Housing market has flipped: ‘The good buys really do go fast.’
10/08/2013 10:26 AM
10/08/2013 10:26 AM
If anyone knows the housing market, it’s Richard Holtcamp.
He has spent the past four years overseeing a local bank’s efforts to sell its foreclosure listings. He has lived in Lee’s Summit since 1986. So when his daughter Katie approached him for some help finding and purchasing her first home over the holidays last year, Holtcamp figured he’d have an edge on the market.
The market had other ideas. In January, Katie found the first house she liked — a three-bedroom home in Lee’s Summit that was move-in ready. It had the fence for a dog and enough space for Katie to have roommates to help cover the cost of the mortgage. Holtcamp put in an offer $10,000 below the asking price.
“If you want to sell it and the market is bad, I’m going to offer you a lot less,” Holtcamp said.
His agent told him that another offer was on the table. And even though Holtcamp raised his bid by several thousand dollars, the house sold at list price to someone else.
Holtcamp next got into a bidding war over what’s known as a buyer relocation — a home that has been purchased by a company that has paid to move one of its employees to another city. Typically, the seller has a vested interest in moving the property quickly because the company doesn’t want to hold on to a residential property. Even though his final offer was just below asking price, Holtcamp again lost out.
“I kept thinking, ‘How does this happen to me?’ It’s very few times that I’ve had more than one offer on my desk,” Holtcamp said
A third house in Greenwood, a city of just over 5,000 people that is east and south of Lee’s Summit, met only some of the Holtcamps’ original search criteria. It was coming out of foreclosure. It needed a new fence, window trim repair, a paint job and new appliances. But his daughter and wife loved it.
Holtcamp submitted a final bid — one of several before the seller — that was a few thousand dollars more than the list price. His daughter moved in last June.
The script has subtly flipped on the housing market. Lower interest rates, foreclosure rates and home inventories have helped stabilize the Kansas City real estate universe. Money Magazine recently named part of the metropolitan area to its Top 25 “Where Homes Are Affordable” list for 2013, with Gladstone ranked ninth overall.
“We’ve experienced such a nice, even, continued improvement in the market, and that’s a good indication that this is sustainable,” said Brenda Oliver, president of the Kansas City Regional Association of Realtors.
The number of building permits has been rising steadily in lockstep with an uptick in housing prices. In communities like Lee’s Summit, Grandview and south Kansas City, houses are being sold even before the first official open house.
But to understand how a banker who specializes in selling foreclosures could be surprised by the housing market, we have to go back to 2011.
Two years ago, an avalanche of foreclosures created downward pressure on housing prices. The resulting tumble left home builders and developers with the prospect of constructing homes that could cost more than their potential sale price.
The permits tell the story. The peak of the last building boom could safely be placed in 2005, when 11,893 single-family building permits were issued in the metropolitan area (Cass, Clay, Jackson, Platte, Johnson, Leavenworth, Miami and Wyandotte counties ), according to the Home Builders Association of Greater Kansas City. By 2011, that number had fallen to 2,301 permits (the third year below 3,000 permits, a threshold not broken since 1982).
“During the housing boom, a lot of builders started on new-construction developments, but the decline forced those builders to more or less sit on the land,” said Brian Icenhower, CEO of Keller-Williams Realty Kansas City North.
Without new houses on the market, buyers turned to the resale market, which had an abundance of foreclosures. Investors and homeowners began buying houses at depressed prices, eager to take advantage of historically low interest rates that dipped below 4 percent on 30-year, fixed-rate mortgages.
As buyers sought bargains, they began to chop away at the mountain of foreclosures on the market. By February 2012, Heartland MLS recorded that the number of existing homes on the market had fallen by 13 percent and the number of new homes had dropped by 16 percent in just one year.
The supply of all homes, which had peaked at 9.8 months’ inventory in June 2011, dropped to 6.7 months in January 2012. By August of this year, inventory had dropped to 5.4 months.
“Six months of home inventory — the amount of time it would take to sell all the homes on the market at the current rate they’re being purchased — is considered a balanced market between buyers and sellers,” Oliver said.
The market activity occurred as the numbers began to flip for foreclosures and new construction. The foreclosure landscape has shifted dramatically over the last year. RealtyTrac, a company that monitors foreclosure filings, found that 1 in every 1,905 Missouri homes was in foreclosure this August. That’s nearly half the national average, which was 1 in every 1,019 homes.
The number of foreclosure actions in Missouri — default notices, scheduled auctions and bank repossessions — fell nearly 41 percent last month from August 2012, RealtyTrac said.
The picture is mixed at the local level.
In Kansas City, 1 in every 1,230 homes was in foreclosure last month. In Cass County, it was 1 in every 5,215 homes, whereas in Jackson County, it was 1 in every 796 homes.
By comparison, 1 in every 1,036 homes in Johnson County was in foreclosure. Oak Grove had the highest foreclosure rate in Jackson County at 1 in every 525 homes.
With foreclosures coming off the market and demand for housing increasing, construction permits began trending upward in 2011. Cass County issued 169 single-family building permits that year and had a modest increase to 175 permits in 2012. New construction exploded in Jackson County with 481 permits in 2011, ballooning to 957 permits in 2012.
“In 2012 we saw a significant rebound, because we started to get very low inventory,” said Icenhower. “Demand tremendously outpaced supply because supply wasn’t coming to the market.”
Travis Pettibone has seen the demand firsthand in Waldo and Brookside, where he spent more than 18 months searching for a three-bedroom, two-bathroom home.
“Two weeks ago I looked at my 100th house,” Pettibone said in late August. “I wanted to find the right house, but I didn’t think it would take this long. The biggest thing I’ve realized is that the good buys really do go fast.”
Todd and Deanna Nelson were hoping they had one of those good buys. They’ve lived on West 71st Terrace for the past five years. It’s the house where they brought both of their daughters home from the hospital. But as the toys piled up and their older daughter neared school age, they decided to sell their three-bedroom, 11/2-bathroom home and begin looking on the Kansas side.
“We think we can maximize what our house is worth right now, and we need quality public schools,” said Todd Nelson.
“A couple a few doors down had an open house and literally sold it to the first person that walked through the door.”
The Nelsons recently accepted an offer on their home and hope to be moving soon.
After their girls go off to college, the Nelsons intend to move back to the area, where their neighbors have been babysitters and they can walk to restaurants.
“In Overland Park, you go into your garage and never see your neighbors,” Nelson said. “Here you go into your garage, if you’ve got one, and then you spend an hour talking to your neighbors. This fits us.”
A few weeks ago Pettibone finally found the right house just south of the Country Club Plaza. But it wasn’t easy, and his stress level rose along with interest rates.
He had made two offers that didn’t work out. Later he visited a Brookside home, but it was already under contract when he returned four days later, prepared to make an offer.
But when he moves into the new place, it will be a homecoming of sorts. He spent a year renting in the Brookside area when he moved to Kansas City in 2008. His south-of-the-Plaza location is close to his current rental in the Crossroads, but it has decent highway access for his commute to his North Kansas City job.
“I’m pretty excited,” he said. “I like this home much better than the previous two I put in an offer on.”
Kim Curtis is seeing young professionals make similar moves to Grandview.
“Honeywell just recently built on the southern border, and I think jobs are driving some of the recovery,” said Curtis, the president of the Grandview Area Chamber of Commerce. “Gas prices, too. People want to be closer to downtown jobs or Johnson County jobs.”
Curtis points to the ongoing revitalization of Grandview’s downtown, where the city has invested funds in a new plaza and organic produce market. Investors have begun to rehab the older housing stock off Main Street in an attempt to lure buyers like Pettibone.
As new homes arrive on the market and the number of foreclosures declines, the average home price has increased.
Heartland MLS reports that the average sales price of new and resale homes in Jackson County was $151,379 in August, up from $128,173 in August of the previous year. The average sale price in Cass County was $157,597 as compared to $143,206 in August 2012.
The gains in Jackson County are outpacing the Standard Poor’s Case-Shiller Home Price Indices, which note that home prices increased by 12 percent in 20 major metropolitan areas between June 2012 and June 2013.
The sale of several other properties near his daughter’s Greenwood house has Holtcamp believing that if circumstances changed and he had to sell the property, his initial investment would be protected.
“I’d like to have multiple offers on it whenever we get ready to sell it,” he said.
While there is the potential for home appreciation, Oliver, who has been selling real estate for 42 years, hopes that buyers will ultimately base their decision on the attractiveness of a community or the success of a given school district.
“We’ve all learned that we don’t buy a house for the one reason that it’s going to go up in value,” said Oliver. “We buy a house because we need a home.”