Interest Rate Hikes Make Kansas City Real Estate Market ‘Savagely Unhealthy’ | KCUR 89.3

Andy and Stephanie Scoates have moved every few years since arriving in the United States more than two decades ago – most recently from Oklahoma to Kansas City. They spent more than a month looking for a house to buy on the subway.

At an open house this weekend in the Lee’s Summit area, the couple said the money they made from the sale of their last home didn’t stretch as far as they did. had hoped.

“When we bought a house in Oklahoma, we were the only ones who looked at it, but we liked it right away,” Andy Scoates said. “We made an offer, which was lower than the asking price, and it was accepted. That was only two and a half years ago. It’s crazy what we could afford two years ago, and what we can afford now, are definitely different.

The Federal Reserve has rising interest rates again in an attempt to fight inflation – a 0.75% increase in June and another 0.75% last week.

Higher rates appear to be slowing growth in Kansas City booming housing market: Sales of existing homes in the metro have fallen 10.2% since May, while new homes have fallen 5.3%.

Pending sales of new homes, meanwhile, fell 30.5% over the past month.

Despite the downturn, buying a home hasn’t gotten much easier.

Andy Scoates says the couple have seen at least 20 Kansas City homes in their search so far – and have viewed hundreds more online. The Scoates bid on two houses but lost because they were outbid.

In other homes they were interested in, the house was sold before they could even discuss making an offer.

“It used to be that when you made an offer on a house, you could bid less than the asking price, and you were told not to bid the asking price,” Stephanie Scoates said. “My friend in California said you had to offer more than the asking price – it had to be at least $10,000 more. It was in California and now it’s become normal across the country. We thought it was crazy then and now it’s just crazy everywhere.

Housing demand has been high since the start of the COVID pandemic, according to the Federal Home Loan Mortgage Corporation, due to record mortgage rates and the expansion of remote working.

Michael Pierce, president of the Kansas City Regional Association of Realtors (KCRAR) and founder of SEEK Real Estate, said that while the market is slowing, sales remain competitive.

“Our average days on market is currently 16 days, which is still very low, and there are a significant number of homes that are on the market that will be under contract in just a few days,” Pierce said. . “Our average is still 103% of average sale price over list price, but we’re just not seeing the kind of frenzy we’ve seen for so long, and it’s come on pretty quickly.”

According to the KCRAR, the average price of a new home in Kansas City has risen about 18% since June, to a high of nearly $517,000. Existing home prices rose 15% to around $300,000.

Mortgage rates have doubled

Logan Mohtashami, principal analyst for HousingWire, said the current housing market is “savagely unhealthy”. He thinks his problems started in 2020, but not entirely because of COVID-19.

According to Mohtashami, the combination of millennials entering the market and people “exporting inflation” – moving from more expensive parts of the country to cheaper areas, like Kansas City, and pushing prices up – is responsible. rising house prices.

And in Kansas City, there just isn’t enough housing for everyone.

“Upper [mortgage] rates are creating price cooling, and we should see that in the second half of the year on a yearly basis,” Motashami said.

According Freddie Macthe average interest rate on a 30-year fixed-rate mortgage is 5.3%, more than 2% higher than at the start of 2022, and almost double what it was at the start of 2022. same time last year.

According to Dr. Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors, these price increases are “pushing some buyers to the sidelines.”

“I think it’s really unfortunate for a lot of people who have tried to get into the housing market over the last two years and maybe lost a number of contracts in bidding wars and then they are now excluded from the housing market. says Lautz.

Lautz says some first-time home buyers are moving in with roommates to battle high down payments and mortgage rates. This strategy is also popular with seniors who need companionship as well as affordable housing.

However, this is not an option in some parts of the metro. In April, the Shawnee City Council voted to limit the number of unrelated people who could rent rooms in a house. The cohabitation ordinance triggered a petition of some residents, who called him “racist” and “classist”.

For potential home buyers, Lautz says she sees people moving back to their parents or renting longer in an effort to save for a down payment. But rising rents make even that difficult.

Roxie Hammill

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Shawnee Mission Post

Jae Moyer, left, of Shawnee and Liz Smith of Olathe were among a handful of opponents of Shawnee’s new cohabitation ordinance who showed up at a city council meeting urging the council to revise or cancel the new regulations.

Rents are also rising

In May, the median rent in Kansas City was over $1,300 a month, according to Realtor.com. This is an increase of about 11% over last year.

With house prices and high rents, more and more people in Kansas City are finding themselves without any affordable housing options.

“When your rent is going up at this rate, it’s incredibly hard to even think about buying a house, let alone put gas in your car or buy the groceries you need for your house,” says Lautz.

Tara Raghuveer, director of KC Tenants, said inflation and rising rents are putting tenants in a state of crisis – a state that isn’t expected to go away.

While other costs, like gas and food, will likely go down when inflation subsides, rent will continue to rise.

“Homeowners tend to charge whatever the market allows, and it’s not based on the condition or quality of the home,” says Raghuveer. “Unlike other areas where Americans are pressured by inflation, rent is not something you can simply reduce. You may have the opportunity in your lifetime to reduce your gas mileage or the amount of fuel you need to drive You cannot reduce your need for a house You cannot reduce the amount you pay in rent

Raghuveer says the rate hikes used by the Federal Reserve to calm the housing market are only putting more pressure on renters.

“This makes home ownership prohibitively expensive for a class of people who aspire to buy a home,” Raghuveer said.

Little chance of relief soon

Kansas City’s housing market will not regain its equilibrium without an increase in supply. More homes for sale would mean less competition and more room for price negotiation.

But Pierce says it will take years to achieve.

“You really have to look at how low inventory is in Kansas City,” says Pierce. “There are only 4,700 homes on the market, which is significantly lower than you would normally expect – and we are still selling around 4,300 homes per month.”

Motashami says the drop in the number of sales gives the market more time to build inventory, and he thinks that if mortgage rates stay above 5%, “we can get a balanced market by next year. “.

Whether that happens or not, Raghuveer says politicians have yet to step in with solutions for affordable housing.

“One thing that is important in the context of the inflation crisis is that supplying the market is not a quick deal,” Raghuveer said. “The earliest that will have an impact on the market is in three to five years. It doesn’t do anything for tenants who can’t afford to pay their rent right now or who can’t afford to pay their rent in August. »

Back at the open house at Lee’s Summit, Andy and Stephanie Scoates are eager to find a home at their price that suits them. But they are even more concerned about people entering the market for the first time.

“We’re lucky we’ve accumulated a little nest egg after 22 years of buying homes here in the United States,” Andy Scoates said. “But those people who are at the beginning of the ladder, I feel so sorry for them.”

Stephen V. Lee