Kansas City sees steep drop in housing affordability, report says

Kansas City recently experienced the largest decline in housing affordability of any major market in the U.S., according to a new report. That coincided with national housing affordability declining year-over-year for the first time in more than two years.

The report from First American, a title insurance company, measured changes in housing prices between March 2020 and March 2021 in 50 U.S. markets. Housing affordability was calculated using the Real House Price Index. An increase in the index indicates a decrease in affordability. The three key factors necessary to keep the index down are low mortgage rates, high household income and a supply-demand equilibrium.

In Kansas City, the index increased 16.2%. That topped similarly large jumps in Phoenix;
Tampa, Florida; Seattle; and Austin, Texas.

The decrease in affordability of Kansas City homes was due largely to a 4.3% decrease in annual household income and a 16.5% increase in nominal house prices compared to last year, according to the report.

Another report, by the Kansas City Regional Association of Realtors, shows that housing prices in the Kansas City area increased 17.3% year-over-year in April.

John Sebree, CEO of Missouri REALTORS, said Kansas City “is a very desirable place to be,” and that the pandemic has factored into the market’s growing magnetism.

“People are leaving the coast because they can work remotely,” Sebree said. “They don’t need to be in San Francisco or New York to do their job. Once they got into lockdown, they started really thinking about what they want in a house and what better fits their needs.”

The overall cost of living and quality of life in Kansas City have driven demand in the local housing market, Sebree said.

“People have just realized in the last year and a half that comfort in their home is their top priority,” Sebree said. “Work commutes have dropped to the bottom of the list. They want better schools and reasonable local prices.”

One factor altering affordability in cities like Kansas City is increased home equity for current homeowners, Sebree said.

“When you’re looking for your next house and you already own a house, more Missourians are making money off selling their current home than before,” Sebree said.

But for first-time homebuyers, lack of home equity can create affordability challenges.

“New buyers who haven’t owned a house before want to be in KC,” Sebree said, “but they have no equity.”

This aligns with an explanation of the Kansas City market provided by Mark Fleming, chief economist at First American.

“Surging house-buying power drives demand, and rising demand in a supply-constrained market accelerates nominal house price appreciation” for Kansas City and other major markets, Fleming said in the report.

Fleming said that “if house prices continue to escalate near their current pace, some prospective home buyers that are on the margin will pull back” in the long term, meaning house appreciation will level, which may lead to increases in affordability. This, coupled with a continued economic recovery that boosts household income, may boost affordability.


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