By Chad Taylor
First quarter 2018 housing demand in the Shawnee Mission School District resulted in the softest first quarter that we have seen in three years. For some, this will be hard to believe, but the numbers don’t lie. Keep in mind there are still certain price ranges and certain neighborhoods that operate as a micro-market- a real estate market within the greater market.
It is quite useful to look at the real estate market based on long-term trending. It is very easy for us to look at things on a month to month basis, but a quarterly evaluation can show trends more clearly at times.
Take a look at the graph below showing the number of homes for sale, homes to go under contract, and homes that closed in each given quarter over the last three years.
When you compare first quarter 2017 to first quarter 2018, you can see that the number of active homes for sale is down slightly by 8 percent. The number to notice is the number of homes to go under contract. Year over year, that number is down 23.1 percent. The number of homes that sold (closed) is also down by 6.3 percent. If you look at the blue bars (under contract), please notice that historically the number of homes to go under contract goes up from the 4th quarter of the previous year to the first quarter of the new year. That is except for the first quarter 2018 when it dropped by 4.4 percent (818 under contract in 4th qtr 2017 to 782 in 1st qtr 2018).
So what might be causing this drop in demand? Especially in what should be some of the hottest months in the real estate market. The illustration below most likely has something to do with it.
This graph represents the median home prices in the SMSD over the last three years. It is hard to miss the fact that median home prices have steadily been on the rise for the last three years. From Q1 2015 to Q1 2018, median home prices have gone up 26.5 percent (from $176,500 to $223,250). This significant increase in home values has priced many buyers out of the market. And some have simply chosen not to purchase because they feel that values are over-inflated and they fear over-paying for a home. This is a very realistic fear in my opinion. Even after 14 years in this business, I am surprised at times at the prices that homes have been selling for in the last couple of years.
If you couple high property values with rising interest rates, it is no surprise that my clients who own rental properties have had zero days of vacancy on their properties. Actually there is a waiting line in most cases for good rentals in the SMSD.
Just one more graph, I promise. No more after this one.
If you have read this column before, you know that one of the most important numbers that I watch is the sales absorption. For those of you who are not familiar with this term, sales absorption is the percentage of homes for sale that go under contract in a period of time. The graph above shows the sales absorption rate over the last three years in the SMSD. In Q1 2018, 54.5 percent of the homes for sale went under contract. Please notice that is down from Q4 2017 when the absorption rate was 59.3 percent. This is also down 16.4 percent when compared to Q1 2017. Lastly, that is the lowest absorption rate in Q1 in the last three years.
The takeaway-it is undeniable that the market is shifting out of the strong seller’s market of which we have become accustom. Buyers are saying “no thank you” to inflated home prices and sellers are being put on notice that pricing is becoming more and more important as housing demand is dropping.
If you would like to know how your home would compete in today’s market, please contact us today.