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KC area’s housing market was ‘ugly’ in 2007
By JEFFREY SPIVAKThe Kansas City Star
It’s called a buyer’s market, and this is how good it got last year for one such home buyer.
Susan Glenn found a seven-year-old house in Blue Springs with everything she and her husband wanted: four bedrooms, lots of windows, big backyard. It was appraised at $350,000, but it wasn’t selling. So they snapped it up for less than $270,000.
“We felt like we got a real good deal,” Susan said.
Indeed, 2007 was the year of some really good deals on housing. But it was far from good for sellers, investors or even homeowners who consider their homes an investment. For them, 2007’s housing market was, in the words of several real estate agents, “ugly,” despite another strong showing in traditional hot spots.
Each year The Kansas City Star, in cooperation with the Kansas City Regional Association of Realtors, tracks sale prices of existing homes in 94 ZIP codes across the metropolitan area. In 2007, average home prices fell in 60 percent of those metro ZIP codes. That contrasts with the go-go years of housing appreciation earlier this decade, when average home prices rose in almost all area ZIP codes.
How bad was 2007 for sellers and homeowners? Consider:
•An array of close-in suburbs — Independence, Raytown, Grandview, Gladstone, Parkville, Mission and Merriam — suffered declines in prices. Independence and Grandview, in particular, were down 10 percent.
•Some wealthier sections of Johnson County were not immune. Average resale prices fell across southern Overland Park, southern Leawood and western Lenexa.
•The hardest-hit part of the area was Kansas City’s East Side neighborhoods. There, from Northeast to Swope Parkway-Elmwood, prices plunged more than 20 percent.
Overall, the average resale price across the nine-county area declined 1 percent last year. And 2007’s downturn followed 2006’s smaller slump, resulting in a two-year slide in prices. That made it a true buyer’s market.
All these declines were caused by a three-headed monster of local and national market conditions: a weakening economy, an oversupply of newly built homes, and a collapsing subprime mortgage market leading to a rash of foreclosures typically priced below market value.
“This is probably the first time in all my years that I had to keep reducing prices until we found buyers,” said Judy J. Miller, a real estate agent with Prudential Kansas City Realty in Johnson County. “We’ve had so many banner years, I think the market was adjusting in 2007.”
A few pockets of the area bucked the trend — particularly all nine ZIP codes along the state line from the Missouri River to Interstate 435, covering areas such as downtown, Brookside and old Leawood. Among those, downtown led the way with a 13.6 percent jump in average condominium resale prices.
Over a longer period, housing appreciation has made solid gains in many parts of the area. Since 2003, according to The Star’s analysis, average home values have risen faster than the inflation rate in more than half of area ZIP codes.
“If you bought a house in 2006 and had to sell it in 2007, you’re not doing well,” said Diane Ruggiero, chief executive of the regional realtors association. “But people who’ve owned their homes for a long time are doing well.”
Good deals
Real estate agent Jane Bollin had never handled a home sale in which the buyer paid less than the seller had paid years before. Never, that is, until last year. Then it happened a few times.
“I have never seen a market like this,” said Bollin, who works with Reece & Nichols in eastern Jackson County. “It’s been a great time for buyers.”
Some buyers ended up making, in real estate lingo, a steal of a deal last year. Consider:
In Independence, a 100-year-old Victorian was bought in 2004 for $30,000, then fixed up and priced at $130,000. But it sat on the market for more than a year before being snatched up for $77,200.
In Gladstone, a four-bedroom ranch went for $104,000 in 2004, was put up for sale two years later at $118,500, but ultimately was bought for $85,000.
West of the Country Club Plaza, a two-story stucco home sold for $171,500 in 2002, then recently resold for $162,000.
That home was caught up in a plague sweeping across the housing landscape — foreclosures, in which sellers defaulted on their loans and banks just wanted to get rid of the properties. The depressed price allowed Amy Rizzo, an artist, to buy her first home.
“I felt like I got an amazing deal,” Rizzo said.
No one officially keeps track of how many foreclosures filled the housing market last year. But several real estate agents across the area said foreclosures made up 10 percent to 20 percent of the homes they showed. In harder-hit urban neighborhoods, it was probably a higher percentage.
“They (foreclosures) are dragging down values a bit,” said David Van Noy Jr., an agent with Prudential Kansas City Realty.
Whether or not homes for sale last year were foreclosures, one type of real estate sign said it all: “Reduced.”
Sellers’ woes
Toward the other end of the real estate spectrum last year was Jeff North. He is a rehabber in Kansas City who hasn’t been able to sell three renovated homes. One is still sitting with $200,000 worth of upgrades he paid for.
“I’m starving,” North said. “It’s been brutal.”
The number of existing home sales was down across area ZIP codes, and some homes remained for sale for the entire year. For those sellers who did find a deal, prices were sometimes down to 2003 or 2004 levels.
Consider ZIP code 64050 covering historic, downtown Independence. The average resale price there dropped 11.5 percent last year to $72,951 — less than the area’s average price in 2003. The same thing happened in 64138 in southern Raytown and 64118 encompassing most of Gladstone.
In many other parts of the area, 2007 prices were below 2005 levels. That happened across Blue Springs, Liberty, Parkville and parts of northern and southern Overland Park.
“Part of what had been driving our market in the last few years was that lenders had gotten so lenient with their loans,” Re/Max agent Dolores Nixon said, referring to subprime and interest-only mortgages. “Those were buyers on the edge, and the edge toppled.”
In the economics of supply and demand, demand fell sharply and prices followed suit.
Actually, real estate took a beating all across the country. According to the National Association of Realtors, the median (or midpoint) price of existing homes nationwide declined last year for the first time since the Depression.
As usual with national trends, Kansas City didn’t stand out. Its housing slump last year was in the middle of the pack among similarly sized metropolitan areas.
According to the realtors association, the area performed better than St. Louis and Minneapolis, but worse than Charlotte, N.C., and Pittsburgh. Likewise, in a national index that is compiled by the federal government and tracks repeat sales of the same homes, Kansas City did better than Cincinnati and Columbus, Ohio, but worse than Nashville, Tenn., and San Antonio.
Hot spots
In Kansas City, the housing market for sellers wasn’t all doom and gloom. Some areas, in fact, kept prospering.
One of those places was downtown, which continues to attract a mixture of empty-nesters and young professionals to an environment and choices not widely available in the area.
Average resale prices downtown have jumped by one-third in the last two years. Consider the River Bend Lofts, which were converted to condos a few years ago. One two-bedroom loft with a view of the Missouri River was originally purchased in 2006 for $196,500, then resold last year for $218,500 — an 11 percent gain.
Some other parts of the area have remained hot. During the past four years, The Star found, housing appreciation surged at double or triple the rate of inflation in almost one-fifth of area ZIP codes.
In some cases, that occurred in newer, growing corridors where more expensive, newly constructed homes can skew the average resale price when they start getting resold. But surging appreciation is also found along the urban, state line corridor.
For instance, average prices in Brookside’s 64113 have appreciated 24 percent since 2003. On the Kansas side, old Leawood’s 66206 is up 43 percent.
“People are attracted to those areas because of that kind of consistent, safe track record,” said Pat Tholen, a Realtor of the Year in Kansas.
Some real estate agents claim the market is already picking up. Others aren’t so sure. Even Ruggiero said, “I suspect the rest of this year will be more of a correction.”
National outlooks on Kansas City’s price trends are mixed. On one hand, Forbes magazine named Kansas City one of the 10-riskiest housing markets in the country because owners have so little equity in their homes, so they’re easier to walk away from. On the other hand, the PMI Mortgage Insurance Co. determined that the area has one of the lowest risks of resale home prices being lower in two years.
So a seller like Elizabeth Nelson isn’t sure whether or not to be hopeful. Last spring, she and her husband finished fixing up their Prairie Village ranch. They priced it at $617,000 because another home down the street was priced even higher. But they got no offers through real estate agents. Then they tried a for-sale-by-owner service. Still no offers. They reduced the price to $545,000. Still no offers. Now they are re-listing it.
“It’s been frustrating because it’s taken a lot longer than I thought,” Elizabeth said. “You feel like your life is on hold.”