national association on Thursday reported that April sales of existing homes were down slightly, and the nationwide median price of $223,000 was up 4.2 percent from a year earlier, the smallest year-over-year increase since September 2001.
Some see that as a buying opportunity, if would-be buyers can sell the houses they already are in.
“Some of the consumers who haven’t bought the past four or five years will find better values, but their challenge is getting out of their existing houses,” Whitney said. “Many have taken cash out of their houses by refinancing, and they don’t have as much room to negotiate a price.”
Showtime for sellers
Real estate agents like to talk about “staging” when it comes to selling a home. That includes making sure the first impression from the curb is positive, and once the buyer is inside, making the home feel more spacious and inviting by properly positioning furniture and eliminating clutter. Scented candles, soft music and freshly baked cookies often are part of the show.
“It’s critical that sellers stage their properties well and price according to the market,” said Greg Koons, broker-owner of Re/Max of Kansas City and a past president of the Realtors association.
Bob Hennecke and his wife, Debbie, recently bought a home in the Highcroft area of Overland Park. They had been living in a condominium in Mission but decided last winter to search for a bigger place after having their first child. Their price range was $180,000-$220,000.
Bob Hennecke estimated that he and his wife looked at 50 houses before buying.
“I did notice the houses that were quality houses were selling quickly and the ones that need work, unless priced right, were staying on the market,” he said.
“It was my impression that people still thought it was a seller’s market and could put any house on the market at a price above the market. They weren’t so much concerned about how it would appear.”
Teresa Booker, a real estate agent with Keller Williams Realty Partners, organizes quarterly seminars on the housing market for fellow professionals. She detects a growing nervousness among some colleagues.
“Some agents feel they’ve already hit a summer slump,” Booker said. “People are best served by talking to agents who are candid, honest and realistic about the condition of their property. Then they’ll get accurate and competitive pricing.”
On the pricing front, the homes that are taking the longest to sell generally are the more expensive ones. Entry-level homes continue to do well. In all categories, rational pricing is the key to getting a deal.
Kathy Copeland, an agent with Prudential Kansas City Realty and the president-elect of the local Realtors association, said how well the local housing market does this year may depend as much on psychology as supply, demand and mortgage rates.
“We need to be very positive,” Copeland said. “If we believe it will slow down, then indeed it could. I’m telling agents it’s a very decent market.