“If you don’t really need to sell your Kansas City home and you see no real need to get out and roll into a better investment opportunity (I am speaking to those who are only looking to sell their home at a price that is relative to 2007 prices, which happens to be the peak- price for Medium and Average Sales prices), then my suggestion is pull your home off the market!”
One of the biggest problems we have right now has to do with a supply and demand issue. What is Supply and Demand? The short definition is that in a competitive market, price will function to equalize the quantity demanded by home buyers, and the quantity supplied by home sellers, resulting in an economic equilibrium of price and quantity, or what we call price discovery, which is the method of determining the price through supply and demand factors. Ultimately, the price of a home is dependent upon market conditions which affect supply and demand. How does it work? For example, if the demand for a home is higher (more buyers than sellers) than its supply, the price will typically increase (and vice versa).
Everyone seems to be oblivious to the fact that excess inventory (supply) and fewer qualified buyers (demand) mean’s lower prices. I believe that a big part of the problem is that there are too many sellers who really don’t need to sell their home especially in this market environment. If those sellers would just relax and pull out, give it at least 12 months and allow this supply issue to unwind it would have a tremendous impact (higher prices) on the market.
You see here is the thing that everyone seems to be forgetting. As a Real Estate Professional, even if we were able to get someone to buy your house for the inflated price, there is no way it will appraise and without an appraisal, there is no lending and obviously with no lending there is no deal.
Once again, if you want to fix the supply issue, you have got to understand that fewer homes on the market results in price stability and the potential for higher prices.
How can we get out of this mess? What we need is to create the perfect storm…
What does the perfect storm look like?
Let’s just imagine….
· That those homeowners that have listed their homes for sale with the intention of getting their ridiculously optimistic 2007 price levels in today’s market actually pulled out of the market all together for 12 months or more.
· What would happen if we knew that within the next 24 months we would have 30 year rates around 6.5% again?
· What if they extended the tax buyer credit for anyone that qualified to buy a home for another 6 months?
· What if after all that~ new housing starts remained under 8,000 in the Kansas City area for the next 24-36 months?
· What if the banks made it just a little easier for someone to purchase a home, someone like an entrepreneur who is the back bone of America that has a solid credit score and cash in the bank? Rather than an income tax statement that shows they can qualify like a regular salaried employee of a corporation.
· What if we had an increase in job growth over the next 12-16 months and unemployment was able to get down to 7% during that time?
I believe the result would be a 10-15% swing in housing values to the upside in the Kansas City area!
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Let’s take a look at the numbers:
Housing starts are at a decade low (see chart below), which you can thank the banks for that! Why? What happened was the banks pulled the plug on lending to builders without warning. The result was a massive decline in builders building new homes, which is the good news. The bad news was a loss of jobs and added bankruptcies. I am not sure they really thought this whole thing through, but none the less, it has helped with supply issues.
My concern still sits on the fact that we are mixing in sales of foreclosures in order to artificially support the idea that home sales are still active and showing stability. The distressed sales have definitely drawn some buyers out of the wood work, but for how long?
We have a very real issue on the horizon which is called the “Shadow Market”. The Shadow Market represents the excess inventory related to the foreclosures the banks are still holding that haven’t hit the market yet. It is looming over the already fragile market like a ticking time bomb.
Just to recap: The first onslaught that hit along with the federal tax credit drew many would be participants to take a shot at the potentially lower prices that the short sales and foreclosures were producing, but unfortunately a good many of those buyers found out the hard way that entering the ‘shark tank’ with seasoned pro’s resulted in a few lethal bites. Surprise, Surprise, Surprise! Buying a house “as is”, while negotiating with a seasoned pricing professional who sells hundreds if not thousands of homes a year is a recipe for disaster.
So what happens in the second round without some help from every possible area? I am not sure here, but I am going to go out on a limb and say that with no tax credit and plenty of carnage stories over the last 12 months that really only resulted in lower prices anyway~ doesn’t sound like we have a winning game plan on the horizon does it?
My projection for the next 3 months for the Real Estate market in Kansas City…
I believe one of the following two scenarios is going to play out over the next 3 months. Given the current scenario with some of the sellers pulling out with the sole intention of outsmarting the market only to re-enter in the spring season for what has historically been higher prices.
Scenario #1- We will see a slight boost in pricing over the next 3-4 months resulting in maybe a 1-2% increase in pricing. (This doesn’t mean that everyone hikes their prices 1-2%! It just means that those who were slightly too high may now be in the ball game.) This will cap out at or around the middle of April. Why? Because there will be a little less inventory to rummage through while at the same time we have higher interest rates coming near term with the first time tax buyer credit getting ready to disappear. After that I believe we will be headed for lower prices and with the onslaught of the shadow inventory gearing up to rear its ugly head, it could get ugly! Make no mistake, all those who wanted to outsmart the market, like always will be lead to the slaughter. They will end up missing the 1-2% rise and instead will sell at potentially far lower prices.
Scenario #2- Prices are dormant for the next 3 months and then we just tail spin lower maybe as much as 10% lower.
I want you to take a look at the chart below. It is a comparison of recent recessions and the job losses associated to them. Based on the information below, it is easy to see that all the good reports we are hearing lately are really just smoke and mirrors. History has shown us that without jobs there is no recovery!
It looks like we are at least 10-15 months from any type of recovery and at the very least 34 months away from a full recovery and I am probably being an overboard optimist here. However, the good news is that I do believe in a full recovery. I actually believe that we are living in the greatest wealth building opportunity my generation has ever seen. It is important to position yourself to add some exposure in real estate. Whether it is a new single family home purchase at these incredibly low prices, or it’s in rental homes, but make no mistake- you will kick yourself if you let this one slip by, so don’t miss this opportunity!
Back to the supply issue...
Here in Kansas City, MO., we have some factors we have to deal with in order to work through this pending supply issue.
The biggest issue we need to tackle is job growth! Although we have seen the national sales average jump 5.9% in Q3 with slower growth projected for the final tally of Q4, it is important to point out that Missouri has only been able to grow at 1.8%. Why are we lagging the national average? Simple! Job losses have been a major issue here and will continue to weigh on demand for houses. The Missouri economy has been lagging the rest of the nation by a solid 2.3%, yet I haven’t heard anyone scream about job growth here; on the national level yes, but locally, not as of today. Without job growth we will continue to stagnate around the current housing price levels. However if there are continued layoffs planned, then we will see more excess inventory hit the market with homeowners racing to save their credit and what’s left of their savings.
So let’s do our part, what do you think? As a real estate professional, I am asking, no I am begging those agents out there who are taking listings “just to take a listing” to stop the madness! If the homeowner doesn’t get this, let’s be the professionals we are supposed to be and give them the truth. Let’s help them help themselves. I really do believe that if we do the right thing, then when it is really time to sell, those clients will remember you and your business will be blessed because of it.
Britton Brown owns and operates Team Believe of Keller Williams Realty in the Kansas City area. You can find his website at www.findkansascityhomesforsale.com or you can call him at 816-268-4176.
