In the March 2017 "Kansas City Regional Association of Realtors Existing Home Market Overview", the closed sales dropped by 0.8%. The drop is not because the market is soft. No, it is because there is no inventory.
The median home prices are up by 10% and the days on market is down over 17% as compared to March 2016. Prices can't continue to increase at 10% a year in the Kansas City market.
Things in the real estate world have been humming along since 2009.
- The mortgage rates have been low
- The job market has been improving
- The stock market has tripled in value since the low of 6,443 on March 6, 2009
- And no real global issues that have impacted the KC housing market
With low inventory and steady markets, prices can continue to climb until something really negative happens. No one knows whether it will be an large layoff, factory closure, dramatic mortgage interest rate rise and just the median cost to own the median priced home is above the median income.
Once this happens, the market will re-balance. It will either push prices down, increase inventory because fewer people can buy homes or both.
Ask yourself, how will you feel if you buy a house at $165,000 (median price for March 2017) today and the price drops to March 2016 prices at $150,000 or $134,000 which was the median resale price in March 2014. Yeah, pretty foolish that you and I got caught up in the updraft of an exciting real estate market.
Investors in Kansas City and middle America should only buy homes with solid equity left to absorb a 15-20% decline. If not what do you do?
Plenty, improve the operations to squeeze some more out of your rental. Increase rents where possible, reduce expenses (contest real estate taxes and shop insurance mainly) and maintain the properties.
How will you feel if you park some funds now and pick up some great deals in a year or two? Potentially saving over $30,000 per median priced house. Are you making this much in net rental income per house in two years. Yeah, me neither.
