Stan Longhofer’s housing forecast for this year is perhaps fitting.
“The real story of this forecast is that we are really starting to return to normal,” said the director of the Center for Real Estate at Wichita State University.
So what’s normal? And when was that?
It was about two decades ago, not long after the center debuted at WSU in 2000 with Longhofer leading it.
This is Longhofer’s final year in the job before he begins phased retirement and moves to a strictly teaching position for three years.
“I think we’re really coming full circle . . . to where we were 20 years ago,” he said. “It’s been a very unusual two decades.”
That started with the financial crisis of 2008, and then there was the pandemic starting in 2020 — the kinds of unusual situations that wreak havoc with forecasters’ predictions.
Longhofer said he thinks most markets across Kansas are going to be flat for the coming year. Some will be a little up, others will be a bit down.
The forecast shows Wichita will end this year slightly down with 9,360 units sold but should rebound a bit in 2025 with 9,550 units.
Construction of new homes remains flat at 1,255 and should rise a bit in 2025 to 1,285 units.
Appreciation remains strong with home prices projected to increase by 8% in 2024 and by 7.7% next year.
Appreciation, which was skyrocketing for awhile, has slowed. It’s still strong by historical standards.
Though there will be new home construction, there won’t be “nearly enough to make up for the long-term shortage that we have,” Longhofer said.
In the wake of the financial crisis, he said there was “an absolute cratering of new home construction.”
It fell to the lowest levels nationwide since World War II. “It never recovered to pre-crisis levels of construction.”
Even if there had been some overbuilding before the crisis, he said that “we were way, way, way underbuilding afterwards.”
During that time, several things contributed to the need for more houses, including population growth, housing that needed to be replaced and changes in household structure — meaning the average number of people per household continued to decline, creating a need for more housing units to handle the spread of people over more houses.
Longhofer said between 2000 and 2020, Kansas would have needed an additional 50,000 housing units simply to accommodate that change in structure.
Also, he noted, some old housing still may be functional, but that doesn’t mean it meets current needs or desires.
“Basically, we’ve had 15 years of too little new home construction,” Longhofer said.
In a response to the crisis, the country also has been in a world of abnormally low interest rates for about 15 years.
“These market rates are not sustainable,” Longhofer said.
He said the technical term is “stupid low rates” Longhofer said that created expectations of it continuing, but “that isn’t really realistic.”
In fact, even though he cautioned that you should always be wary when economists say anything with certainty, he said, “We will never see 3% mortgage rates again.”
The pandemic also compounded existing issues.
Wichita already was steadily getting into a tighter inventory situation, and then the pandemic and its stimulus programs “really juiced up demand.”
Also, people were stuck at home, wanting something different for their houses.
“People couldn’t spend money on other things,” Longhofer said.
That combined with stimulus money and low interest rates led to a spike in sales and bidding wars.
Then in 2022, interest rates started jumping, and Longhofer said it was a “bucket of cold water in peoples’ faces.”
Demand cooled, but there still were supply issues.
Now, rates are settling in the 6% to 7% range. Those may sound high compared to the 3% range, but Longhofer said they’re actually quite low compared to many decades, such as the late 1970s and early 1980s when rates were more like in the mid-to-high teens due to inflation.
In addition to facing higher rates, some home buyers who are looking to downsize are realizing that they’re going to have to pay more to get in newer, smaller homes.
“It’s sort of a dual hit,” Longhofer said.
So what are those empty-nesters and other buyers wanting or needing new homes to do?
“Most housing transactions are driven by life situations,” Longhofer said.
For anyone who has followed his forecasts through the years, they know his admonition that “you never try and time the market.”
Longhofer said, “It’s always, ‘Is now a good time for me and my family to buy or to sell?’ ”
Still think it’s too painful to pay something like 6% when just a few years ago you could have bought a new home for less?
“If you’re in the home long enough, those things take care of themselves,” Longhofer said.
That’s his parting advice as he signs off on his final forecast.
Longhofer said his forecasts come during the busy fall semester and require a bit of traveling, so this time of year often can be stressful for him, especially since he’s teaching as well.
This year, however, knowing it’s his final one, Longhofer said he found creating the forecast to be invigorating.
“It’s been kind of fun actually.”
This article was republished here with the permission of: The Wichita Eagle