Sunday, March 13, 2005

Housing boom spreads across metro area


Buyers keep local builders ‘maxed out'



The Kansas City Star

Kansas City area builders are constructing homes at such a torrid pace that it's like adding a Prairie Village or Gladstone from scratch — each year.

The area housing boom is reshaping the city, spreading to small towns such as Louisburg, Kan., in the south and rippling over the rolling fields of the Northland.

In between, though still comparatively small in numbers, the development of condominiums in more urban settings has taken off.

Last year 11,084 single-family building permits were issued in the metropolitan area, according to the Home Builders Association of Greater Kansas City. That is 3 percent more than the previous record, set in 2003.

By way of comparison, Prairie Village had 10,126 single- and multifamily housing units and Gladstone had 11,919, according to the 2000 Census.

The pace has builders panting.

“I'm maxed out up here,” said Ken Praiswater, a Northland builder. “I've been offered jobs south of the river, but I just don't have time.”

The housing boom is being fueled primarily by historically low mortgage rates. But other factors are at work.

The area's population is growing by about 10,000 people a year. Meanwhile, the number of people living in each household has declined from 3.05 per residence in 1970 to 2.5 in 2000.

“When you put all that together, it's a lot of homes for us,” said Tim Underwood, executive vice president of the Home Builders Association.

Area home prices have risen along with the rooftops. The price of an average area home — including both new and resale — rose 5 percent last year, according to the Office of Federal Housing Enterprise Oversight, and 31 percent in the past five years.

Indeed, in the past five years Kansas City area homes have proved to be a much better investment than stocks. While the average area home price increased 31 percent, the Standard & Poor's 500 stock index fell 17.5 percent.

Surging housing values — many cities in California have seen housing values double in the past five years — have raised concern about whether some areas are entering a housing bubble akin the stock market bubble of a few years ago.

By almost any measure, though, the Kansas City area housing market is not about to pop.

Cleveland-based National City Corp. recently analyzed the housing markets in 99 cities across the country, comparing underlying economic health of those cities with their housing prices. It concluded that 29 cities were overpriced by at least 10 percent.

Notably, the study concluded that the Kansas City housing market was 2 percent undervalued.

“We haven't seen the meteoric appreciation seen on the coasts,” said Dan Whitney, president of Landmarketing Inc., an area housing research firm. “I don't think we're in that situation at all. We do see some small pockets of over- and under-supply. We do have more inventory now than a year ago, but it's evenly spread.

“There's no danger spot.”

Clyde Wendel, regional president for Bank of America, agrees that Kansas City has a healthy housing market. The only soft spots, he said, are a small rise in the inventory of new homes costing about $350,000 and those selling in the $1 million to $1.5 million range.

“Relative to other markets, we're feeling pretty comfortable here,” Wendel said. “We're less comfortable with California, Las Vegas and New England.”

Finding the edge

Housing experts predict that slowly rising interest rates will temper activity slightly this year, but plenty of construction still is being forecast.

A recent report by the Brookings Institution projected that metropolitan Kansas City would need to add 403,000 housing units between 2000 and 2030 to meet the expected demand.

“We know we're going to grow,” Underwood said. “The questions are, where is it going to be built, and what kind of housing it will be?”

The region already is experiencing growing pains. The increasing cost of land and, in some cases, restrictive zoning laws are making it more difficult for buyers to find affordable new homes closer in, forcing them to look farther afield. And that movement is pushing many middle-income workers to buy homes farther from their workplaces.

Such pressures are being particularly felt in Johnson County, which has seen its share of the metropolitan housing market drop from a peak of 44 percent in 1998 to 32 percent last year. Miami County, Kan., last year led the metropolitan area in the percentage growth of housing starts, up 57 percent from the previous year.

The attraction of more affordable housing pulled the Carter family farther out of town.

Jason Carter, 29, a Johnson County sheriff's deputy who works at the county jail in Olathe, could not find a new home he could afford near his job. He and his wife, Karolyn, 22, are expecting their first child in April. They wound up paying $150,000 for a four-bedroom home in Louisburg.

“The farther south we got, the newer and more affordable homes we were able to find,” he said. “For what size we got, we couldn't get anything in Johnson County.”

The two hail from small Missouri towns and like the slower pace they found in Louisburg. The fire siren still sounds at 10 a.m., and bales of hay dot a field just a block from where they live.

But the nearest place to see a movie is 20 minutes away at 135th and Antioch in Overland Park. And, more notably, the Carters each have to drive at least 25 minutes to work.

“We're being pushed out farther and farther for work-force housing,” Underwood said. “You can see it around the fringe of Kansas City. I'd say Kansas City north of the river does the best job of providing quality housing at a variety of price points, and that's one of the reasons it's growing faster.”

In recent years, Kansas City has re-emerged as the metropolitan area leader in the number of homebuilding permits issued. About 85 percent of that growth has occurred in the vast undeveloped sections of the city that spill into Platte and Clay counties.

Count Joe and Susie Deghelder as members of the Northland development trend.

From their new home in the Pine Grove subdivision taking shape in a former Platte County cornfield, you can hear cows mooing. Sometimes skunks wander up a nearby ravine, but that's another story.

“It's a brand new home. It's in the country, and to get something like this in Johnson County you have to go 30 or 40 minutes out,” she said. “There's a pair of hawks who seem to watch everybody who drives through. The guy across the street has a putting green. The yards are huge.”

The couple — he's 61, she's 58 — described their house as a bargain. They paid $149,000 in 2003 for the three-bedroom home, and they reckon it could be worth much more today.“When we moved in, we thought it would be short term, but we really like it here,” Joe Deghelder said. “It's almost a small-town atmosphere. … It's a home we could stay at forever.”

Condo city

While the Carters and the Deghelders moved to the edge of town, Pete and Jami Hyde are at the opposite end of the new home spectrum.

There are no cows mooing or hawks spying on their new penthouse at 1819 Baltimore, a 23-unit condominium development that opened last year in the Crossroads area near downtown Kansas City. From the 15-foot-tall windows of their living room, they see skyscrapers as opposed to haystacks.

Pete, 34, and Jami, 37, sell real estate. Pete got the downtown living bug years ago when he visited a brother who lived in San Francisco. The couple moved into the $600,000 condo last summer.

“Being here, you find really interesting people who are interested in the arts, interested in the city and really diverse,” he said.

Like other people purchasing condos, the Hydes liked not having to do yard work and home repairs, and to be able to travel without worrying about the lawn.

“The idea of having a place where you can turn the key and leave is great,” he said.

Condominiums, historically little more than a footnote in the Kansas City housing market, are drawing more attention. As in other cities throughout the country, single professionals, dual-income households without children and wealthy empty nesters increasingly are considering condo living in urban locations.

Condo sales as a percentage of total Kansas City area housing sales have nearly doubled in the past five years, according to a market analysis by Integra Realty Resources, increasing to 2.26 percent in 2004.

Outside the urban core, town houses and duplexes are becoming important vehicles for people getting into affordable new homes, said Mark Hosking, president of the residential construction division at Morrill & Janes Bank.

“They're being built to get the per unit house price down,” he said. “There's been a huge boom over the past couple of years because of rising ground costs and development costs.”

Demographic and social changes also are increasing the demand for housing. The aging baby-boom generation is selling large homes for smaller, more convenient residences. And the number of single people owning homes has grown significantly.

Wendel also suggested the continuing influx of people from the small towns and farms of rural Missouri, Kansas and Iowa are supplying buyers for area housing.

“A lot of small towns are disappearing,” he said. “There is a gravitation to metropolitan areas where there are opportunities for education, jobs and health care.”

Market appreciation

Underlying all this activity are financing opportunities that were unheard of not all that long ago, which have pushed the nation's homeownership rate to a record high.

“Low interest rates allow you to buy a home three or four times your annual income,” said Mark Hosking, president of the residential construction division of Morrill & Janes Bank. “That's what's been fueling the Johnson County market. You would be surprised how many people in their late 20s and early 30s are buying $400,000 homes. Both the husband and the wife are working, and with the lower interest rates they can afford it.”

At the recent annual forecast breakfast held by the Home Builders Association, experts predicted that rising interest rates would reduce housing construction about 4 percent from last year's record.

James B. Nutter Jr., president of James B. Nutter and Co., a national mortgage lender based in Kansas City, said other factors besides low interest rates were contributing to the housing boom.

“People had been in the stock market and thought they would put their money into something that, while not as sexy as technology stock, was still a very good investment,” Nutter said.

Nutter said that some people were purchasing homes with no money down and that others were taking advantage of adjustable-rate mortgages that allowed them to pay only interest the first three years. After that period, the adjustment shoves the payment up substantially.

“People are thinking the short term,” he said.

Wendel also is concerned about some of the more aggressive new financing techniques.

“There's always the potential for people overleveraging themselves,” he said. “When these tools are advertising 125 percent financing, you're taking equity out of something without any appreciation in it. Those things bother me.”

Jim Gamble, president of the Kansas City Regional Association of Realtors, said that as long as home values went up, people who used such methods to finance their homes would be OK.

“The interest-only option is a newer option, especially for people with excellent credit,” he said. “Just let the housing appreciate to take care of the equity.”

Nutter, however, is worried about the proliferation of financing options that rely on ever-increasing home prices.

Although the Kansas City area remains on solid footing, the same cannot be said throughout the country, particularly if interest rates spike higher.

“California is about to pop,” he said, “and it's not going to be a good pop.”

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