LEAWOOD, KS (KCTV) – If you’re looking to buy your first home, you’ve probably noticed how hard they are to find at an affordable price.
Some aspects of COVID-19 contributed to that and the economy is expected to change, so KCTV5 sought out an expert opinion about the future of the Kansas City housing market.
Realtor Jessica Thomas listed a 3-bedroom, 2-bath house in Merriam last week for $235,000. She said she had 75 showings over the weekend and five offers for $10,000-$15,000 over asking price.
Mike Frazier, the president and CEO of Kansas City real estate giant Reece Nichols said it’s a boom he never expected when the pandemic hit.
“At this time last year, we were trying to figure out how we were going to survive,” Frazier said. “March 23rd of last year, we were shutting down. Everyone was sent home. And then, four weeks later, it was crazy. We were selling houses as fast as we could list them.”
2020 ended with 22,000 homes sold by Reece Nichols. That’s more than any year in its 100 years in existence. The next highest was 21,000 in 2005. A typical year, he said, ranges from 16,000-18,000.
Frazier said it feels wrong to boast about what became a record year for sales. He mentioned it more because he was shocked. Many people lost jobs, but those who didn’t found themselves saving large amounts of money.
“People haven’t traveled, they haven’t gone to dinner. People have accumulated a lot of cash,” Frazier remarked.
Meanwhile, builders were holding off on building entry-level homes, which come with smaller profits. Increased costs shrunk their profit margins. That exacerbated an already low supply.
“Taxes have increased, the cost for sewers and curbs has increased, labor has increased, lumber has increased,” Frazier detailed. “Lumber prices went crazy during last summer, up 16% alone in July.”
He clarified that the COVID -19 factors were just the exclamation point on an existing crunch.
He said demand has exceeded supply for the past 10 years. During the financial crisis, investors snatched up homes and rented them out. Rents continued to rise and many of those buyers found it more profitable to keep renting.
Historically, he said, prices go up for two to three years, then down for one to two years. That cycle has stopped. He said prices have gone nowhere but up since 2011.
“We’re on a rise that is unprecedented in the country and in Kansas City,” Frazier summarized.
He predicted there will be a downward adjustment eventually, but not for at least two years and definitely not back to 2011 prices. That means waiting it out might not be practical for a lot of people.
Low mortgage interest rates were one factor spurring high demand in the past year. Frazier expects they will stay low through the end of 2021, but they have to go up eventually. Prices will go down when that happens. The gamble is whether they will dip enough to offset the higher rate you’ll be paying then. Frazier doubts it will.
“Yes, [houses] sell in a matter of hours or a matter of days. But if you’re patient, if you know what you want, it is attainable,” he said to those who evaluate that and don’t want to wait.
He said the only solution will be to get more homes built and suggested an adjustment in expectations about location. Frazier said Kansas Citians are “spoiled” when it comes to commute times compared to cities like Chicago, Atlanta and Dallas.
One thing is changing already. Frazier said the luxury home market, which is homes priced at a million dollars or more, has seen some upward movement in the past six months after it stalled at the beginning of the pandemic.