Archive for Wednesday, June 28, 2006

Housing boom applying the brakes

Increasing costs for borrowing, gasoline fuel some concerns

June 28, 2006

At first glance, the region's housing market appears robust.

In Tonganoxie, new housing construction is widespread.

But a scrutinizing look -- one that considers the number of "For Sale" signs, rising gasoline prices and interest rates -- tells a different story.

A drive through Tonganoxie shows about 94 homes are sporting "For Sale" signs in the front yards. The bulk of these homes and duplex units -- about 80 -- are in the city's newer housing developments.

"Right now, it's a really soft market," said Tonganoxie builder Curtis Oroke. "There's so much inventory out there, it's a buyer's market right now."

Oroke said rising gasoline prices are fueling a slump in housing sales.

"Tonganoxie and Basehor are commuter towns," Oroke said. "They don't want to drive that extra mile."

However, Tonganoxie house designer Dennis Bixby sees the gasoline/commuting situation differently.

Bixby noted, depending on traffic, it's possible to drive from Tonganoxie to downtown Kansas City, Mo., in about 35 minutes. Often, he said a commuter going from Olathe to downtown Kansas City, Mo., will have a more time-consuming drive.

"People don't understand that it's better to be in your car driving to Tonganoxie than it is to be in your car sitting in traffic trying to drive down I-35 to Olathe," Bixby said.

Worth the extra cost

Considering the rising gasoline costs, commuting to the city costs more than it did a few months ago. But one family new to Tonganoxie says it's worth it.

Cheri and Mark Williams moved to Tonganoxie in February. They built a house at Timber Hill Farms in northwest Tonganoxie. Before moving to Tonganoxie the couple lived in Overland Park. Cheri works in Mission, Mark works in Fairfax. They commute separately.

When they made the decision to move to Tonganoxie, gasoline was selling at about $1.60. Now it's hovering around $2.70. Cheri and Mark are five years from retirement.

"If gas had been higher, I might have been a little bit more reluctant to look at homes here," Cheri said. "But I'm so glad we did it. It's worth the higher cost."

What the numbers say

Tonganoxie's building permits are down from last year.

As of May 31, the city had issued nine building permits for single-family houses. A year ago, by May 31, Tonganoxie had issued 34 permits for single-family houses.

City Administrator Mike Yanez said Tonganoxie's 2006 housing permit numbers are misleading. He noted that builders -- aware the city's building permit fee would increase in 2006 -- applied for their permits in the final months of 2005 in order to avoid the fee hike.

Tonganoxie housing numbers

¢ Tonganoxie has 1,317 homes that are taxed as single-family residences. This includes duplexes or townhomes owned as individual units.

¢ince January 2005, there have been 204 sales of single-family residences in Tonganoxie. This includes one-half of a duplex that sold as a single unit.

¢ Tonganoxie has 94 duplexes that are considered as full duplexes, in which one entity owns both sides.

¢ In Tonganoxie, 16 apartment buildings have 170 total living units. Generally, a building is considered to be an apartment building if it has more than four living units.

¢ The city of Tonganoxie doesn't track the number of houses in town. However, water bills mailed to residents indicate how many homes, duplexes and apartments are occupied. In May, the city sent water bills to 1,618 residential customers.

-- Sources: Leavenworth County appraiser's office and the city of Tonganoxie

City hall numbers show that in the last two months of 2005, Tonganoxie builders purchased construction permits for 14 single-family homes and 10 duplexes.

In comparison, during the last two months of 2004, Tonganoxie builders picked up permits for nine single-family homes.

Tonganoxie building inspector Danny Dodge said he didn't think the city was overbuilt, as far as new homes.

"I think it's the interest rates now and the gas prices have been scaring people off," Dodge said.

To the east of Tonganoxie, Basehor building inspector Mark Lee said his city's permits are holding steady.

"I get mixed words from the guys. They say it's moving kind of slow, but they're still building," Lee said of Basehor builders.

As of May 31 this year, Basehor had issued permits for 45 single-family homes and three multifamily homes. This compares to 41 single-family home permits and four multifamily home permits for the first five months of 2005.

Unincorporated areas of Leavenworth County show a slight decline in building permits for 2006. This year, through May 31, the county had issued 62 permits for single-family homes. In 2005, 71 permits were issued from January through May.

Rising rates

Interest rates have combined with gasoline prices to help stall the housing market.

Chris Donnelly, executive vice president of Tonganoxie's First State Bank and Trust, said interest rates on home loans are about 0.75 of 1 percent higher than a year ago. He said 30-year and 15-year fixed-rate mortgages are in the 6.75 range.

Here's the difference that increased interest rates might mean to a homebuyer who takes out a $200,000 loan: At 7 percent, the payment would be $1,330 a month, plus taxes and insurance, and at 6 percent, the monthly payment would be $1,198 -- a $132 monthly difference.

"The rates are still reasonably low from a historical perspective, but from a year ago they're up a little bit," Donnelly said.

He noted the same loan 10 years ago would have been at 10 or 11 percent, and possibly higher.

But First State, which has $65 million in construction loans throughout all its branches, is seeing a slight slowdown in home loans, Donnelly said. The Tonganoxie bank has branches in Clearwater, Wichita, Perry, Lawrence and Basehor.

"We don't think it's because of the interest rates," Donnelly said. "It's more so because of the general gas prices. A lot of folks who come to Tonganoxie commute to the city and there's been an increasing impact with gas prices."

However, he said, this might be a good time for buyers to shop for a house.

"I think there are some really good values out there with the slowdown in the market," Donnelly said. "... I think they (builders) would like to move a few pieces of inventory."

Builder Curtis Oroke said he has five spec homes for sale. The homes are at Honeycreek Farms, at 166th and U.S. Highway 24-40.

And this is the prime time of year for sales, he said.

"Most people, if they're looking to buy, they're going to buy in June, July and August, right before school," Oroke said.

Builders don't like their homes to sit empty through winter.

In fact, Oroke noted, he'd be willing to take a loss of up to $10,000 on one of his spec homes.

"It's better than having to pay $140,000 back to the bank," he said.

A different view

Tonganoxie developer Greg Ward, however, said sales are going well at his Timber Hill Farms. The development circles a five-acre lake at the northwest corner of Tonganoxie. Hills surround the development on three sides.

Homes in Timber Hill Farms are priced at $180,000 to $223,000, Ward said.

"I know it's kind of slow going in other areas of the housing market," Ward said, "but I'm very encouraged."

Ward said his development is different from typical city developments.

"We're kind of incorporating that peaceful countryside feeling," Ward said. "And, there's no multi-family. Not everybody wants to have mixed duplexes and single-family homes side by side, or to drive through rentals to get to your home."

Despite their increasingly costly commute to the Kansas City area to work due to the rising price of gasoline, Cheri Williams is happy she and her husband moved from Overland Park to Tonganoxie's Timber Hill Farms.

"You're nestled down in the valley of the Tonganoxie hills and it is absolutely a view that is unmatched," Williams said.

She said her husband has caught fish -- ranging from a tiny perch to a 4 1/2 pound bass -- in the lake that's just behind their house. And that's just part of the thrill of living in their new Tonganoxie home, she said.

"The sunrises and the sunsets and the wildlife and the blue heron that comes to visit. We've seen the hummingbirds," Williams said. "Every night when we go home at night we feel like we're on vacation."

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