When the Federal Reserve raised interest rates March 21, it stoked fears the breaks may be a hit on housing markets still recovering from the Great Recession.
By making the move, the Fed raised interest rates for the sixth time since the financial crisis and signaled it could raise interest rates twice more this year.
Jefferson City developers, real estate agents and bankers said the region missed the worst of the Great Recession, but it still had long-term impacts on buying practices. In recent months, though, the city's housing market has slowed as supplies of new and existing homes dwindled and sparked bidding wars between buyers.
Developers said they now see an opportunity to build homes in Jefferson City.
The Federal Reserve in March raised benchmark interest rates a quarter-point to a range of 1.5 percent to 1.75 percent. Current interest rates sit around 4 percent, but bankers and real estate agents say higher interest rates could push some people to put off purchases.
"It reduces your buying power," said Tom Shimmens, senior vice president of Central Bank's real estate department. "If they (the Federal Reserve) go too fast, it can stall the market."
Kathy Werdehausen, Jefferson City Area Board of Realtors president, said many home buyers locked into low long-term interest rates around 2-3 percent in the years following the recession. As rates rise, prospective home buyers may not be willing to forgo those loans, Werdehausen said.
"There were some really great rates out there for a while that people locked into," Werdehausen said. "They're not going to be willing to give them up to buy a new house."
When interest rates fall, Action Realty owner Ken Thoenen said, prospective home buyers tend to wait until rates bottom out. Modest interest rate hikes could spark a round of home-buying as buyers look to take advantage of current interest rates, which sit around 4 percent.
"If it's going up, they want to hurry up and get on the bandwagon, as long as it doesn't get too out of whack," Thoenen said.
Emerging from Great Recession
Beginning in late 2007, the subprime mortgage crisis caused home values around the country to plummet as borrowers struggled to pay off bad loans issued when home values hit their peak in 2006. Coastal areas with high housing costs like Nevada, California and Florida became the epicenter of the mortgage crisis.
Foreclosures began about a year later and ended about year earlier in Missouri compared to Illinois, Tennessee and other parts of the Midwest, according to the Federal Reserve Bank of St. Louis.
During the crisis, the City of St. Louis and St. Louis County were the hardest hit areas in the state, according to a 2010 report by the University of Missouri-St. Louis. Still, the long-term effects of the housing crisis echo through the current state of Jefferson City's housing market.
Werdehausen, the Jefferson City Area Board of Realtors president, said the Great Recession caused area consumers to hang onto their money and homes longer. Before the recession, the average homeowner sold his or her home every 4.25 years, she said. Now, homeowners sell every eight years.
Inventory has not rebounded to pre-recession levels. In 2008, 2,256 new listings were put on the Jefferson City market, about 300 more listings than the 1,949 homes listed in 2017. Werdehausen said this cycle is hurting the home market across the country.
"Homeowners that do want to sell can't find the home they want to buy," she said. "A lot of people are skittish."
Shimmens, from Central Bank, said Jefferson City recovered well from the mortgage crisis. Between 2008-17, average single-family home sales prices increased from $135,974 to $156,424, according to the Jefferson City Area Board of Realtors. The number of homes sold increased from 1,054 in 2008 to 1,511 in 2017. Last year, home sales increased for the third straight year.
Still, Shimmens said, Jefferson City's home market is beginning to slow again because of a lack of supply.
"There's a lot of good buyers and a lot of qualified buyers, but there's not a lot of homes on the market," he said. "There used to be 700-800 at any given time on a multi-list on the market. Right now, you're looking at 315-320."
Homes put on the market also sell far more quickly than they did before the recession. In 2017, homes in Jefferson City sold after just 72 days on the market — a decrease from 92 days in 2016 and 117 days in 2008. Shimmens advises buyers to buy good homes when they see them.
"The good homes sell fast," Shimmens said. "So if somebody wants to buy a house and they find a good house, you better make an offer on it because you're going to lose it if you don't."
In western Jefferson City, about 4 miles from the site of the new Capital City High School, the new Turtle Creek subdivision is one of the few places in Jefferson City where new houses are being built.
Jim Lage, owner of James Lage Construction, tucked Turtle Creek into a mostly flat piece of pasture just northwest of Thomas Jefferson Middle School. Unlike other parts of the Midwest with flatter land, Missouri's rocky soil and hilly terrain make it hard and expensive for developers to build homes, he said.
Most homes in Turtle Creek spread the living room, bedrooms, kitchen and other spaces out over just one story. Across the street from this home, though, sits a 1.5-story home, designed to be built into a small hill.
Lage said there are not many subdivisions being developed because of the high cost of buying land, building streets and building sewer connections. Lage spent about $1.7 million on Turtle Creek before a shovel of dirt was turned.
"It's one of the most risky things you can do," he said. "If you've got a bad lot, you've got to work with it."
Thoenen, from Action Realty, plans to build a 120-home subdivision on 50 acres near Old Lohman Road, Dry Creek Road and Pleasant Valley Drive in western Jefferson City. He hopes to begin construction in the fall and have homes ready to sell early next year.
Through the recession, Lage built 13-15 homes per year. Thoenen stopped building.
Since the housing market crashed and a glut of homes came onto the market in the ensuing years, Thoenen said, it was just cheaper for people to buy existing homes. That is making developers like him think about building again, he said.
"There's been too much of a gap between existing houses and construction," Thoenen said. "The real estate market is really starting to turn around."
Selling for about $225,000-$350,000 each, homes in Turtle Creek don't come cheap. Still, demand could not be better, Lage said.
He planned to build the subdivision's 79 new homes in four phases. With better-than-expected demand and lots selling nearly as fast as they hit the market, Lage condensed the building into just two phases. He plans to start the second phase this summer.
"We've got five or six more right now that are sold that we haven't started," Lage said.
Thoenen said Lage nailed the upper-middle-class market he wanted to reach with Turtle Creek. Thoenen's new subdivision near Old Lohman Road will be more modest with some second homes for large families with teenage children and some for young families buying their first home.
Through the beginning of the year, sales remained strong locally. Sales increased through January and February from 147 homes sold after the first two months of 2017 to 177 in 2018.
Still, Shimmens said, right now supply remains the biggest drag on the market.
"We seem to be doing a lot of pre-qualifications," Shimmens said. "They go out to find a house, and they're getting into bidding wars."
For now, Shimmens, Thoenen and Lage wait to see how the housing market reacts to the hike in interest rates. With Capital City High School being built on the city's west side not far from the new St. Mary's Hospital, Shimmens and Thoenen hope the area will see new homes being built well into the future.
"There could be a lot of potential growth," Shimmens said. "The hope is that area starts booming."