Average cost of new homes in Kansas City surpasses $500,000 as demand continues to soar
Even as the average cost of a new house in the Kansas City area has topped half a million dollars, builders continue to see soaring demand from local home buyers.
While data isn’t finalized for December, the Home Builders Association of Greater Kansas City expects 2021 to go down as one of the most active years for single family home construction with more building permits filed than in any year since the Great Recession.
But those homes are coming at higher and higher prices, as the cost of land, labor and materials skyrockets.
By November, the average price of a new build had topped $515,992. That’s up more than 11% over November 2020’s average of $463,605, according to the Kansas City Regional Association of Realtors.
Over that time period, the time new homes spent on the market was cut nearly in half and inventory sunk by more than 15%. That’s similar to the supply-and-demand mismatch in the wider real estate market that has sent prices skyrocketing in Kansas City and across the country as too many buyers compete over too few homes.
Compared with existing home stock, buyers generally pay a premium for new homes, where they can customize details like finishes and floor plans. But the gap may be narrowing as existing homes experience unprecedented appreciation in prices.
“Two years ago, I would have told you you get a lot more bang for your buck on a resale home that’s been fully renovated. But that gap is not as great as it used to be,” said Christian Barnes, CEO of Better Homes and Gardens Real Estate Kansas City “You’re probably still going to pay a premium on the new construction side, although it’s going to be really close.”
In many cases, the wild housing market leaves would-be buyers frustrated after making offers on multiple homes, only to lose out time and time again. That may push some to explore new home construction, Barnes said.
But here and across the country, new housing stock has not kept up with rising demand.
“There is a massive gap there that’s growing,” Barnes said, “and our builders just cannot keep up with the demand from people who have been pushed out of the retail market for whatever reason.”
Buyers will find less competition in the market for new homes, where prices are naturally higher. It’s rare to see the types of bidding wars that dominate the current real estate market when it comes to securing a lot for new construction.
But Barnes said competition is starting to heat up there, too. And supply and labor shortages have made the experience of buying a new home less reliable. While buyers used to be able to land a new home within eight months or so, construction timelines can now stretch out to 12 or 18 months. And prices are more likely to rise during the construction period.
“It’s frustrating in a different way,” she said.
By the end of November 2021, the Kansas City area saw 5,892 residential building permits issued, already surpassing the 5,366 permits that were filed in 2020. While 2021 will likely go down as a recent record with some 6,200 permits issued, the region is still only building half the homes it did in the heyday years of 2004 and 2005.
“We’re a market that probably needs between 8,500 and 9,000 single family homes (per year) in order to meet demand,” said Will Ruder, executive vice president of the Home Builders Association of Greater Kansas City. “Given the fact that we’re not able to build homes as quickly as we once did, we’re compounding that lack of production year over year and it’s contributing toward the lack of inventory.”
Most of the eight metro counties in the builders association reported an increase in permit activity, though Missouri counties saw permit activity increase more than Kansas counties.
More permits were issued in Kansas City than in any other municipality. Most of those were issued for the part of the city that falls within Clay County in the Northland. Lee’s Summit, Olathe, Overland Park and Lenexa rounded out the top five busiest cities.
While Johnson County boasts the metro’s most competitive real estate market, prices there have made it prohibitively expensive. In many cases, lots for new homes will fetch $100,000, driving up the cost of entry for buyers.
A national labor shortage and supply chain woes have made it harder and more expensive to complete homes. And prices for steel, lumber and gypsum, the primary component of drywall, have driven up costs for builders.
“We’ve just seen an enormous explosion in the cost of materials,” Ruder said. “It’s a really significant challenge because it is producing higher cost housing.”
New homes continue to outpace the price of existing stock in the Kansas City area.
More than 3,000 existing homes closed in November, with prices averaging about $285,000, an increase of 7.7% over the previous year, according to the Kansas City Regional Association of Realtors.
Numbers from the association include sales from a wide region that stretches as far as St. Joseph, Lawrence and southeast Kansas
In Jackson County, home prices averaged $262,289 while Johnson County saw average prices top $427,000 in November, the association reported.
Location remains king, whether it’s in the market for existing homes or new homes.
As a rule of thumb, Barnes said builders are more active and construction trends much cheaper on the Missouri side of the metro. And the farther away from the city center, the lower prices are on land and new construction.
While new homes going up near the Country Club Plaza cost in excess of $700,000, Barnes said some new builds in the farthest stretches of the region start out closer to $215,000. She pointed to listings in Tonganoxie, St. Joseph and Louisburg for new three-bedroom homes that start around the $250,000 price point.
“It varies wildly depending on how far out you are from the city,” she said, “and whether you are on the Kansas side or the Missouri side.”
This story was originally published January 5, 2022 at 5:00 AM.
