Earlier this week I had the opportunity to show one of our listings to an older gentleman. We met at the front door and I introduced myself, handed him my business card, then invited him into the home. He was pleasant, but somewhat reserved about answering any of my questions. Finally, as we were in the kitchen he blurted out, “Don’t you think this home is overpriced?” Without missing a beat, I looked him straight in the eye and said, “Personally, I think all homes are overpriced right now.”
I could see by the look on his face that my statement shocked him. I’m sure he expected me to justify the sellers asking price of the home and dive into a 10 minute explanation of why this home is worth the price. Instead, I let him talk about the price of homes and how it seems like they’ve risen so fast in the last couple of years. He then talked about how much money a new pickup truck costs and that it seems everything is more expensive these days. Clearly he wasn’t just talking about the high price of homes, but was worried about the rising cost of almost everything in general. I can certainly understand that.
I asked him whether he’s been looking at homes for a long time or just getting started? He said, “Well, I moved to Kansas City a year ago to take a new job. I thought about buying a home at that time, but then decided to rent an apartment and get to know the area a little better. I’ve actually been looking at homes for a year I guess and they just seem to keep going up.” I asked, “Do you regret not buying a home one year ago when home prices were less?” He replied, “Maybe, but I guess at that time I didn’t know the area very well.” I said, “So price is not the most important thing to you then.”
In todays real estate market I hear this a lot. It certainly does feel like everything costs more today, and that’s probably true. The rising cost of raw building materials like lumber, steel, and copper alone have driven the cost of a new construction home well above what the average home buyer can afford right now. As a real estate agent that’s been in the business for 16 years, it’s seems ludicrous that split entry model homes are selling in the $379,000 price range when that same home was selling for under $300,000 just a few years ago. If you want a decent sized 2-story home though, you’ll need another $100,000 and push that sales price very close to half a million dollars!
Luckily though, interest rates are remaining super low, still hovering around 3% which makes the total monthly payment more affordable than most people think. Also, because prices have risen so quickly, many people now have a huge amount of equity in their current home. I met with a seller earlier this week that is looking at buying a home in Tampa, Florida. We’ll be selling his home here in Kansas City for $375,000 and although he’s only lived there for about 4 years, between paying the mortgage debt down and the rising prices of home sales in the area, he’ll walk away with about $210,000. He said he’ll probably have to spend $500,000 in Tampa to get the area he wants, but with the sale of his current home and some additional cash, he’ll only need a loan for about $250,000 which he can easily afford with a 2.875% interest rate.
Like this guy I met earlier this week, I think there are still buyers out there waiting for prices to drop, but that’s not going to happen anytime soon. The shortage of inventory will continue for the next few years and prices will continue to rise. The market has definitely slowed in the last month, but it’s still a very strong market. We simply went from an insane market this spring where we were getting 30 showings in the first 2 days, to now only getting about 4 to 8 showings in that same amount of time. Instead of getting 5 to 15 offers, we’re now getting 2 to 5. Instead of most homes selling in the first 48 hours, we’re now seeing some homes taking 4 or 5 days to sell (but still selling at full price or slightly higher). That’s still a fantastic real estate market! We’ve simply dropped back into a very strong sellers market, that’s all.