Well, here we are at the end of another banner post-recession year in real estate. It has been a wild ride this year with historically low inventory coupled with unbridled buyer demand. Home values, in most areas, are currently higher than the peak (2006) that was reached prior to the recession.
2016 has been so fast-paced that it has been challenging to predict where things might be headed. Therefore, I thought it would be fun to re-visit some of our columns from earlier this year to see how we did.
Let’s begin with our column from March 4, 2016 entitled “Are today’s home values sustainable?” In it, we discussed the fact that home appreciation in Kansas City for 2015 was 6.1 percent. A sustainable level of appreciation is considered to be between 4 and 6 percent annually. Appreciation higher than that is considered unsustainable and will require a market correction to prevent buyers from being priced out of the market.
So where are values as of today? In the Shawnee Mission School District, median home prices are up 6.9 percent as of the end of November when compared to values at the end of November 2015. Now let’s look at the Blue Valley School District where median home prices are up 13.9 percent during that same time period. Both markets are clearly out of the sustainable range, though Blue Valley has certainly seen much more rapid appreciation.
But are the values sustainable? That depends on what happens to inventory after the first of the year. Currently the supply of homes for sale has nearly doubled since its lowest point this year in March in the BVSD. Much of that increase is being caused by the rapid increase in home prices. If inventory stays up, then inevitably home prices will have to come down in order for a seller to compete. The SMSD has seen almost exactly the same trend. Inventory has nearly doubled there as well. Therefore, we will know soon if today’s prices have a limited shelf life.
Now, let’s jump to May 20, 2016, when our headline was “60 percent chance of rate hike in June or July.” Wah, wah! That one did not come true. The Fed did not increase the Federal Funds rate in June or July. Instead they waited until about two weeks ago. The inarguable strengthening of the economy gave the Fed all the justification that they needed to increase the benchmark rate for only the second time in a decade. Interestingly, the market seemed to have already built in the rate increase because post-election rates have been rising steadily. I cannot tell you how thrilled I am to finally not be crying wolf about interest rates. No one every expected rates to stay so low for so long. But those days are now gone. Now our job is to wait and see if the Fed follows the current plan of three more increases in 2017. And the question becomes, how much of an increase? With inflation on the horizon, unemployment at 4.6 percent, and 73 months of consecutive job growth, the sky is the limit!
On May 6, 2016 I wrote, “Shift is here?” I know, I know. I have been talking about a shift a lot lately. And that is because it is a big deal because it affects both buyers and sellers. I can talk numbers all day long, and the numbers do support that we are seeing signs of a market shift or correction from such a strong seller’s market to more of a balanced market. But much of my talk of the shift is being driven by buyer sentiment. For the first time post-recession, we are seeing buyers making low ball offers. We are seeing buyers walk away from a purchase if they don’t get what they want when it comes to inspection related repairs. We are seeing feedback from showings that seem very “nit picky.” These are the first signs of a market shift. I say that because buyers are saying enough is enough. They are tired of paying top market value for a home and having no leverage during the process as well. If this sentiment continues, then we will see a correction in the market. And as rates continue to go up, buyers will question the price they are paying for a home because the cost to borrow is higher.
I have never claimed to have a real estate crystal ball. However, I do my best to keep our readers ahead of the market trends and will continue to do so in the new year. I trust that our column brings value to you, and please know that we welcome your thoughts and suggestions as to how we can bring even more value to our readers.
Happy New Year to you and yours and as always, thank you for reading our column and for supporting the Shawnee Mission Post.