area home builders should expect another good year, but rising interest rates probably will lead to a modest downturn from the record set in 2004, industry experts said.
Almost 300 builders, developers, real estate agents, bankers and others associated with the booming local housing industry attended the 2005 Housing Forecast Seminar in Overland Park, Kan., organized by the Home Builders Association of Greater Kansas City.
The industry is coming off another banner year, with a record 11,084 permits for single-family homes issued in the eight-county area in 2004, up 3 percent from the previous record set in 2003. While there was plenty of optimism at this year’s forecast seminar, builders were told not to expect another record in 2005.
“There is a lot of consensus the market is going to be off a little bit,” said Edsel Charles, president of MarketGraphics, a Nashville-based research firm. But Charles said that 30-year mortgage rates shouldn’t be a major factor in people’s buying decisions until they reach 7.5 percent to 7.75 percent. The current rate for a 30-year fixed rate mortgage is about 5.7 percent.
Frank Lenk, an economist with the Mid-America Regional Council, told builders that interest rates probably wouldn’t reach 7 percent until 2006.
He did warn the audience that there was evidence of a growing number of buyers entering the housing market and getting in over their heads financially. These are people who are attracted by low interest rates and borrowing to not only buy their house but also to pay the down payment.
Charles said the Indianapolis market experienced a sharp downturn in housing starts and an upswing in loan delinquencies because of overly aggressive financing tactics.
“Please be careful,” he said. “You’ll sell a whole bunch of houses for a while, but it will catch up with you.”
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In a separate report, the Kansas City Regional Association of Realtors released average home sales prices for December that indicated prices rose 10 percent for new homes and 2 percent for existing homes compared with December 2003. The price of an average new home in the metropolitan area was $258,629 in December versus $235,434 in December 2003. The average price of an existing home was $151,154 versus $148,733 a year earlier.
Lenk projected that the local economy would support continued housing growth but at a slower rate than the last couple of years. He said the metropolitan area should gain about 26,000 jobs in 2005, compared with 18,000 last year.
By 2009, Charles said, there should be a significant shift in the market as Baby Boomers sell their larger homes and downsize to condominiums, ranch houses or other easier-to-maintain dwellings. He said a glut might occur if builders continued to erect larger homes when Boomers put their similar dwellings on the market.
Tim Underwood, executive vice president of the Home Builders Association, urged members to consider building alternative housing styles, including infill housing in urban areas and condominium developments.