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June
1

The moment nearly every student seems to live for is finally here: Summer Vacation. Despite the urge for kids to get as far away from any conversation involving "school" as possible, Summer tends to be a really hot time for Real Estate as parents seek to move into better school districts in hopes of getting their children a leg up through better education. While the Kansas City Area has some great private schools, there are plenty of opportunities in the metro area for a high quality public education. There are certainly exceptions to the rule, but multiple districts have won national awards throughout their existence. For those parents looking to enter an area with better public education, lets break down the top school districts in Kansas City according to Niche.com.

5. Olathe - Starting off our list is the largest in the top 5 - the Olathe Public Schools. Olathe has 51 schools and over 30,000 students among them. Despite the size, this district has a Student-Teacher Ratio which is 14:1 ratio. The schools from Elementary through High school are consistently B- through A with one C+ which is Westview Elementary. When looking post high school, the average graduation rate is 94%, and the Average ACT is 27. Pulling back a bit, the district ranks 4th best among the state of Kansas and 6th best in Kansas for Athletes. Being one of the larger communities on our list, Olathe has much to offer in terms of living outside of schools. There are a number of malls, restaurants, movie theaters and jobs. Given it's size, Olathe is primarily more suburban; however, does have some options in terms of looking for properties with a bit of land. 

4. DeSoto Unified School District - Our number 4 is the second best district in the state of Kansas - DeSoto Unified School District. Niche gives DeSoto an overall A+ and it isn't hard to see why. One of the best in the state? Check. Third safest in the state of Kansas? Check. The seventh best in Kansas for athletes? Check. Despite being the smallest on this list with only 12 schools, the district has an incredible success rate. The average graduation is 98% and the average ACT is 26. The district has plenty of rural areas but does have some great subdivisions. The district also extends a bit into some areas of technically Shawnee and Olathe.

3. Lee's Summit - At a lower spot than I would've expected is the district I went through - Lee's Summit R-VII School District. Lee's Summit has 27 schools, all but three of which Niche rates A- or A with the remaining three being B+. This district has the third best teachers in the state of Missouri and the sixth best place to teach. The district average for graduation is 97% with an average ACT of 26, but stellar academics are not all that Lee's Summit has to offer. The clubs and activities as well as sports are both given A+ by the site. In a world where extracurriculars are weighed so heavily in college admissions, especially at the high end, these are huge perks to living in the Lee's Summit area. From a life outside of school perspective, Lee's Summit has a number of malls, a surprisingly vibrant downtown scene and plenty of lakes to boat or fish on. You'll find primarily suburban life here, but there are some areas with more acreage. There are also some areas of other cities, like Kansas City that go to some Lee's Summit schools, perfect for police or fireman who need to live in the city of Kansas City.

2. Blue Springs - Next up is a neighboring district to Lee's Summit - Blue Springs R-IV School District. Blue Springs has 22 schools that rank highly as well. Blue Springs has the second best teachers in the state of Missouri and is the third best place to teach. Not a single one of these schools is rated below an A and two schools even have an A+ rank. On the subject of education, the average graduation rate is 95% and the average ACT is 26, fairly in line with the rest of the districts that we're seeing on this list. It does have the worst Student-Teacher Ratio of 16:1 which just narrowly beats the national average of 17:1. That seems to be where the negatives for the district end. The overall scorecard is very similar in regards to teachers, clubs, activities and sports but takes a step over our third place with an A+ administration. If you're looking for the best public education the Missouri side of the metro has to offer, look no further! With plenty of life to live outside of the schools, Blue Springs has much to offer. Like most of this list, most of the properties you'll find are going to be suburban with a sprinkle of land thrown into the mix.

1. Blue Valley - Number one is likely a surprise to nobody. Running away with the top spot is Blue Valley. Despite it's fairly large size of 35 schools, there isn't much that Blue Valley does wrong. 15 of the elementary schools get an A+ rating with the rest receiving an A. All of the middle schools and high schools come out with an A+ rating as well. The district is rated the best in the state of Kansas. Looking at the score card, this is the only school district with an A+ in college readiness and it's easy to see why. The graduation rate in Blue Valley is 96% with an average ACT of 29. Despite the size, the Student-Teacher Ratio is a solid 14:1 and with high quality teachers - best in the state. Outside of school, the Overland Park area has tons of businesses and shopping centers. On the northern part of the Blue Valley district you have mostly suburban homes, but as you go further south you end up with more rural areas.

The quality of education our children get is important for everyone. As such, the desire to move into these districts from surrounding areas is extremely high. Since the real estate is limited in these areas despite the demand, many of these areas at the higher end of the spectrum have some very high average real estate prices. Since schools are paid for by property taxes, that seems to be the price we pay for some of the best schools in the area.

Reno Reed, Realtor

Follow me on my socials: http://www.RenoReed.com

May
27

Politics impact every aspect of our world for better or for worse. The reality of the situation is that not only are we under the influence of federal politics, but also state, local or even homeowner association politics. The real estate world doesn't have the benefit of escaping that fact. Let's talk real quick about some of the ways that politics directly impacts us as homeowners or potential homeowners.

A common assertation from the earliest days of our country is that "In this world, nothing is certain except death and taxes." Taxes play a huge part in the day to day lives of all of us between income tax, sales tax and in the real estate world, property taxes. Now our property taxes pay for a number of different things - public spaces, streets, and schools among other things. Having that understanding can impact the way you look at potential ballot measures. Are they talking about a new school being built? It has to get paid for somehow and likely the money will come from taxes. While the votes and the politics can impact your taxes, so too can reassessments which happen every other year. The county takes a moment to evaluate the property values in specific areas and from there, they update the taxes based on that amount for every single property. Ideally, these changes wouldn't cause massive shifts in taxes, but that isn't always how it plays out, especially when we are seeing home prices appreciate at such rapid speeds. Unfortunately, that fact can lead to some people being in tight spots. It's not a rarity to hear about somebody who's owned a house for decades but thanks largely to rising housing costs, they can't afford to keep it.

Another aspect of local politics having a hand on your property is through zoning. Basically, the city will take a look at certain areas and say what types of properties they will be - will they be commercial for business use, residential, agricultural, etc. If you're buying land or if you're buying real estate to use as a business, you want to make sure that you understand the current zoning for that area. You can apply for a variance - asking the city to allow you to use it for a different type of property - but you don't always get that lucky. Fortunately, if you already own your property and then the city comes in and says that your property area is now a more restrictive zone (ie. a commercial building being placed into a residential area) you get "grandfathered in" and are allowed to continue to operate there.

The last part I want to go over is restrictions. Typically, we see restrictions on things like if houses can be used for rentals or Airbnb on the homeowner association levels, but we also see restrictions coming from the cities as well. A little while ago, I did a video and article about how the city of Shawnee, KS banned the practice of co-living for all residential areas. Are these restrictions legal? To be honest, I'm not entirely sure. I'm no attorney, but if anything gets tested in court with lawsuits, I would expect it to be in this category of added restrictions to the property.

This isn't meant to say anything about Republican or Democrat for any area of government, but it is to say that there are things that you might want to consider the next time you're electing your HOA board, your mayor, your city council. As nice as it would be to be completely unaffected by the negative aspects of where politics intersects with the real estate world or to only reap the benefits, that isn't realistic. It isn't always the easiest to stay up on everything, but make sure that if you're wanting to prevent or see certain outcomes you make your voice heard during meetings and that you elect people who are like minded in that regard as well.

Reno Reed, Realtor

Follow me on my socials: http://www.RenoReed.com

May
25

A home is not just a place you live, it's a place where you're able to have incredible moments all in a safe environment. Not only that, but it has typically been seen as one of the most historically solid investments one can make, so we want to make sure that we're able to protect it. Neglecting a house is the fastest way to devalue the property, regardless of if you have any intent to sell, but it can also become a money pit where you are pouring your hard earned money just to fix issues that could have easily been avoided with just a little bit of leg work up front. It doesn't even have to be complicated or take much time. Here are 5 home maintenance items for you to complete this Summer.

1. Check kids' playground equipment - This certainly won't apply to everybody, so let's just get it out of the way. We want our homes to be safe places for all of our family to live and that certainly applies to your children. Do a quick inspection of the play set or anything else that your kids might be using on a frequent basis for things like wood rot. We need these to be structurally sound to help prevent any accidents that might cause your children or their friends any harm and this could especially save you thousands in hospital bills.

2. Check your wood deck and concrete patios for deterioration - This point is very similar to the last point, but much more applicable across the board. Yes, we need these areas of the home to be structurally sound as we spend more and more time outside, but we also want to ensure they don't have any other issues. Are there nails that are sticking out? Any of the spindles or railings loose? Is the concrete broken and a potential tripping hazard? Most of these issues, if you do a little bit of leg work to ensure that you're well maintaining them, can be really quick and easy. If you let it go, then you might be looking at needing some help for the work.

3. Check the exterior siding - More work on the outside. Take a lap around the property and do a quick look over your siding. If there is a side of the house that gets a lot more sun than the rest, there could be some warping. You can look for some bubbles, rusted nails, damage to the seams or potential damage caused by insects. Most people just think of the siding as something to give the house a little bit more going on on the exterior walls, and while that does play a part, it plays a serious role in insulating the home and thus can save you on your utilities.

4. Check all window and door locks - Working our way inside, this one should be an absolute no brainer. You shouldn't need it explained to you that the locks on your doors and windows can help prevent break-ins. As such, you definitely want to test out the locks on every point of entry. If the locks won't lock, you'll probably need to get them replaced, or at least do some minor adjustments. If they won't unlock, try to figure out what the root cause of the issue is. It isn't uncommon to see windows painted shut, but there could be some settling or other issues that might prevent you from being able to open some of these locks and areas.

5. Check water hoses on clothes washer, refrigerator, icemaker and dishwasher for cracks and bubbles - I like to tell people that I like rainy weather, just so long as I'm inside. I've been pressed on the issue and asked "why don't you like being in the rain if you like being in the shower?" and there is really one major difference: consent. Being unconsensually wet sucks. Make sure that you aren't having any leaks coming from anywhere that uses water: the fridge, washer, dishwasher, sinks, etc. These leaks, especially if prolonged, can cause some real issues to your floor and could cost you a ton of money.

There is definitely more that you can do each and every season to help prevent damage to your home and continue keeping your investment safe. Hopefully, you're able to see how this list can be used in your home to help do just that.

Reno Reed, Realtor

Follow me on my socials: http://www.RenoReed.com

May
20

10. Being too aggressive with your concessions

My last video and article talked all about the pitfalls of being too aggressive with your offer, so I'm certainly going to refer you to that, but let me hit some of the highlights. The real estate transaction has certain things in place to help protect you as a buyer - inspections, appraisal, etc. In this hypercompetitive market, it's not uncommon to see people waive some of the rights they have for some of these in order to make their offer seem stronger. Certainly, that helps put some extra weight behind the offer, but it can also put you at a crippling disadvantage in the long term if you do so recklessly.

9. Assuming every home is priced for negotiating 

On the other side of the proverbial real estate coin is the seller's side. Just like our side when we look into strategies to benefit us as buyers, the sellers will have their own strategies when listing a house. A common misconception that has permeated years of a more balanced market is that every house that you see will be priced for negotiating. While yes, most properties and sellers will have some wiggle room that they can and will give in certain situations, many can be extremely stubborn and unwilling to come down at all even after an extended period of time with little to no real interest.

8. Making a lowball offer.

Piggybacking off the last point, just because there is room for negotiating doesn't mean that everyone is open to negotiating the same way that you are. On the other end of that potential deal is a human being with their own thoughts and emotions. Many people when negotiating start low - that way they can work their way towards where they want to be, but we have to remember who is on the other side of the table. All too often you hear stories of people low balling an offer to see if the other side will say yes because if they do, you just got one hell of a deal, but there are potential issues with that approach. If they are insulted by how low or out of the realm of their mind your offer is, there is a chance they either dig their heels in and budge as little as they possibly can out of spite, or just say no and ignore you, your existence and any other offer you might send their way. Be tactful in your negotiating approaches.

 7. Not considering selling the home in the future.

The average homeowner moves every seven years or so - sometimes more, sometimes less. Understand that going into the home buying process that just from a statistical standpoint, you will likely move again at some point in the future. If you know that you're moving sooner than later, make sure there is room for you to increase the value of your house with new paint, floor, etc. If you're looking to move further down the road, what things are you going to need to do in order to have an easier time selling in the future? Do you need to replace the roof? Are your water heater or air conditioner dated? All these things can come back to bite you in the future if you're not careful. Think ahead and be prepared should you decide to sell in the future.

6. Overlooking the quality of the home and just the updates

Flipped houses can be a mixed bag. Some investors hire out reputable contractors to do all of the work. Some investors do the work themselves. Some people have no idea what they're doing. Often times these flips do one thing extremely well and that is make a house look beautiful, but you have to keep in mind that the work was done with a business interest. The seller is looking to make a profit and in order to do that they are going to try to buy the house for as little as possible and sell it for as much as possible. Think to yourself, "why did they get the house for such a great price?" Sometimes they just get a good deal. Other times there is a glaring issue like the foundation needing work. Don't be so focused on the clean, shiny, pretty things in the house that you fail to look at the bones and make sure that you have a quality foundation and you have a quality roof. If they can get away without addressing issues, chances are at least a handful, if not more, will try.

5. Not seeing the potential in a house.

Depending on your situation, I might not classify this one as a "mistake". There are certainly people who have no interest in doing any form of work to the house that they are looking to buy, but there are a ton of people who are willing to paint, or put in new flooring or anything else they need to in order to make their house the home they've always wanted. Those are the people who need to be able to see potential in a house. My house that I just bought this year for example has fantastic bones, but has some things that need addressed. It's dated. It has some wood rot in some places. It needs a bit of love, but by the time it is what my wife and I envision it to be, the work we put in will have an absolutely massive return both mentally and financially. Don't overlook the dated gems.

4. Buying a Home you're not sold on

The market today is extremely competitive. It isn't unheard of for buyers to put in offer after offer after offer on house after house after house in an attempt just to land a deal. Chances are that you aren't completely sold on all the houses that you're offering on. If you're not sold on it, you might find yourself down the road with serious regrets. Some aspects of a house you simply can't change or you can't change in an affordable way. The layout is what it is sometimes. You can't pick up that house and move it from neighborhood A to neighborhood B. Definitely consider it and consider your options when you're looking, but if you aren't sold on the house you're probably better not offering in the first place.

3. Holding out for the perfect home

On the flip side of the previous point, keep an open mind. Especially if you're a first time home buyer or are in the lower price points, the chances that you will find the absolute perfect house is extremely small. Yes, you want to hold out for something that you actually like or want, but also you don't want to be so closed minded that you miss out on a number of great houses for you and your situation in the hopes of finding that perfect diamond in the rough. It's unrealistic and you're going to be setting yourself up to be disappointed the longer the process takes.

2. Becoming obsessed with the one listing they found online

We see this one all the time. We send a potential home to a client and they fall in love and really become obsessed with the property. Remember that it is still an incredibly competitive market. If you want it and you really want to throw everything that you can to get it, that's okay. It's entirely up to you. What we want to avoid is getting that emotional attachment before you're under contract to the best of our ability because if you are too emotionally vested, every house you see from that point out might be great but it's not X. Keep an open mind and do your best to keep your emotions in check, especially when looking at a number of houses.

1. Passing on a great house because it's early in your search

Finally, we have the situation where you find an amazing house really early on in your search. Surprisingly, it's pretty common to see this happen. Yes, the process can be emotionally exhausting at times and the desire to make sure that you aren't just rushing into something is understandable, but you also want to make sure that you aren't passing on something you really want just because it's early. Most of the time you don't need to be in a rush but understand that no two properties are exactly the same. You might not see another place quite like this one. If it's the one you think you'll love, pull the tri

May
23

Realtors can get a bad rap. In this housing market, so many people think there isn't any leg work to do when it comes to selling their homes. As such, a number of homeowners attempt to save some money and list the home as a For Sale By Owner (FSBO for short).  Naturally, a lot of agents will give some push back on this, but why is it something that you should not do?

First off, the biggest reason that people tend to try to sell their house themselves is to save some money on paying commissions. Those pesky listing agents typically get paid commission for both the buyer and the seller and then split it with the other agent. While commission is negotiable, this tends to be around the 6% number - 3% for the buyer and 3% for the seller. When you take a look at how much a house can sell for - especially in a market in which prices are ballooning, it's easy to see why a seller might be interested in saving thousands. But what does reality suggest?

Often times, if a buyer's agent reaches out to show a property, they are interested in how they get paid. If the seller doesn't pay them, that leaves the burden onto their buyer client who is already about to shell out thousands in down payments, inspection costs, and closing costs just to live there, so often times the homeowner will pay the commission to the buyer's agent, however reluctant they may be. That doesn't sound so bad, they get to save half on the commissions! While yes, that is technically true, as of March 17, 2022, the average FSBO house sells for approximately 26% less than a property sold by an agent. Suddenly, saving a couple percent on a commission doesn't sound so great, does it?

Not only that, but the number of houses that are listed by the owners that actually sell are incredibly low - approximately only 11% actually sell. Why is that? There are a number of reasons. Firstly, most people selling their homes themselves have a job or other hobbies that just take up a large amount of their time. If you hire an real estate professional, they don't have to set away a large amount of time on top of their job - that is their job. That gives you as the seller more flexibility to go and continue to enjoy your life. Additionally, most homeowners simply lack the marketing tools that are necessary to sell a home. Sure you can post on Facebook or Craigslist and of course you're going to post to Zillow, but it's difficult to get your property out in front of people who are actually in the market to buy a house. Your agent has the tools and understanding of how to reach these people who are really interested in buying.

The last point I'm going to make will vary based on your specific situation. Some people sell their house and move out of state. While your agent could potentially refer you to an agent to help you buy a house in whatever new market you're looking in, their best use is to help you on the flip side. If your agent is helping you sell your house and buy your house, they can put together a specific plan based on your wants, needs and understanding of the deal on your house, and like we said up top, when they help you buy, it's usually the seller who is paying them.

There are so many reasons why you should hire an agent to help you sell your home. I understand that many people have had a negative experience with an agent in the past. Give me or somebody on my team a shot. Not all agents are built the same. Not every agent will use the exact same strategies or be as easy/difficult to work with. Ultimately, despite the desire to save money and move quickly, you tend to make less and move more slowly when you attempt to sell your home on your own.

Reno Reed, Realtor

Follow me on my socials: http://www.RenoReed.com

May
18

I'm about to blow your mind - the current Real Estate market favors the seller. Yes, I know. I didn't believe it at first either. Obviously, that's a bit sarcastic. Unless you've been living under a rock or you're just now beginning to look into the real estate market, the past handful of years has been more of a Seller's Market than a Buyer's Market. The number of potential buyers coming of age to own a home combined with covid stimulus and a handful of other factors has driven demand for new houses to an insane level, all while keeping housing inventory at a similar, if not decreased level. Given the competition, there has been an increase in practices that buyer's and agents are promoting in order to get into the house of your dreams, but are these practices wise? Let's breakdown some of the ways people are trying to gain an advantage as well as why they might not be the best ideas.

The obvious elephant in the room is the rising real estate prices. When you are competing against 20 other individuals, families, investment groups, etc. it is not uncommon to see the price drive up in order to sway a seller into taking a particular offer. Of course the approach when listing the property might be such that the property gets listed for less than market value to get an increased amount of competition and drive prices up as well as gain more favorable terms for the seller and there is only really so much that we can do as buyers if we really want to play ball. One of the major threats that you run into when it comes to being overly aggressive with your offer price is that you run the risk of putting your financial situation in jeopardy after you win the house. When we look at the economic state of the average American, it becomes really clear how we might put ourselves into a bit of a hole. Approximately 64% of Americans are living paycheck to paycheck as of March 8, 2022 according to CNBC. Naturally the only ways that we can try to avoid falling into that category is some combination of either making more money or spending less money. Looking to make more money is sometimes difficult in specific job markets, but what we spend is a little more within our control - especially if we're talking about the purchase of your home. Typical wisdom says that we want to keep our predictable monthly payments for our mortgage, utilities and household operations ideally under 30% of your take home pay. Compare that to the 35% of their income the average American spends on housing costs and it paints a pretty clear picture of the risk we're taking on. We want to put ourselves in a situation in which we can afford to live, to enjoy the things we enjoy, to travel, to go out with friends - it's a good idea not to spend so much that you put yourself in a position in which you become "house broke" - meaning that you don't have enough money left over after your bills to spend as you please.

The next thing that buyers typically give up is some form or another in regards to inspections. In Kansas City, you typically see one of three options right now: the option to conduct inspections and not ask for changes all while reserving the right to back out based on the results, the option to conduct inspections and not ask for changes while also giving up the right to back out based on the results, or to waive your right to conduct inspections all together. In my opinion, the inspection is the single best use for your money during the home buying process. It's important to have a better understanding of what you are getting yourself into. For that reason alone, I think you do an incredible disservice to yourself if you waive the inspection altogether. Fining that balance between what to give and take can be a tricky situation, especially if you're working with a new agent or an incredibly short sighted agent. In general, if you can keep the right to back out - do it. Protect your best interest because sometimes we don't see every flaw no matter how glaringly obvious it is in hindsight. It's absolutely imperative for you as the buyer and your agent to come together and find a way to make your offer have some weight based on what you're giving while also not putting you in a position to potentially, even if the chances are slim, of being in a house with serious issues that will cost an arm and a leg to correct.

The last extremely common thing to see these days is also tied to price - the "appraisal gap" waiver. Once you're under contract, the bank will send out an appraiser to assess the home and tell them how much the home is actually worth. Typically, if the appraiser comes back and says that the house is worth less than the contract price, there is an opportunity to renegotiate because the bank will not give you more than the appraised value. Where this gap comes in is that it is being tied to these rising prices. If the price becomes a little too extreme, you may consider doing an appraisal gap in which you offer to pay $X over the appraised value not to exceed the offer price. In this instance, you're committing to pay more than the property is worth and put yourself in a precarious situation. Now based on your circumstances, it isn't always a bad idea, but if you are planning on moving in the next five years, you better hope the price appreciates to the point that you aren't upside down and owe more than you can sell it for.

Ultimately, it's a balancing act. Every situation is unique and you need an agent that will take a look at your situation and use an approach that isn't a "one size fits all" because often times the one approach won't be useful given your needs. At The Reed Team, we pride ourselves on the fact that we always put our clients needs and interests at the forefront as we take an individualized approach based on their current situation. We'd love to have an opportunity to help you in that same way.

 

Reno Reed, Realtor

Follow me on my socials: http://www.RenoReed.com

May
16

It's no secret to anybody that the real estate market has been going wild as of late. In March of 2022, the median existing home price for all housing types was $375,000 - up 15% comparted to March 2021. That type of growth has become all too common among the real estate market in the past couple years, but it also marks 121 consecutive months of consistent year-over-year growth. That is just over an entire decade of real estate price appreciation and is now the longest-running streak on record. While this is seen in many aspects of the economy as unsustainable, we are seeing measures be taken to prevent this level of inflation running rampant forever. Many individuals due to a number of factors are opting to sideline themselves from the real estate market in hopes that we will begin to see a market correction, but how likely is that?

When we speak about a potential market correction, it's important to understand what specifically we are referring to. While there is no universally accepted definition of a correction, according to Charles-Schwab, most people refer to a substantial decline to financial markets - typically more than 10% but less than 20%. The idea is that when that size of a drop happens, the drop returns the prices to their long-term trend. The long term trend for real estate seems to indicate that if we do find ourselves face to face with a correction that we would still be in a bull market - or a market in which the prices continue trending upwards, but is there a possibility that a downward trend comes out of a correction? The answer to that question is "yes, but..." Nobody can predict with certainty if a correction will lead to an upward or downward trend, but we can look to past data to suggest what we might be likely to see. Since 1974, there have only been five markets to become bear markets (periods where the market is down 20% or more) and those years were 1980, 1987, 2000, 2007 and 2020. Given that fact, it is very likely that should we see a correction, prices will continue to drive upward from there.

So now that we have a baseline understanding of what we're referring to when we talk about a price correction, how likely is it that we see one in 2022? According to many economists, it seems pretty unlikely. You might be thinking, "but the housing market has been crazy, there are measures being taken to prevent runaway inflation and you're telling me that we will still be seeing a growing housing market for the foreseeable future?" While those points are true, we need to look at the factors that economists see preventing a correction in the near term. Right now we are seeing a low supply with an incredibly high amount of demand which is helping to send prices to the moon. While attempts at raising interest rates will take some potential home-buyers out of the hunt, we're not only seeing millennials hit a sweet spot for first time home buying, but we're also seeing the eldest of Gen Z entering the market as well. Given many of the historical benefits to homeownership, this coming of age will help bolster a strong demand. Additionally, the rise in "the home-office economy" has allowed many individuals to leave some extremely dense and expensive areas such as New York, San Francisco and Los Angeles to seek more affordable living in a location such as Kansas City, further increasing demand here locally. Another factor to look at is the ratio of home prices to rents. We've seen home prices rise sharply the last couple years, but we've also seen rents do the same. Last year, it came out that Kansas City had the fastest rising rent prices in the nation. These increased prices with no potential wealth building opportunity from them, is causing many renters to try and save up so that they can someday own a home and build equity. If both prices and rents are rising, it only makes sense for many of them to see homeownership as a way out that is more favorable to them. Lastly, we are seeing a huge influx of corporate buyers, businesses and investors looking to gobble up as much of the housing market that they can so that they may use the properties as rentals - which also contributes to our previous point. All of these factors point to a maintenance of a heavy demand in the housing market. While an increase in home prices sounds amazing for homeowners, many have refinanced themselves into extremely low monthly mortgage payments and are unwilling to sell their homes only to enter a red hot market where they feel they are paying inflated prices, and now much higher interest rates, unless they have some life event that causes the need to do so. In the short term, it's looking like the supply and demand balance will still be tipped heavily.

Okay so it's likely that we won't see any real housing market correction in 2022, but this can't go on forever. Will this bubble pop? Will we be in for an economic downturn? Recently, we've been seeing a number of economists, investors and organizations speculating that towards the end of 2023, we could be in for a bad time. The general economic outlook is already clouded by a global pandemic, Russian invasion of Ukraine and more Chinese lockdowns that could further stress supply chain issues. Each of these events on their own could lead to inflation, but of course we are experiencing all of them at once. While the attempt to curb inflation runs the risk of causing a recession, the contraction in 2023 has some fearing that it may match the Great Recession of the late 2000s, but Fannie Mae notes that there could be a difference-maker between a severe recession and a moderate one: the incredibly hot United States housing market. While the months leading up to the Great Recession the US housing market had already flipped from a historic run to a bit of a slump, we are seeing prices continue to soar. The projections according to Zillow are for home prices to rise 14.9% between March 2022 and March 2023 which is down from the initial 17.8% prediction they had last month. Yahoo finance puts it like this, "That might not be great news for prospective homebuyers who have to navigate high prices and fervent competition, but from a macro perspective, a strong housing market could be what pulls the U.S. back from a dire recession."

We certainly don't know what the future will hold. I don't have some sort of crystal ball. If I did, I'd be a billionaire sipping pina coladas on a yacht somewhere in the Mediterranean. Everything we've talked about is speculation, but speculation specifically from individuals whose entire life is centered around the economic markets. While they could be wrong, I certainly tend to believe them. One thing to think about when having a conversation about a housing market correction or a housing market crash is that it doesn't just happen - there has to be a driving force. To be fair, this is true for the reverse as well, but it would certainly appear that for the foreseeable future, the aspects of our economy driving demand upwards - even through rising interest rates - will likely prevent any sort of market correction at least for the year. Things can change, but as of right now, there is no reason to think that they will.

 

Reno Reed, Realtor

Follow me on my socials: http://www.RenoReed.com

May
11

Interest rates have been rising rapidly since the beginning of the calendar year. When looking at 2021's trend of hitting record low rates on multiple occasions, it's only natural that at some point that was bound to change. The speed at which interest rates are rising is a bit concerning. The rapid shift from record low rates back to rates that we haven't seen since 2009 is causing some eyebrows to raise. As the rates rise, it becomes more and more difficult for everybody to afford more since their monthly payment would be more interest than it was not long ago. Like any potential problem, this sharp incline has begun to make the industry look for alternative ways to give ourselves and our buyer clients a competitive edge. Of some of the potential solutions, we've seen an increase in mortgages that for quite some time hadn't seen much use due in part to how closely it was to the 2008 housing market crash - adjustable rate mortgages.

First things first - what is an adjustable rate mortgage (or an ARM)? The name heavily implies that it is a mortgage in which your rate is susceptible to change and at the core, that is essentially it. So what is the purpose of an ARM? Typically, these types of loans give you a more favorable initial interest rate up front, giving you a better chance as a prospective buyer to afford higher valued properties. You begin with a fixed-rate period where your rate is locked and can't change, but as time goes on and mortgage rates adjust, depending on the parameters of your particular loan, the initial rate is subject to make slight adjustments to the rate and your payment to stay more in line with the actual interest rates being charged at the time. The reason for the use of the word "slight" is that the rates have caps on a number of things: when they can begin to fluctuate, how much they can go up or down, and what is the highest they can go. All of these limitations were implemented with the purpose of making these loans better for the consumer.

Why are we seeing an increase in people choosing ARMs? In recent years, we haven't seen a need to use this approach as the rates for mortgages with locked rates - rates that don't change - were low and thus made it easier to afford. As previously mentioned, the rates have been rising and rising fast. These increased rates, especially if the growth continues for a long period of time, will start to make some would-be homeowners question whether or not now is a good time for them to purchase a particular property. Where the strength of the ARM comes in is when the interest rates begin to rise as they tend to be cheaper for a buyer than their fixed-rate mortgage counterparts in the early years. Of course the rates are susceptible to adjusting over time, but so is the growth that you experience as an individual or family. Over time, we all hope to make more money than we do today. The potential for that growth in your own wealth will hopefully make your potential monthly mortgage payment down the road no more difficult to be paid.

Is there any reason for concern with these mortgages coming back into the picture? While yes many ARMs in the past helped contribute to the housing market crash and the Great Recession as a whole, they only partially share the blame, but that is a topic for another time. It's important for you as a borrower to understand the loan that you're getting. You want to know when the rates can begin to change, how much the adjustment can be each period of time and what is the highest interest rate you can get. People often forget that regardless of the market, economy or any outside threat, your home is not going to be foreclosed unless you can't make the payments. The benefit that a fixed-rate mortgage has on an ARM is that the rate is constant, so the only changes in your monthly payments are going to be related to taxes or insurance. If you're considering an ARM, it's a good idea to make sure that you are comfortable with, or confident that you can continue to pay your potential premium at the highest rate. The cost of your monthly payments will still be at the mercy of changes in insurance pricing and taxes as well so you do still run the risk of that change in interest rate negatively impacting you.

Is there reason for concern? There always is. So long as you're able to understand what you're getting into, ARM can be a wise tool to use. Just because you get an ARM doesn't mean that you can't get out of it either. You can always have the option to refinance out from having an adjustable rate, but in that instance you will still be at the behest of the current mortgage rates. If you aren't sure if an adjustable rate mortgage is right for you, consult your lender and/or your realtor. They can help give you a better idea of what potential products or solutions might be right for you and your particular situation.

Reno Reed: Co-owner of The Reed Team with Chartwell Realty, LLC. Second generation licensed real estate professional in both Missouri and Kansas.

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