The world has changed a few weeks ago, as Covid-19 swept through the world slowing it down. Some industries have come to almost a complete stop. Many of us are working from home and adjusting to the changes. Some parts of the World are starting to rebound and with time our area will also follow. 

There's a lot of speculation on what's going to happen to the housing market in our area. I don't know what will happen. Time will only tell. Here are the top signs to watch for in our market place to determine if there will be a change to the sellers market in the most popular neighborhoods and price ranges we are currently experiencing and have been the last several years. It's important to understand the three real estate markets, what causes a shift between these markets, and signs that indicate there is indeed a shift. We will cover all that to better understand the housing market in the Kansas City Metro Area. 

Real estate is dynamic in nature and is considered an imperfect marketplace. The final sale prices of homes are typically not the asking price. The forces of supply and demand set the final sale prices. Sellers do not determine value nor do realtors, or appraisers. It comes down to the forces of supply and demand. It is the price a buyer is willing to pay that determines the value. A buyer is typically willing to pay when they feel confident in job security and they are in a position to obtain financing at a cost acceptable to them. 

Supply, the inventory of homes available, and the demand, buyer willingness and ability to pay, will put pressure on prices to increase or decrease.  A seller's market by definition exists when there are more sellers than buyers in the market for a certain good or service.  Due to the fact theres so much demand and low inventory buyers are willing to pay more then the other person and prices go up. Typically a sellers market would only have up to 5 months of inventory, homes, available for sale.

A buyers market is just the opposite. In a buyers market there are more than 7 months of inventory available for sale so sellers are competing for the available buyers. This is the opposite of the force of supply and demand and now we have much more supply then demand causing home prices to drop.

In the middle of a sellers and buyers market is a balanced market with anywhere between 5 to 7 months of inventory available. Price is a function of supply and demand therefore the areas and properties that are highly desired will have the least downward pressure on prices. Areas less desirable will feel the downward pressure and that home price will have to drop.

Now that we understand the 3 types of real estate markets, what causes a transition from one market to the next and what are the signs we should look out for? Lets start from the most macro and funnel down to the most micro. Currency exchange rates, political climate and what we are currently dealing with right now is this health crisis is at the very top. Some industries already have been heavily impacted and due to this people have lost their jobs. Countries have closed their boarders and travel had to stop even locally. Entertainment has been put on pause among others such as resturants. We don’t know the repercussions we will have to face and yet its important to look out how this will impact us in the long run even we're not directly impacted today. Going down the funnel we look at interest rates and inflation. When interest rates go up buyers affordability goes down and they would only choose to move if they are able to purchase a house for a smaller purchase price to be able to afford the monthly payment. Next in the funnel we face population growth, job outlook, and household income. Is there a demand of people moving into your city or are people leaving the city? Look out for these signs. Are there new jobs available and whats the employment rates?  At the most bottom of the funnel we have neighborhood dynamics. There are highly desirable neighborhoods and price ranges that tend to have a good turnover rate no matter what market we're in. After all, shelter is a basic human need. Other neighborhoods have a smaller buyer pool and do not sell as quickly. 

We can now clearly understand the top signs to watch out for. Rising interest rates,  rising unemployment rates, rising homes available for sales, rising days on the market for the inventory available for sale and less people feeling confident to purchase a home are all key indicators that home prices will drop.

Stay safe, stay empowered!