Welcome back to 2005.
No, a time machine was not necessary for this trip. Just a sagging real estate market that has pushed home prices in Douglas County back to levels not seen since mid-decade.
According to the latest numbers from the Douglas County Appraiser’s office, the average selling price of existing homes in Lawrence and Douglas County has dipped to $183,000. The last time averaging selling prices were that low was in 2005.
And the fall likely hasn’t stopped.
“I’d say the market is still searching for a bottom,” said Douglas County Appraiser Marion Johnson, whose office is responsible for determining a value for every piece of property in the county for taxation purposes.
Johnson is in the preliminary stages of his annual review, but he is now estimating that at least 80 percent of all homes have seen their values either hold steady or decline, with most experiencing losses of 2 percent to 5 percent.
“The largest percentage of homes will see an actual decline,” Johnson said of when homeowners receive change of value notices from the county in March.
For some homeowners, the drop will mark the second year of declining values. Johnson said that in 2007 about 60 percent of all homes experienced no increase in value or a slight decline in value. This year, the decline is more widespread.
“In my 16 or 17 years here, it has never been like this,” Johnson said. “This will be the first year that values will be down considerably for nearly everybody.”
But Johnson and other area real estate experts are quickly adding that Lawrence’s real estate market is far better than trouble spots on the East and West Coasts, which have been drawing national headlines with home values plummeting more than 20 percent.
“Our market is different because we didn’t experience the widespread, double-digit increases in value when times were good,” said Greg Moore, owner of Lawrence-based Moore Valuation. “We didn’t get that large, false sense of value.”
Until July, it appeared that the Lawrence real estate market had done what it has long been known for — avoid the dips that have characterized the national real estate scene. Through the first half of 2008, Johnson’s office estimated that the average selling price for existing homes — everything but newly constructed properties — had increased by a little more than 2 percent from the same time period a year ago.
But since July, the average selling price for existing homes has dropped by 2 percent. The average selling price has dropped 4 percent from its highs earlier in the year. Or, another way to look at it: if you purchased a home for $200,000 in January, it may now be worth just $192,000.
Other numbers from the appraiser’s report, which measures activity through October:
• The number of sales countywide are down by about 25 percent from the same period a year ago. The office has recorded 1,588 sales through October, compared with 2,120 a year ago.
• Through the first 10 months, the selling price of newly constructed homes is up 4 percent, to an average of $316,500. But the prices are coming from a small number of sales. Johnson’s office has recorded only 56 sales of newly constructed homes.
• The number of foreclosures has increased 47 percent through the first three quarters of the year. Johnson said 172 foreclosures have taken place in the county, up from 117. But Johnson said his office is not using foreclosure sales as comparable sales to set values for other homes.
In the trough
The numbers aren’t causing local real estate professionals to push any panic buttons. Not yet, anyway.
Jeff Hatfield, an owner of Lawrence-based Larry Hatfield Appraisals, said he doesn’t expect to see many signs of a local turnaround until at least the spring, because the winter real estate market is usually soft in Lawrence.
“But if we don’t see an uptick this spring, we’re going to have to get the magnifying glass out and start analyzing what is going on,” Hatfield said. “This spring will be a real reckoning.”
But Hatfield said he’s confident Lawrence’s market will hold up better than others. He said the university is still a relatively stable employer, and the Lawrence market hasn’t suffered from the type of overbuilding that has occurred in larger markets where national homebuilders were furiously building homes to keep share prices up.
A perhaps unlikely source is also agreeing that Lawrence’s market is unlikely to suffer a major drop. Kirk McClure is a Kansas University professor of urban planning who has argued that city commissioners have let developers overbuild. He says he thinks Lawrence home prices may be near a bottom.
McClure said data comparing the median sales price of Lawrence homes with the median household income suggests that Lawrence home prices are near an equilibrium.
He said Lawrence’s real estate market also has not relied heavily on adjustable-rate mortgages and interest-only loans that have led to problems in other communities. He said the Midwest — due to its lack of oceans, mountains and other population magnets — is also less likely to have its real estate become seriously overvalued.
“One thing you can say about living in the Heartland is that we may not ride that roller coaster up, but we normally don’t ride it down, either,” McClure said.
Moore believes the market has a good news/bad news story to tell. He doesn’t think home prices will fall much more in Lawrence, but he thinks it may take two to four years for prices to show any significant increases.
Those estimates are based on a glut of available building lots that are sitting empty. Moore estimates there are about 700 vacant building lots in Lawrence that are ready for a home. The city estimates the number may be closer to 1,000.
Builders, who are trying to get the lots off their books, are offering discounts on new homes, which makes it more difficult for existing home prices to rise, Moore said.
“My thought on the local market is that we’re at the bottom, but we probably have a really long trough,” Moore said.