There seems to be a lot of homes for sale these days in Emporia, but according to local real estate agents, it isn’t because this Kansas housing market is an unattractive place to be.
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A year ago, Sharon Roullins thought she was getting a chance to “start over.”
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Speaking at the annual J.P. Weigand & Sons Inc. forecast Tuesday with an outlook of the 2007 real estate market, both nationally and in Wichita, Ks., Mark Dotzour outlined the statistics and trends on the absorption of inventory and property values and how that would affect the industry.
While he was positive on Wichita housing growth - and noted that investors are more likely to put their money into real estate instead of stocks - he expressed concern on several levels.
Specifically, that low long-term mortgage rates could result in a national recession.
Weigand Realtor Bradley Tidemann spoke in greater detail about the Wichita housing market, saying that he expected nearly every real estate sector to be up in 2007.
The commercial real estate market, he said, will continually be sparked by more activity in the northeast quadrant - especially the Waterfront - and the Central Business District, which will grow with activity at the WaterWalk and by Minnesota group Real Development.
Retail, meanwhile, was good in 2006, but slow compared to previous years when consumer spending was much greater. Tidemann said that’s because of slower expansion from national retailers.
The industrial market in 2006 was the best Tidemann has seen in nine years, with the lowest vacancy rates - a strong 10.2 percent - since 2000. The local market should continue to stay strong in 2007, with construction of build-to-suit projects showing the greatest growth.
Over the long haul, investment in Wichita real estate is also looking up as Kansas mortgage demand increases in this part of the state.
“Our market is as good as I’ve seen it,” Tidemann says.
He expects out-of-town investors to continue to put money into Wichita and at a higher pace than local investors. Low home loan rates are continuing to spark demand in Kansas and throughout Middle America.
The farm and ranch segment is also doing well, with prices increasing and more people looking for recreational land to build on.
As for the residential real estate market, the multi-family home sector is now constantly improving, with an 8.5 percent vacancy rate in 2006, the lowest it’s been since 1997. B
ut with rent continuing to stabilize, don’t look for as many new housing starts here in 2007, Tidemann says.
Kansas home sales reached record high 3 percent increase in 2006, defying national trends. If the economy continues to be good, expect more new housing starts and an increase in home values, he says.
SOURCE: Wichita Business Journal
In Wichita, a small group of scavengers has been able to use knowledge of the law and housing to scratch out a living from housing foreclosures.
It’s a small and peculiar slice of the house-flipping market, participants and lawyers tell the Wichita Eagle.
Yet it may be one that grows as more people become distressed. Across the U.S., nearly $1.3 trillion in adjustable rate mortgages will reset in the next few years to higher interest rates, according to home mortgage agency Freddie Mac. A higher rate can add hundred to a monthly payment.
A lot of people think they can get into house flipping, but there’s no easy money, said attorney Frank Ojile.
“It’s fairly easy to get in,” he said. “It’s how long you survive.”
The process starts when a house goes into foreclosure. About 90 percent of the time, the homeowners have so little equity in the house that they just let it go back to the mortgage lender without a fuss, lawyers say. But sometimes the owner has significant equity - and that’s when these flippers go to town.
Foreclosed houses go to a sheriff’s auction every Wednesday in the basement of the County Courthouse. Ten to 15 regular house flippers show up every week, and last week, they gathered in the room with lists. They already knew the legal status, condition and appraiser’s value of each house.
Attorneys representing the banks announced how much the banks wanted to end the Kansas mortgage foreclosure. Nobody bid on the homes in question, and meeting was over in 10 minutes.
Then the flippers dashed out the door and raced to the few homes considered to be good deals. There are between 40-60 houses at each auction, but only two or four are considered good deals, attorneys say.
These are good deals because the homeowners have paid down the home loan. That means the bank wants far less money than the house is worth in resale - and that gap is where the flippers make their money.
They go so hard because they want be the first to the house in order to buy the homeowners’ redemption rights. The law gives homeowners at least three months to come up with a payment to the bank. In that time, the homeowner can still sell the house or can live in the house rent-free.
But if a flipper buys their redemption rights - an offer of a few thousand dollars is typical - the homeowner forfeits the right to sell the house. They also lose the home equity they built up.
Then the flippers fix up the house and put it on the market. If they sell it fast enough, they don’t even have to put down much cash.
Too many people think it’s easy, said flipper Mark Funk, but the process is complicated and the competition intense in the Wichita housing market.
Funk also objects to the practice of some people in this lucrative business of flipping houses who don’t tell owners they may be able to recoup some of their equity.
Some homeowners don’t care, he said, but some are just ignorant of their rights. He and his wife, Robyn Soerries-Funk of Realty One Corp., try to get people in foreclosure to put their houses on the market.
“In this business you have a lot of people who are good,” he said, “and some who are unscrupulous and less than honest.”
Mike Amyx, the mayor of Lawrence, Ks., knew this news was coming.
As a follower of the local real estate market, Amyx has been hearing for months about Lawrence residents struggling to sell their homes, according to the Lawrence Journal-World.
“You hear the stories over and over again that people aren’t getting anything close to their asking price,” Amyx said.
Douglas County appraiser Marion Johnson released projections that estimate existing homes in the county likely will grow in value by only 2.5 percent in 2007.
That’s far short of the historical Douglas County averages of 5-7 percent per year, and well below the double-digit increases that have been common in many neighborhoods.
“We probably have had to adjust more values downward than we’ve ever had to since I’ve had the job. For values to go down, it has been rare in Douglas County, for sure,” said Johnson, who has been the county’s appraiser since 1991.
It all adds up to good news for prospective Kansas mortgage applicants, bad news for sellers and likely belt-tightening news for elected leaders who rely on property taxes to fund city, county and school district budgets.
“We’re going to have to look at all these spending requests we get in a whole new light, or else we’ll have to talk about a mill rate increase,” Amyx said.
While local elected leaders are worrying about what their budgets may look like, Dale Roubison is worried about the here and now.
Roubison has been trying to sell his house for 13 months. His original asking price was $365,000, but it’s down to $338,000. That’s $18,000 below the market value the county has placed on the property.
“I had to drop it down because nobody would make an offer on it,” Roubison said. “I think it will bounce back, but I’m stuck in the middle of a bad time right now. I had no idea it would take this long to sell. I thought it would sell in a month or two for the price that I was asking.”
Most years, Roubison probably would have been right. Historically, homes in that price range have sold in 30-60 days in Lawrence, with lower-priced homes many times registering fewer than 30 days on market.
But in 2006, the average time an existing home stayed on the market was 102 days, with higher-priced homes often taking more than 200 days to sell, according to statistics compiled by the Lawrence Multi-List Service.
Some real estate agents say the moderation is part of a nationwide slowdown in the housing market, as mortgage loans become increasingly hard for middle class people to afford. Gary Nuzum, president of Coldwell Banker McGrew Real Estate, said the slowdown was a natural reaction.
We had five to six tremendous years, and there is just not a lot of pent-up demand. That time period really opened the door to home ownership for about anyone who had any aspirations to buy a home at all,” he said.
Nuzum also said a brief spike in mortgage rates caused some buyers to stay out of the market, and consumers haven’t yet fully realized that interest rates have once again dropped to near historic lows.
Mark Buhler of Stephens Real Estate said it also had taken home builders a bit of time to adjust to the slower real estate market, plus he said he had seen several people move out of the community to be closer to their children who are working in Johnson County or elsewhere.
“The $200,000 to $400,000 market has taken some licks this year,” Buhler said. “Oversupply is part of it. You are seeing a lot of homes in that price range that are being shown that are vacant.”
Agents also say there is good reason to think that the moderation in prices is only temporary. Both Nuzum and Buhler said they thought business would pick back up in the Kansas housing market this spring. The number of homes on the market has shrunk, helping to balance supply and demand.
Real estate leaders have said they fully expected home values to once again start increasing by their traditional 5-7 percent per year.
“This is just a correction in the market,” Nuzum said. “It is not the end of the world.”
Buhler agreed.
“This ebbs and flows,” he said. “And it helps if people remember that we buy houses in part because they appreciate in value, but we also buy houses because we need a place to live. Sometimes people forget everything but the investment side of it. They compare this to buying a stock or bond, but you can’t live in a stock or bond.”
A strong Wichita economy means a good 2007 for commercial real estate, according to a forecast released Wednesday by Grubb & Ellis Martens Commercial Group and reported by The Wichita Eagle.
Fueled by expansion in the northeast office market, a shrinking industrial real estate inventory, retail growth across the city and more out-of-state investment in local real estate by Kansas mortgage seekers, 2007 will be an active year, said Steve Martens, president of the Wichita company.
“We’re very optimistic that it will be a strong year,” he said, “based in large part on the number of calls we have from entities interested in relocating here or in moving into new properties.
“Capital-wise, we think interest rates will remain affordable in the high sevens or low eights. It’s a good environment for commercial real estate.”
The only downside to 2007, Martens said, could be an economic slowdown.
However, Janet Harrah, director of the Center for Economic Development and Business Research at Wichita State University, said there’s no “predictable reason” to see a slowdown - barring a terrorist attack or another spike in energy prices.
“I think that nationally the economy will continue to expand, but at a slower rate,” she said. “We’ll see the same thing in Wichita.”
Here are a few of the report’s highlights:
• Out-of-state investors will continue to buy Wichita properties.
“As the investment markets on the East and West coasts drive [housing prices ]out of sight, investors are becoming more and more willing to invest in Kansas and Wichita,” Martens said.
“On the coasts, the actual point to control a property is several million dollars. In Wichita you find the same thing for $500,000 to $2 (million) to $3 million.”
• The inventory of quality industrial real estate has shrunk over the past three years.
“As it does, you’ll see rental rates rise and more attention paid to building new space,” Martens said.
• The Wichita office space market is “incredibly active,” Martens said.
Several downtown firms, including Commerce Bank, Foulston Siefkin and Delta Dental, have left for new headquarters, freeing up space in the central business district.
Meanwhile, the planned acquisition of the SC Telecom building by Minnesota-based Real Development Corp. brings its holdings to 1 million square feet, or 25 percent, of downtown office space.
The biggest challenge in the office market, Martens said, is predicting the equilibrium between construction costs, rental rates and the demand for new space.
New home starts in DeSoto, Kansas, remained steady in 2006, but experts think the region will see significantly more in the coming year, reports the DeSoto Explorer.
Kicking off 2007 with the same optimism other experts have for the Kansas housing market, city officials recorded 33 new home starts last year - the same as 2005 - but with the addition of 12 new units from three triplex projects and three new commercial buildings.
Some officials are concerned because if the new developments should fail to materialize, any revenue shortfall would have to be made up through month rate increases, or worse yet, property tax assessments.
The reduction of inventory, pent-up demand, lower gas prices and return of low mortgage rates all point to a healthy rebound of home construction in the area, officials believe.
Arbor Ridge, one of the new developments, is ready to take advantage of a recovery in 2007.
At the end of the year, none of the homes in Arbor Ridge had sold and all but a couple were still under construction. The street on which the homes were being built looked like a construction site as high Kansas mortgage costs kept may prospective buyers at bay.
“The first phase of any subdivision is always the hardest. The homes are incomplete and the yards are incomplete. Once you get homes occupied, that gets people really ready to buy,” said Dan Gulley, the local real estate agent in charge of sales.
There were some “spec” homes ready to close, Gulley reported. Once they do, the developers would apply for more building permits and start building more homes on spec. Hopefully, by the time they are able to be occupied, there will be enough home loan demand and buyers will he signing contracts.
The nation’s housing slowdown did not affect mortgage lending businesses in Wichita, Ks., last year, nor do local mortgage bankers expect it to have a major impact in 2007, the Wichita Eagle reports today.
Despite a downturn last year in sales and home values on the East and West coasts, Kansas mortgage broker and banker associations say their local business was relatively good - and anticipate business will remain good this year.
“We don’t see a lot of difference between the years (2006 and 2007),” said Dan Jones, V.P. of Capitol Federal Savings, one of the area’s biggest mortgage lenders.
That’s not to say 2006 was a banner year for home loans. The business in 2006 was nothing like it was a few years ago, when mortgage rates were at less than 6 percent and home loan refinancing outpaced conventional home purchases.
“We did a lot of home purchase loan deals, a lot of refinances that were at record paces. The volume is out there, it’s still steady, we’re just getting back to a normal pace,” said Tim Wooding of Executive Mortgage.
According to the latest statistics from the Wichita Area Association of Realtors, the number of existing homes sold in the first 11 months of 2006 was up 3.5 percent from the same period in 2005.
There was some contraction last year in the number of lenders in the state. From June 2005-June 2006, there were 25 fewer mortgage lenders doing business in Kansas as one home mortgage company after another decided to quit while they were ahead. Still, that wasn’t a huge drop, percentage-wise.
“But that’s out of 760-something in June 2005. Not a dramatic drop off,” Glendening said.
Experts think thata steady local economy and realistic home price increases have protected most of the Kansas housing market from the wild swings in other parts of the country.
Mortgage bankers said a combination of interest rates that are historically low and indications that the Federal Reserve Board won’t raise interest rates anytime soon, and as a result, that should make 2007 another good year for both mortgage refinancing and traditional home loans.
“We still have very low interest rates and money is very available for purchasing homes,” said Mitch Crouch, president of Equity Bank’s Mortgage Centre division. “For the year 2007, we’re really thinking the same thing.”
Wooding thinks the Kansas mortgage business may get a bump this year from people who took out adjustable rate mortgages seeing those rates creep up, and thinking about refinancing while conditions are good.
He also predicts that after a slow start to the calendar year, refinancing, first and second mortgages will all gain strength locally in the second quarter of 2007.
The most important word in the phrase “adjustable-rate mortgage” is the first: adjustable.
Scores of Americans are learning that the hard way. Home foreclosure rates are up nationally and in Douglas County, Ks., and experts are pointing to people being caught unprepared for increases in their adjustable rate mortgages, according to the Lawrence Journal-World.
“It is just the nature of a lot of folks to not plan, and they haven’t planned for their payments to increase,” said Dan Immergluck, an associate professor at Georgia Tech who specializes in foreclosure research. “They have more disposable income and they have grown used to spending it.”
Through October, bankruptcies are up 27 percent nationally from the same period a year ago. In Douglas County, 77 foreclosure auctions have taken place through October, up from 52 a year ago.
Nonetheless, Robert Baker, education coordinator for Lawrence’s Housing and Credit Counseling, said he didn’t think the increase represents signs of a distressed Kansas mortgage market.
“Listings are taking longer to sell, but it is really just longer by Lawrence standards. It’s still a pretty healthy market. We’re still pretty blessed in Lawrence,” Baker said.
The number of people coming to his office seeking counseling on issues related to default — which usually happens when a homeowner has fallen behind on payments for 90-120 days — has “slowly but surely” increased.
There always will be a fair number of foreclosures related to unexpected hardships, such as job losses or unexpected medical bills. But Baker said many are homeowners seeking help after taking advantage of loans that have been heavily marketed on the radio, TV and Internet as amazingly low-rate options.
“Those commercials like to tell you how much you can save on your mortgage. There’s usually a lot of fine print on the TV screen,” Baker said.
Most heavily promoted loans are adjustable rate mortgages, which normally work by locking in a rate for the first 1-3 years. But after that, rates can rise by up to 2 percent a year based on interest rate markets.
Those loans can be fine for people who are expecting to move in a 1-3 year period, or for people who really plan and know they’ll convert the loan into a traditional fixed-rate mortgage before their rates rise.
Some promotional loans also are interest-only mortgage loans, which allow borrowers to pay only the interest for the initial portion of the loan.
Others offer a “teaser rate” or temporary rate in the 4 percent range, to entice people to doing business with a particular mortgage lender. When those rates increase from 4 percent to 7 percent or 8 percent, the monthly payment easily can increase by 50 percent or more.
Immergluck said a large influx of Wall Street money has been invested into the mortgage industry, which has given mortgage lenders an ample supply of cash to loan. That has caused some mortgage lenders to become more lax in the standards they use to determine whether a person can take on debt.
Immergluck said federal regulators could improve the industry by creating a debt-to-income ratio that lenders must follow, especially when lending to low- to moderate-income consumers.
But Rick Sharga, V.P. of RealtyTrac, said home buyers are partly to blame, too.
“I hate to sound cruel, but at the end of the day, the ultimate responsibility does rest with the consumer. We always look for a bad guy, but if you are a homeowner, you have to educate yourself. In most cases, it will absolutely be the largest investment you ever make,” Sharga said.
New U.S. Census data shows that people are paying more of their income for housing in almost every part of the country. And it is hardly surprising that the California housing market, Manhattan and much of the Northeast sit atop that list.
But Olathe, Kansas?
Olathe (pronounced oh-LAY-thuh), 20 miles southwest of Kansas City, showed the biggest jump in the percentage of people paying at least 30 percent of their income on housing, as well as in those paying at least 50 percent on rent.
In a largely rural state not known for growth or overwhelming prosperity, here is a mini-metropolis of man-made neighborhood waterfalls, of what seems like endless construction of shopping malls and office parks.
Executives and immigrant workers, retiring baby boomers and young families have all been drawn to the newfound abundance of jobs, parks and strong-performing public schools.
“It’s basically been a supernova in terms of its growth. It’s a major suburb of Kansas City and for whatever reason has become the place to go. And that I can’t explain,” said Arthur P. Hall, Executive Director of the Center for Applied Economics at the University of Kansas School of Business.
Ever since Olathe’s days as a stagecoach stop on the old Santa Fe Trail there have been newcomers at the crossroads here, usually to take a rest and to move on. But as this prairie town and former bedroom community of close to 120,000 nears its 150th birthday, it is clear what has changed, according to the New York Times:
People come to stay. And pay a lot to do it.
“We grow 10 people a day, every single day,” Mayor Michael Copeland boasts, and population statistics back him up — Olathe has expanded by about 4,000 people a year for the past several years.
Since 1980, the population has more than tripled.
In the last five years, the average price for a new home has doubled to about $350,000. That makes Kansas mortgage loans awfully expensive for would-be buyers — not unlike what people looking for a Massachusetts home loan are thinking these days.
The data was collected before the real estate market began softening over the last year, and it was based on a small sample size.
At the high economic end, Olathe is dominated by homeowners who can afford their properties without a home mortgage — in one of the most prosperous counties in the country.
But still, a city in the Great Plains surrounded by farmland registering at all on such a list of expensive places has analysts befuddled.
DeeDee Palermo is one Olathe resident who feels crushed under the weight of the local housing market.
“I’m a single mom and I can’t make it on my own here, so I live with my mother,” said Palermo, 51, a retail store supervisor. “We’ve had all this massive growth, but for some people, things are worse than ever. I work full time plus some, and I can’t find a place to move to. Landlords want $800-1,300 a month.”
Palermo earns $8.75 an hour. She moved her family to Olathe a few years ago because she thought they could live better here than in Southern California or Arizona, where she held a variety of jobs. She is disappointed.
“You can’t make it here unless you pair up,” she said. “I can’t even think about owning a home.”
The data crystallized what many here like Ms. Palmero already knew: the burden of the Kansas housing market is not carried uniformly, and it is particularly daunting for those with low or stagnant wages who have had to deal with the reality of escalating real estate costs.
In that respect, some say, Kansas is not all that different from Manhattan or anyplace else where home buyers are feeling the heat. The new economics are particularly hard on renters and those in search of affordable housing to buy, as is typically the case in fast-growth suburbs and exurbs around the country.
Single-family homes designed for owner occupancy yield high returns to developers and municipalities than cheaper multi-family or rental units. That reality often results in development favoring families with lots of money to spend on upscale housing.
“As communities develop, they tend to attract higher and higher prices for housing, and the community becomes more attractive,” said Dean Katerndahl, an analyst at the Mid-America Regional Council, a planning organization for greater Kansas City. “We’re trying to advocate that there needs to be more variety in choices of housing, in the price basis but also in types.”
Census figures show that per capita income is $28,373, and for those who do not wish own a home or can’t qualify for a mortgage loan, the median rent is $676 for what is typically a six-room apartment.
Since 2000, the portion of the city’s population paying more than 35 percent of its income to rent grew to 42 percent from 19 percent. It also says there are almost three times as many owner-occupied units here than rental units, which number about 10,700. The poverty rate is also increasing, because the area’s growth is also attracting people with lower incomes.