After Wichita’s wild housing ride over past two years, forecast predicts what’s next

With the “extraordinary home price appreciation” of the last two years and “a lot of things that are unfolding before our eyes,” as Stan Longhofer put it, you can’t blame him and other economic forecasters for getting a prediction or two wrong these days.

“Economic forecasters were put on this earth to make the weatherman look good,” said Longhofer, director of the Center for Real Estate at Wichita State University.

Still, he and Lawrence Yun of the National Association of Realtors are going to make their forecasts for next year’s housing market at the 2023 Wichita Housing Forecast Conference on Wednesday. Yun will present his forecast on the national market via Zoom.

Part of Longhofer’s forecast will be to refute what many think will happen.

That’s because the stunning home appreciation numbers — a 17% increase in home prices in the first half of this year; 14.6% in 2021; and 7.7% in 2020 — make some think “that must mean we’re in a bubble situation, and that’s just not the case.”

“There’s nothing about the fundamentals of the market that would support that.”

Sheila Rumsey, CEO of Realtors of South Central Kansas, said she agrees with Longhofer.

“We as an industry just need to do a really good job of . . . explaining that we don’t foresee home values changing drastically from where they are now,” she said.

To understand the future of the housing market, Longhofer said you have to look at the past 10 to 15 years in Wichita.

First, in the worst housing situation in the last half century that followed the economic crisis of 2008, Wichita did not see huge home price declines.

“We just don’t tend to see the wild swings in home prices,” Longhofer said.

Inventory began to shrink, though, in part because fewer new homes were being built.

Since at least 2014, Longhofer said, it’s been a seller’s market.

At the end of 2019, just before the pandemic hit, there were about 2,000 houses on the market in Wichita, which was less than half the number that was available in 2012.

“Inventories were incredibly tight.”

Then the pandemic hit.

“We really thought that that was going to cause demand to slow, but that that would actually be a healthy thing for the market because we were so short of supply,” Longhofer said.

Instead, he said, “It actually just took off.”

And once again, the weatherman perhaps looked smarter.

Longhofer said “demand was juiced up” at a time the home supply was short due to five factors.

First, home buyers who were the least likely to lose their jobs in the shutdown were able to work from home, unlike people who had jobs where they had to be present and ended up getting laid off.

Second, nearly everyone received a stimulus check; however — and this is the third reason — people couldn’t spend their money as easily on things such as trips. Savings increased, and debt diminished.

Fourth, Longhofer said, was “people were sitting around looking at their same four walls a lot more than they used to, and they started to get cabin fever.”

Then fifth, he said, in response to the pandemic, mortgage rates dropped to just about the lowest level ever.

Rates have gone back up now, to almost 7%, which Longhofer said is still a typical rate.

The home price appreciation rate is slowing, but Longhofer said there still will be an increase of 12.9% for 2022 compared to the fourth quarter of 2021.

There will be a further slowing in 2023 for a 4.7% home appreciation increase next year.

“That’s still a very solid, strong growth rate,” Longhofer said.

With only a one-month supply of homes for sale, he said, “We’re still in extreme shortage.”

So what should you do if you want to buy or sell right now?

Longhofer’s advice is the same as it is in any kind of market. Your action “depends much more on you than it does on the market.”

Do you need to make a housing change for some reason? Are you adding to your family and need more room or are you at a point where you want to downsize?

“Don’t let this scare you off,” Longhofer said.

He said if buyers are thinking there will be a crash and are waiting for it, they shouldn’t because the chances are “slim to none.”

For sellers, the “absolutely crazy bidding wars have calmed down,” but Longhofer said, “We’re still hearing about multiple offer situations all the time.”

Things simply aren’t quite as crazy now.

“It’s easier to get in and look at homes than what it was six months ago,” Rumsey said. “My advice would be to jump into the market.”

She also suggests attending Wednesday’s free conference, which is at 1:30 p.m. at WSU’s new Woolsey Hall, “if people are thinking of selling or buying and want a better understanding from a national and local perspective.”

Longhofer said Wichita needed the wild ride it’s been on to make up for the lack of appreciation in previous years.

“I would be absolutely stunned if we saw significant price declines.”

Even with the slowing, he said there’s still not much inventory.

“We are returning from really almost this dream world of a market . . . to one that is a much more normal sellers market.”

This story was originally published October 17, 2022 at 12:52 PM.