Improving Markets Index: Kansas City, MO-KS MSA

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI is intended to draw attention to the fact that housing markets are local and that there are metropolitan areas where economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and are indicative of improving economic health.  The three are employment, house prices and single family housing permit growth.

For the eighth release 100 markets are currently classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Kansas City, Missouri-Kansas metropolitan statistical area (MSA).

The health of the Kansas City housing market is due its diversification and location.  With Kansas City near both the geographic and population centers of the US, it is a natural hub for transportation, warehousing, manufacturing and distribution.  In addition, Kansas City is one of 10 regional cities for the federal government making it the largest single employer in the metro area with over 140 agencies maintaining a presence including the IRS, SSA, and many others.  Kansas City also benefits substantially from the presence of the University of Missouri-Kansas City, and the many other post secondary educational institutions.  Kansas City is also a regional healthcare center and due to the large presence of Ford and G.M. has enjoyed the recent improvement in the auto sector.  Lastly, Kansas City is headquarters for Sprint Nextel Corp, Hallmark Cards, Inc., H&R Block and several other Fortune 1000 firms.    

According to home builder Chris Ragland, owner of Homes by Chris, LLC, Kansas City is picking up because the number of homes for sale are very low, prices are starting to rise, and families that have been waiting to buy a home for years, are finally confident enough to move forward with their long delayed plans.”  She went on to say that “with the improvement in the automotive industry and continued growth in healthcare, there is also a steady stream of transferees with good incomes, and more often than not these buyers want nice housing and, due to the lack of available supply, that often translates into new construction.”        

Comparing 2010 American Community Survey data for Kansas City to the US, offers strong evidence that Kansas City is doing well and some insight into why.  The labor-force participation rate is almost five percentage points higher in Kansas City than in the rest of the country, in part because the unemployment rate is more than two percentage points lower.  The percentages of persons employed in professional, scientific and management and administrative industries are 14 percent higher than the national average.  In addition, the number of persons with a bachelor’s degree is about 17 percent above the national rate, as is the number with a graduate or professional degree.  Lastly, because the local economy is doing well, the number of vacant housing units, be they owner-occupied units or rental units, is almost 20 percent lower than what it is for the nation as a whole.          

According to Steven Haynes, General Manager of McCray Lumber Millwork, “house prices are starting to rise because firms have right-sized themselves for the current conditions and thus those persons with jobs now feel more secure than they have in quite some time.  In addition, there is a growing sense of cautions optimism.”  Whatever the cause, house prices are definitely recovering.  Prices are up 4.5% since the trough in February 2011 and appear to be on track to continue to increase.       

Improving economic conditions have resulted in payroll employment being down just 3.1% from its peak in April 2008 and up by 2.9% since the bottom in March 2010.  Single family permitting activity is up 3.8% on a seasonally adjusted monthly average basis from the trough set in March 2009.  While new homes are being built in many parts of the Kansas City MSA, activity is primarily centered in the cities of Shawnee and Overland Park in Johnson County on the Kansas side of the border and in Liberty and the northland area, because of the excellent schools, in Clay County on the Missouri side of the border. 

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