Buyer's market? Kansas City real estate shows first signs of cooling after record highs

Originally published in the Kansas City Star on Aug. 23, 2022.

Home prices in the Kansas City area may be leveling off after years of record high prices.

July data from Zillow shows Kansas City area home prices fell from June prices for the first time in seven years. Another good sign for potential buyers: The inventory of available homes is increasing — although slowly — and the number of listings with price cuts are on the rise.

“We are heading in the direction of a buyer’s market, but we are not there yet,” said Kansas City Realtor Jenny Delich, “and we’ll need a lot more inventory to come on the market in order to get to a balanced market.”

Another major hurdle facing buyers is the increase in mortgage rates. Data from the Federal Reserve Bank of St. Louis shows the average rate for a 30 year fixed-rate mortgage has gone from from below 3 percent in October 2020 to over 5 percent today.

“As mortgage rates have kind of increased they’re not just hurting buyers, they’re also hurting sellers,” said Orphe Divounguy, senior economist at Zillow. “And so if we really want housing to be affordable again, we really need to see more housing units built in America today.”

A limited supply of houses for sale during the pandemic caused prices to soar, with many selling without inspections and often above the asking price.

New Zillow data shows Kansas City saw its first monthly decline in home values since 2015, dropping 0.2 percent from June to July. Houses sat on the market for a little longer than what became normal in the pandemic.

“They’re not gone in 24 to 48 hours with 15 offers like 2021,” said Delich, with KC Home Living. “It’s allowed for a leveling, but we’re not anywhere near six months of inventory to have a balanced market.”

Kansas City has been hovering around one month’s inventory for years, she said. That means if houses were to stop being listed, it would take approximately one month to sell them all. A balanced market would have six months worth of inventory, which helps increase buyers’ confidence.

Delich said sellers who have been on the fence for the past two years because of concerns about being able to buy another house are starting to list, “and that will create more inventory.”

Divounguy, the Zillow economist, said it is important for potential sellers to be educated when thinking about selling their home.

“When they come in, they should price their house correctly, and that’s really where a local agent could be extremely helpful,” he said. “Pricing your house correctly means your house is still going to sell in less than a week in Kansas City, so even though the market is cooling, I think it’s still very competitive.”

But without an increase in available inventory, it’s going to be hard to see affordability improve for most Americans. “Affordability is at an all time low, and that is pricing out a lot of would-be buyers,” Divounguy said.

At the onset of the pandemic, listings dried up as people stayed home for work and school. That has left a lasting impact on inventory.

Even though inventory rose this past month, it’s still not enough to mend the supply challenges of the last two years. Total available inventory in the Kansas City metro is down 9 percent year over year and down 40 percent since July 2019, according to Divounguy.

“I think it is really important to take away that we need more used units on the market,” he said. “Without an increase in the available housing stock, it’s going to be very hard to see affordability improve for most Americans.”

As the market continues to rapidly shift, it’s important to know the statistics and data of the area a buyer is interested in moving to.

“You really have to stay up on those numbers and what’s going on in specific neighborhoods and price points almost on a daily basis,” said Christian Barnes, president and CEO of Better Homes and Gardens Real Estate KC.

“Look for the perfect house, not the perfect rate; those rates can fluctuate and vary,” she said.

There is still a lot of competition at multiple price points but the days of “massive increases over list price” and skipping inspections and appraisals is starting to ease from the 2021 trend, according to Barnes.