Many people frequently ask me about the current real estate market, wondering, “How is it these days?” One statement that often catches them off guard is that we are still experiencing a “seller’s market” in Kansas City. I believe many people automatically presume that the market is unfavorable and home prices are on the decline. This is definitely a false assumption.
Yes, home sales units were down from last year (2022), both on my real estate team and with the overall market in general, most likely because of higher interest rates, but keep in mind we are talking about units, not home prices. For example, in Clay County Missouri 1,051 homes sold in the 3rd quarter of 2023. That’s a 22.8% drop in the number of homes sold during the same period of the previous year (2022) but stats for the 3rd quarter of 2023 also show the average sales price of a home in Kansas City is at $360,000 which is an 8.1% price increase over last year. How can prices continue to rise if fewer homes are selling?
The answer is because we continue to have what’s called “low inventory” and real estate is all about supply & demand. In that same 3rd quarter of 2023, we had 567 new homes hit the market which is 4.5% lower than the 3rd quarter of 2022. I realize 4.5% may not seem like a big difference, but we were already in a desperately low inventory situation last year and in 2023 it’s gotten even worse. We still have a high demand for great homes, but we have fewer homes to choose from. Fewer and fewer sellers are putting their homes on the market and we are also beginning to see a slowdown in new home construction as builders are becoming less and less optimistic about selling their homes priced over $500,000. This low inventory keeps prices higher and will not change overnight.
Having said that, in 2024, we anticipate a significant uptick in home sales. I believe that many prospective buyers who have been hesitating, anticipating a drop in interest rates, will recognize that home prices are continuing to rise. Consequently, they will realize that now is the time to seize the opportunity and purchase a new home, with the option to refinance at a lower interest rate when it eventually occurs.
I had a conversation with a young couple the other day who asked me whether they should wait for interest rates to drop or go ahead and buy a home today. Here’s what I told them, “That’s a question I hear a lot and let me give you something to think about. Today, the interest rates are around 7%. If you wait until they drop to 6%, you’ll save approximately $227 in monthly interest payments. But here’s the bigger problem. Home prices rose by 8.1% this year so on that $360,000 home you’re buying, the price of the home is rising $2,430 per month. If you wait one full year and homes continue to rise like this, you’ll end up paying $29,160 for that same home next year! You are focusing on the interest rate to save a couple hundred bucks and it’s costing you thousands of dollars in higher sales prices.”
Here’s another thing I’m telling all our clients today, “Welcome to the new interest rate norm!” People have a new “reference point” now for mortgage rates. Previously, they saw rates at 3-4% and thought 7% was bad. Then, they saw 8%. Now, they are seeing 7% again, and just this week the Federal Reserve left its key short-term interest rate unchanged again Wednesday, hinted that rate hikes are likely over, and forecast three cuts next year amid falling inflation and a cooling economy. Going into 2024 we could very well see interest rates dropping into the 6’s again. I believe this will knock many sellers off the fence and they will choose to sell and move up to a new larger home that better fits their needs or possibly downsize to a smaller home with less maintenance. There is a huge pent up desire to sell in Kansas City. Current homeowners love their low interest rate but maybe not their house. Life happens, and many people’s reason to move supersedes a low mortgage rate.
If you or someone you know would like to discuss your options, please do not hesitate to call us. Waiting may cost you a lot more money than you think.