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.
After years of stagnation, county appraiser says home values are on the rise; property tax bills may follow suit; 2017 home sales off to strong start
Odds are — if you haven’t already — you will be getting an envelope from Douglas County saying the value of your home has increased. Yes, that means your property taxes may go up, too. It also is the surest sign yet that Lawrence’s real estate market is returning to the levels it once enjoyed before the Great Recession.
Nonetheless, get ready to see a bigger number.
“The past few years, the average had been pretty stagnant,” Douglas County Appraiser Steve Miles said of home prices. “This year, we’ve seen quite a healthy increase.”
Miles’ office sent out change of value notices to every property owner in the county on Feb. 28. He said 76 percent of property owners will see an increase in their value. A significant number of residential properties will see values spike by 5 percent or more. Here’s a look at the breakdown:
— 28 percent of residents will see the tax value on their homes increase by 5 percent or more.
— 34 percent of residents will see the tax value increase by 2.01 percent to 4.99 percent.
— 20 percent of residents will see the tax values increase by .01 percent to 2 percent.
— 8 percent of residents will see no change in value
— A little less than 10 percent of homeowners will see a decline in value.
Even homeowners who don’t intend to sell their homes should care about the values. Why? Property taxes. The home values set by Miles’ office are used in determining the amount of property taxes you will pay in 2017.
If your home increases by 5 percent in value, that doesn’t automatically mean that you will see your property tax bill increase by 5 percent. But it might. It all depends on the tax rates — known as mill levies — that local governments set. Those tax rates will be set this summer as governments such as the county, cities and school districts make their budgets for 2018. If governments hold their mill levies steady, and your home increased in value by 5 percent, then you would see a 5 percent increase in your tax bill. If governments decrease their mill levies, your increase would be less than 5 percent. If governments increase their mill levies, you tax bill would jump by more than 5 percent.
Stay tuned on that front. There will be much teeth-gnashing about the county and city budgets this summer.
In terms of who may see the largest increases, rural residents should be on the lookout. Miles said his office did a thorough study of rural property values, and it showed that quite a few rural residences had tax values that were below the price the home would likely fetch if it were put on the market.
The largest increases, though, aren’t coming from homes, but rather from farmland. Miles said the average value for farmland has increased 11 percent in the county. Miles understands the increase comes at a bad time for farmers. Commodity prices are relatively low at the moment. But several years ago, commodity prices were near record highs. Those high prices of previous years are having an impact on tax bills this year.
“We have gotten quite a few questions already about why rural land values are going up so much,” Miles said. “It is the formula. It is still pulling in those high values from past years.”
In simple terms, the state’s formula looks at rolling eight-year averages of commodity prices to help determine the tax value of agricultural property.
For those of you who just own residential property, your value is figured in a more straightforward manner, although not a foolproof one. The county appraiser is tasked with estimating how much your home would sell for on the open market. The office uses a system of looking at what other similar homes have sold for in the past two years.
Tax values are going up, Miles said, because what buyers are willing to pay for homes is also increasing. If you have followed the real estate figures that Town Talk reports on each month, it shouldn’t be a surprise that home values are rising.
Real estate agents for much of 2016 talked about how fewer homes were on the market. A low supply of homes combined with a rising demand equals higher prices.
“Primarily, the lack of inventory is the reason that I hear for the rising prices,” Miles said. “That middle-range home where people want to buy, there aren’t as many people moving around like they did in the past. They are maybe putting some money in a remodel and staying where they are.”
In past years when home inventory has dipped, that’s when Lawrence builders have kicked into high gear to build more new homes. There has been a bit of an uptick in new home construction, but nothing like a boom. Miles is hearing the same thing I’ve heard on that front: Since the Great Recession, the number of Lawrence homebuilders to create that boom doesn’t exist.
“I think a lot of the builders we used to have either moved to another community or gone out of business,” Miles said.
It will be interesting to see whether new builders start to set up shop in Lawrence and whether we see a more aggressive approach to new home construction in 2017.
As for what to do about the envelope you are getting from Douglas County, every property owner has a right to appeal the tax value set by the appraiser’s office. You have to request an informal hearing with the appraiser’s office by 5 p.m. on March 30.
Miles, though, asks property owners to take a little time to study the value. Look around at the prices other homes in your neighborhood are being listed for sale.
“I would like people to think about whether they really could sell their house for what the county has it valued at,” Miles said. “I’m not a crystal ball reader. I can’t tell exactly what your sale price would be, but within reason, are we close? If we are, my recommendation would be to not pursue an appeal, but everyone has a right to appeal.”
In other news and notes from around town:
• While we are talking about real estate, here is the latest report from the Lawrence Board of Realtors. 2017 got off to a pretty hot start.
The board reports that Lawrence homes sales for January were up 24 percent compared with the same period a year ago. Real estate agents sold 51 homes in January compared with 41 in January 2016.
Probably the most important number in the report is the number of active listings on the market stood at 197 homes. That’s down from 260 homes in January 2016 and 286 homes in January 2015. If that trend continues, it would seem home prices are destined to rise.
The good news is that 110 homes did come on the market in January. That’s a higher number of new listings than what we’ve seen in past months. So, perhaps a few more homeowners are deciding to take advantage of the rising prices and cash out of their existing properties.
Real estate professionals are predicting it is going to be a seller's market in 2017.
“This again will be a good year for sellers and a very competitive year for buyers,” said Mark Hess, president of the Lawrence Board of Realtors.