The heat is on in the housing market
09/24/2013 2:55 PM
09/24/2013 2:55 PM
Sandi and Matthew Heins wanted to make sure they had plenty of time to sell their house in Kansas City before the new home they’re having built in Liberty is completed next April.
The Northland house that had seemed perfect six years ago was bursting at the seams with toys for their 6- and 4-year-olds. With just three bedrooms, there was no place for out-of-town guests, and the lack of closet space was being exacerbated by all of the gear that comes with two children.
So they got to work this summer, fixing window casings and touching up the interior and exterior paint. They were hoping to find a buyer before their two children started school this fall.
“We expected 30 days. Everybody says 30 days,” said Sandi Heins.
Everybody was wrong. The first potential buyer who walked in the Heins’ home made an offer. And 24 hours later, they had a signed contract.
“We were shocked,” said Heins. “There was another viewing scheduled for the next day, and we had to call and cancel it because we had sold the house.”
Suddenly, the Heins were faced with a very different issue. When the calendar turned to September, they would have no place to live. After a frenzied search, they found a house to rent in the Liberty school district — the same district where their new five-bedroom, four-bathroom home will stand.
“The area around Liberty is a hot spot because of the schools,” said real estate agent Ricki McIntire, who has been selling homes in the Northland for more than two decades. “And the increase in new construction is what’s helping. The mentality of the buying public is that things are getting better.”
The Home Builders Association of Greater Kansas City reports that single-family building permits issued in Liberty increased from 17 in July 2012 to 19 in July 2013. That reflects the overall trend in Clay and Platte counties, where new building permits through the end of July jumped year-to-date from 360 to 377 and 200 to 217, respectively.
“There are a lot of people looking to move up, and lots of people that need more space,” said Heins. “I think the market is in great shape and the rates are really low, so people can afford to do it.”
Heins is excited to turn her attention to the house under construction.
“This all moved so fast. I haven’t had time to pick out anything for the new house,” she said.
As it turns out, she still has plenty of time.
The script has subtly flipped on the housing market. Lower interest rates, foreclosure rates and home inventories have helped to stabilize the Kansas City real estate universe. Money Magazine recently named part of the metro area to its 2013 Top 25 “Where Homes are Affordable” list, where Gladstone is 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 lock step with an uptick in housing prices. In communities like Liberty and Parkville, houses are being sold before they even get an official open house. But in order to understand why some houses are moving so quickly, we have to go back to 2011.
Two years ago, an avalanche of foreclosures created downward pressure on housing prices, and the resulting tumble in value left homebuilders and developers with the prospect of putting up a house that could cost more than its 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. It was 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.
In Clay County, it's 1 in every 5,281 homes, whereas in Platte County, it's 1 in every 11,015 homes. By comparison, 1 in every 1,036 homes in Johnson County was in foreclosure. Excelsior Springs had the highest foreclosure rate in Clay County at 1 in every 3,371 homes.
With foreclosures coming off the market and demand for housing increasing, construction permits began trending upward in 2011. Clay County issued 475 building permits that year and had a significant increase to 661 units in 2012. New construction exploded in Platte County with 169 permits in 2011, ballooning to 664 permits in 2012. The numbers are trending higher in 2013, with permits up 5 and 13 percent year to date in Clay and Platte counties.
“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.”
Eva and Chris Finan were married this May. He owned a home in Leavenworth, and she had a place in Overland Park. They wanted to sell at least one of their homes before beginning the search for the place they’d start their life together in. They wouldn’t have to wait long. Eva’s house sold in six days.
“I’d heard about things like that, but we’d barely got it on the market and I had a full-price offer,” she said.
Chris Finan’s house sold after 70 days. Their search, which tallied nearly two dozen homes, led them to Parkville. It was convenient for their commutes — he drives daily to Leavenworth, and she works in downtown Kansas City — and had enough yard for their two dogs, Molly and Brewer P. Hopps, to roam.
The first house they fell in love with was in the Riss Lake area. Their offer was one of several on the table. They eventually lost out to a buyer who had made a lower offer on the house several months earlier, but who then re-entered the bidding at a much higher price.
“We didn’t realize that the market had turned as much as it had,” said Eva Finan. “After that, we knew if we found a house we loved, we’d really have to move on it.”
Instead of trying to see a house within a week of it being posted, they shifted their timeline to 48 hours. But still, houses were being sold before the photos were even posted online. When they saw a four-bedroom, three-and-a-half bathroom home in Parkville’s Thousands Oaks development, they were determined not to lose it.
They made an offer before the house could be shown again. They moved in this August.
“I didn’t want to get into a bidding war. Prices and interest rates were going up just in the short time we were looking,” said Eva Finan.
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 a home in Clay and Ray counties was $170,876 in August, up from $155,133 in August of the previous year. The average sale price in Platte County was $227,906, compared to $199,396 in August 2012. The gains in Platte 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.
“People are really looking, and they have been for some time,” said Don Hanks, who runs a real estate office on Main Street in downtown Smithville. Late on a Tuesday morning, he stopped at a gas station to fill up the school bus he drives to and from Smithville High School. He’s behind the wheel partly out of a sense of civic duty, but also because it’s the best lead generator in the Northland city. “I showed five houses after my first route the other day. We are just so close to Kansas City, and we have this great school system.”
Despite the increased price, more homes are also being sold locally. Clay County and Platte County’s home sales are up 6 and 13 percent year-over-year through the end of July.
“We’re seeing a migration north from the south and Kansas,” said McIntire. “It’s moving in the right direction, but I don’t think we’ll ever experience what we had in the late ’90s or 2000s.”
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.”