Your Home: Housing analysis for the first quarter of 2017

Mild winter + low interest rates = an early start to the real estate market in KC.

That’s right. The market started kicking in to gear in January and has kept a steady pace since then. We have already seen several multiple offer situations on both the buying side and selling side of our business this year. However, the frenzy-like sales seem to be more price point driven this year than last year, when all price ranges were seeing bidding wars.

Last year, starting in July, I began sharing signs that we were seeing a shift in the real estate market. A shift towards more of an equilibrium (balanced market) versus the “way out of balance” seller’s market that we have been in for the last three years. So how is this year looking so far you ask? Let’s let the numbers tell the story.

The Shawnee Mission School District area ended 2016 with 2.4 months of supply of housing. The average months of supply for the last 12 months in the SMSD area is 1.4 months. Just as a reminder, an annual average of three months or less is considered a strong seller’s market. It is not atypical to end the year with the highest level of inventory for the calendar year. That is usually the typical seasonal trend. Then we see that January kicked right into gear cutting the available housing inventory in half bringing us back down to 1.2 months of supply. February continued the trend even further lowering the inventory.

Months_Supply

So, a pretty robust start to the year — that is, until March. The inventory levels nearly doubled from February 2017 to March 2017. To clarify, by inventory levels I mean how many months it would take for all of the active homes for sale to go under contract in a given area. I say that because the number of homes for sale always goes up from February to March. That is nothing new. The difference this year is that the number of contracts received when compared to the active homes for sale actually dropped this year from February to March. See the graph below.

Sales_Absorp

This graph shows the major difference between March 2016 and March 2017. In March 2016, 49.5 percent of homes for sale went under contract. That is an incredible number. When almost one out of two homes in going under contract in a given month, the market is moving at an incredible pace and bidding wars are prevalent. The housing absorption in March 2016, as high as it was, virtually eliminated the available housing inventory, taking the SMSD area down to 0.9 months of supply. Starting the spring season with barely any available housing set the stage for last year’s seller’s market bonanza. Fast forward to March 2017, and only 32.7 percent of the homes for sale went under contract. This is still a good pace, but pales in comparison to March 2016.

Most important is the fact that the absorption rate has dropped from February 2017 to March 2017. Historically, the absorption will increase from February to March, not decrease. And the decrease was pretty significant (from 46.5 percent in February to 32.7 percent in March). This decrease in demand for housing is the trend to watch very closely.

Okay, one last graph.

Market_Dynam_2

Here we see the supply and demand for housing in the SMSD area from March 2016 to March 2017. The comparison below the graph is illustrating the change in the market based on supply and demand. You can see that the number of active homes for sale is down 8 percent (from 914 to 841) from March 2016 to March 2017.

Now, here is the big story…drum roll please. The number of homes to go under contract is down 39.2 percent (from 452 to 275) during that same period. That is a huge difference!

Some say that sky-high home prices have caused the drop in demand. Others say that many home buyers purchased in January or February of this year in order to secure a lower interest rate due to the fact that rates have been on the rise since the election last year. I say that they are probably both right. But regardless of the cause, the story is that the market is always shifting. From a seller’s market to a buyer’s market and then back again. And there are many other markets in between the two. My goal is to keep you informed of where we seem to be headed (in real time) so that if you have any upcoming real estate plans, you can plan accordingly. If you are curious about your specific neighborhood or price range is being affected by this shift, please call or email me today.

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