I listened to a real estate podcast earlier this week that featured four top real estate agents from around the country. Diego Corzo is a top agent in the Austin, Texas, area and a statement he made on the podcast really freaked me out. At 4 minutes into the podcast, Diego said, “We’re seeing people pour into our area from California and submit offers $100,000 over asking, waiving all inspection and appraisal contingencies. Unfortunately that’s now the norm here.” My only thought was, “Well, at least we’re not in Austin!”
OK, so Kansas City is not Austin, Texas, but if you’re a first-time home buyer trying to buy a house in Kansas City in 2021, it’s an emotional roller-coaster like none other. We’ve been in a strong seller’s market for at least 5 years now, but when the Kansas City mayor shut the city down one year ago, everything just exploded!
So how did we get here? First off, when Kansas City Mayor Quinton Lucas shut the city down in mid-March of 2020, most sellers that were on the market at the time began freaking out! They were afraid real estate sales would come to a screeching halt. They actually did for two weeks, so the buyers that made offers during that time had some strong negotiating power. A few weeks later though, the market exploded and we quickly switched back to a super strong seller’s market.
People that already owned homes, hunkered down and worked from home. The last thing on their mind was selling during a pandemic. Unfortunately there were still hundreds of buyers that needed to buy a home right now and were forced to choose from the few homes that were available. Bidding wars ensued and before you know it, there were 10 to 15 buyers for every home that hit the market. Prices quickly escalated as buyers competed for the very best homes and because the pandemic continued into the summer and fall months, this scenario repeated itself again and again every month.
Another thing that had a major effect on Kansas City home prices was the cost of building materials, specifically lumber. To understand this, you actually have to go all the way back to 2019, well before the pandemic, to the wildfires in the Northwestern states. According to the Oregon Forest and Industries Council, a trade group representing forestland owners and wood product manufacturers, the 2019 fires in Oregon alone may have killed 15 billion board-feet of timber, enough to build 1 million homes.
Fast forward to March 2020, some Western states temporarily shut down construction work at the start of COVID-19, which in turn meant some lumber mills had to shut down, creating a backlog. A month later when some of them did reopen, new safety protocols within mills slowed production creating an even worse situation. The National Association of Home Builders, or NAHB, reports that between mid-April and mid-September 2020, lumber prices soared more than 170%, adding $16,148 to the price of a typical new single-family home. New construction homes make up a significant part of the overall market here in Kansas City so having fewer of these homes available has had a big effect on the price of existing homes.
The pressure of low inventory in 2020 pushed home prices to an average increase of 10.29% in Kansas City. For many homeowners, that equates to around $1,000 per month in increased value! Time will tell as to what 2021 will bring us. With many sellers that chose not to sell last year, my hope is that a great deal of them will decide to sell their home this spring and summer, thereby relieving some of this upward pressure.