Outlook for Lawrence economy better than most of the rest of Kansas
The Lawrence metropolitan area economy is expected to outperform most of the rest of the state in 2018, largely due to its strong housing market.
But that may not be saying much, because overall job growth is forecast to be only 0.6 percent this year.
That was the message this past week from economists at Wichita State University’s Center for Economic Development and Business Research, who hosted their annual Lawrence Area Economic Outlook Conference on Wednesday.
Jeremy Hill, director of the center, said most of the job growth last year occurred in the Kansas City metropolitan area, which added more than 13,600 jobs, or 1.3 percent.
In some areas of the state, he said, it’s hard to tell if the economy has caught a cold, or has a more serious flu.
“Some of the rest of the state looks like flu,” he said. “Some of it looks like they’re immune to it. When we talk about the one part of the state that looks immune to what has gone on the last year or so, it’s this region, Lawrence and Kansas City.”
Overall last year, the Kansas economy, measured by its gross domestic product, shrank by 0.1 percent last year, according to the U.S. Bureau of Economic Analysis. That was due mainly to big economic losses in the first and second quarters, followed by a modest rebound in the second half of the year.
“I don’t think this is a flu-like symptom that’s really sticking around for a long time,” Hill said, “although I’m still not optimistic about the long run for the Kansas economy.”
One of the biggest drags on the state’s economy, he said, has been the lack of growth in personal income, which has been lower than the inflation rate, meaning wage earners in Kansas are actually losing ground. That, he said, prevents growth in other parts of the economy, including retail sales.
Other factors, he said, are weaknesses in the agriculture sector and the oil and gas industry, which he described as “core” industries that create new wealth, and thereby increase overall spending.
On the positive side, though, Hill said there has been strong growth in recent months in the aviation industry, spurred mainly by increased federal defense spending under the Trump administration.
“I think we’re going to see jobs created in manufacturing because of the global economy,” he said. “We’re going to see jobs created in health services because we have an aging population. We’re going to see some jobs created — not a lot, but in quite a few regions. That doesn’t mean we’re going to see it across the whole state.”
For the Lawrence area, Hill said he is not predicting rapid employment growth, mainly because of the area’s tight labor market, where unemployment was only 2.9 percent in April, according to the Kansas Department of Labor.
In addition to a tight labor market, though, the Lawrence area is also experiencing a tight housing market, which is driving up home values throughout the community.
Stan Longhofer, director of WSU’s Center for Real Estate, said Lawrence has perhaps the tightest housing market in the state.
“We’re beyond the point of saying it’s a tight market, into ‘It is an excruciatingly tight market’ in terms of the overall inventories that are available,” he said.
Realtors measure the housing inventories in terms of “months of supply.” If there are 1,000 homes listed for sale in a given month, and 200 of them sell that month, Longhofer said, that represents a five-month supply.
The hottest segment of the market, he said, is for homes priced between $100,000 and $250,000 — a range he described as “the sweet spot” for most homebuyers. In that range, he said, Lawrence has only a 1.64-month supply.
“Generally we think a four- to six-month supply represents a balanced market,” he said. “It doesn’t seem to favor buyers; it doesn’t seem to favor sellers.”
In September 2017, he said, the median time that a home in that price range stayed on the market was only 10 days before it sold. That means half of the homes in that range sold faster, and half took a little bit longer.
But even looking at the homes in that range that were on the market but didn’t sell that month, they had been on the market only 40 days.
Furthermore, Longhofer said, people selling those homes tend to get their asking price, and sometimes more. The median sale price paid for homes in that price range was 99.8 percent of the asking price, meaning half sold for more than that and half sold for less.
But the hot housing market wasn’t uniform across all price ranges. Longhofer said the hardest-to-sell properties were the most expensive homes, priced at $400,000 and up.
In that price range, Longhofer said, Lawrence has about an eight-month supply. Those homes tend to stay on the market as long as 58 days before selling, and the median sale price is only about 97 percent of the asking price.
Longhofer said that indicates a bifurcated housing market in Lawrence.
“Homes that are priced right, that are in a desirable neighborhood, that are ready to move in, sell very, very quickly,” he said. “But if you don’t meet all three of those criteria, then it’s possible that your house — even if you think, ‘Wow, I’m in the sweet spot of the price range’ — it could sit for a long time.”
Overall, he said, home values in Lawrence are expected to gain 4.4 percent in value in 2018. That’s much less than the area saw in 2016, when the market was even hotter and values shot up an average of 7.3 percent. Still, he described it as a “solid” rate of growth that indicates the market is not out of control.
“This tightness in the market has meant that we are finally in a place where we are seeing some significant, positive price appreciation,” Longhofer said.