2018 forecast calls for Lawrence home prices to shoot up, as competition for homes remains fierce
I understand why I’m discouraged from using hammers and saws (although I still contend “load-bearing wall” sounds like jargon you can safely ignore). What has been less clear is why local contractors aren’t using their tools to build more single-family homes in Lawrence.
A new report from the Lawrence Board of Realtors and Wichita State’s Center for Real Estate paints an interesting picture. Lawrence’s real estate market has been one of the best in the state in 2017, which normally would give contractors optimism about building more homes. But the report found that Lawrence’s homebuilding market has been sluggish, especially compared to neighboring Kansas City.
A WSU professor offered a theory, though, at a Thursday morning real estate event in Lawrence: Home prices still aren’t high enough.
Selling prices for existing homes have been pretty stagnant for much of this decade. However, prices for construction materials — plywood, shingles, etc. — have gone up some, which means the prices of newly constructed homes have continued to rise. The result has been that newly constructed homes have cost a lot more to buy than existing homes. That’s always been the case, but the last few years, the gap has been historically large.
“Buyers have been asking themselves why they would pay so much more for a new home when they could get so much value for their money with an existing home?” Stan Longhofer, director of the WSU Center for Real Estate, told the crowd at the Lawrence Board of Realtors housing forecast event on Thursday.
The result has been there is fierce competition for existing homes in Lawrence, but the pace of construction for single-family homes remains stagnant. And don’t expect that to change next year. In fact, it actually may get worse.
Here’s a look at some of the key findings from the WSU report.
• The number of Lawrence home sales is expected to rise by 3.9 percent this year. Of all the metro markets in Kansas, Lawrence is the only one projected to see an increase in home sales in 2017. All the rest have seen a tight inventory of homes scare off buyers. For whatever reason, people who want to live in Lawrence are staying persistent and overcoming the low number of homes available.
• In 2018, Lawrence homes sales are projected to increase by another 4 percent. That is the second best growth forecast in the state, trailing only Manhattan.
• Despite the strong demand from buyers, new home construction has been basically flat in Lawrence this year. WSU projects new home starts in Lawrence will rise by a meager 0.4 percent in 2017.
• The report expects 2018 to be slightly worse for new home construction. It projects new home starts will fall by about 5 percent, which amounts to about 15 fewer homes being built next year.
• After years of being stagnant, home prices are rising in a big way. WSU estimates home prices — as measured by the Federal Housing Finance Agency — rose by 7.3 percent in 2016. That was the largest increase since the mid-1990s. WSU is projecting home prices will increase another 5.7 percent in 2017 and 4.4 percent in 2018.
So, in 2018, look for competition to be intense for homes in Lawrence, and expect to pay more. However, don’t expect a lot more new homes to be constructed. Longhofer said it will take a few years for the value proposition between existing homes and new homes to equalize. In fact, it may get more out of balance in 2018 because prices for building materials are expected to soar as many of those products get shipped to areas ravaged by hurricanes.
The takeaway is, if you are looking to buy a home in 2018, be prepared to act fast. Thus far this year, 33 percent of all homes sold in Lawrence have sold in 10 days or less. Historically, the average has been about 15 percent of all homes sell in 10 days or less.
“I can’t get my brain around how fast homes are selling right now,” Longhofer said, although he noted homes with price tags of $400,000 or more still sell much more slowly.
Here’s a look at how Lawrence’s real estate market stacks up to the other metro areas measured by WSU:
• Kansas City: Homes sales projected to be down 2.9 percent for 2017. Predicted to rise 3.6 percent in 2018. Home prices projected to rise 7.2 percent for 2017. Predicted to rise 6.6 percent in 2018.
• Manhattan: Homes sales projected to decline by 1.2 percent in 2017. Predicted to rise 9.8 percent in 2018, as several new housing developments are completed. Home prices projected to rise 7.2 percent this year, and 6.6 percent in 2018.
• Topeka: Homes sales projected to decline by 1.2 percent in 2017 and rise 0.6 percent in 2018. Housing prices are projected to increase 3.6 percent in 2017 and 2.7 percent in 2018.
• Wichita: Home sales projected to decline by 0.7 percent in 2017 and rise by 1.5 percent in 2018. Housing prices are projected to rise by 4.1 percent this year and 3.7 percent in 2018.