It’s not 2007 again, but after four difficult years, Wichita’s struggling housing market appears to have found bottom and is set to rebound significantly in 2012, along with many national markets.
Local home sales have stabilized and in some cases eclipsed 2010 in the past few months, according to several local brokers and analysts. While new home starts are down about 25 percent in 2011, those figures represent the bottom of what should be a rebounding market. Home prices also appear to be stabilizing after a slight decline in 2011.
Fourth-quarter 2011 sales at some of the city’s biggest brokerages will exceed projections despite a wild mix of good and bad news from the Wichita aviation industry. Stan Longhofer, director of Wichita State University’s Center for Real Estate, says nothing has changed his opinion that home sales will jump about 10 percent locally in 2012.
“The housing market through 2011 has stabilized back out into a normal seasonal pattern,” he said. “We’ve gone through so many wild gyrations from financing changes to the housing crisis to the homebuyer tax credit that whipsawed the market. It looks in many markets statewide that 2011 will have numbers on par with 2010. When you consider that we stole some 2011 sales in 2010 because of the tax credit, that’s a good thing.”
It’s the same story nationally, where the latest evidence of the momentum – new housing starts for November – was released Tuesday. The surprising 9.3 percent gain bumped the rate of new housing construction to its highest level in 19 months, to a rate of 685,000 new units a year. The number of building permits issued for new houses and apartments also rose, to 5.7 percent in November.
“The good news is that housing has switched from being a drag on overall growth to modest positive contributions,” said Brian Bethune, chief economist of Alpha Macroeconomic Foresights.
Good news among bad
Housing starts are the one stagnant part of the Wichita market, forecast to be down about 235 units this year before flattening out in 2012, according to the WSU real estate center.
“Too many difficulties,” said Gary Walker, residential general manager for the city’s largest broker, J.P. Weigand & Sons. “The good builders are still very cautious. Some still have too much inventory. It’s still hard to get construction loans.”
But the increase in resales, along with the perceived bottoms in new housing starts and prices, have major brokers optimistic going into 2012.
“I think we’ve turned the corner, in new home and existing home sales,” Walker said. “There’s been pent-up demand finally starting to come out.
“In the mix of all the bad news with Boeing, there’s some good news. There’s some positive stuff going on at Bombardier. Nationally things are improving. That’s all people really need to hear to buy.”
John McKenzie, president of Wichita’s Coldwell Banker Plaza Real Estate, thinks that economic diversity spells the end of the Wichita downturn, despite Boeing’s threat to close its Wichita operations.
“One thing’s for certain,” he said. “Wichita will still be the Air Capital of the World. We’re just not sure who will be left standing.”
McKenzie and Realty Executives’ Brodrick Jayroe agreed with Walker: Buyer and seller confidence is better, due to expansions like Bombardier, the strength of the local medical industry and of other Wichita businesses like Cargill.
“Diversification of our local economy will sustain us through this go-round,” McKenzie said. “We have so much more to rely upon than we did 30 years ago.”
“We’ve heard all kinds of good economic news lately, more good than bad,” Jayroe said. “It’s all relative.”
Powerful demographic trends are driving the national upturn, along with differences in the job and housing markets in various local economies, and the half-decade in which very few homes were built or renovated.
In normal times, about 1.2 million households are created in the United States each year because of rising population. That number falls during bad economic times as more young adults live with their parents, retirees move in with their children and immigration declines. But it doesn’t fall as dramatically as has home construction amid the housing bust and recession.
Housing starts peaked in January 2006, and for the past five years the United States has been building considerably fewer new houses each year than demographics would seem to demand: 554,000 units were started in 2009, for example, and 587,000 in 2010.
Part of that gap is attributable to the excess built during the housing bubble, when more houses went up than demographics would support. More than 2 million units were started in 2005 alone. With so many homes to fill, there has been little need for more.
In the first 10 months of 2011, the number of permits for new-housing units rose 36 percent in the Los Angeles metropolitan area over the corresponding period in 2010. The gain was 31 percent in Dallas, 32 percent in Washington and 35 percent in San Francisco.
The rising demand for apartments has driven up rent prices. Nationwide, there was a 3.4 percent gain in rents over the past 12 months, according to Labor Department data, compared with a 2.4 percent rise in all consumer prices. Some individual markets saw much larger gains. And those higher rents are coaxing developers to see opportunity.
“We have been and expect to continue to be very active in all aspects of our investment activity,” Bryce Blair, chief executive of AvalonBay Communities, said in a conference call with analysts last month. The Arlington, Va.-based company owns about 50,000 housing units across the country and has $1 billion worth of development under way. Blair noted rising rents and the dearth of new-building projects.
Weigand’s Walker said improved fourth-quarter resale numbers there – up about 17 percent year over year – make him more confident in 2012 than he expected to be.
“We won’t explode next year. It’s not back to 2007,” he said. “But in resale, we’re beating all my expectations.”