About 18 months ago, Joe Christensen and Adam Shaffer, transplants from Las Vegas and Sacramento, Calif., respectively, relocated to Kansas City, Mo., where they launched Cardinal Crest Homes and recently completed their first house, a 3,180-square-foot spec the builder is using as its model.

Cardinal Crest planted its flag in a Kansas City market that is slowly working its way back from a recession that saw permits for single- and multifamily homes fall from 15,261 in 2005 to 1,477 last year, according to Hanley Wood Market Intelligence (HWMI) estimates. The local home builders association, whose membership once numbered 600, is down to around 200, “and only about 50 to 75 builders are really active here,” says Jeff Robinson, owner of J.S. Robinson Fine Homes, one of Kansas City’s leading builders.

Christensen finds himself swimming in a sea of builders that identify themselves as custom or semi-custom specialists, including market leaders James Engle Custom Homes and Summit Custom Homes. “The lower first-time buyer really isn’t here,” he tells Builder, at least not for new homes. “It’s definitely a presale market, and people have the cash to put at least 20% down.”

Kansas City has never been particularly hospitable to production builders, in good or bad times. Christensen explains that one of the reasons he and his partner chose this market over other metros they evaluated was that its top 10 builders control under 30% of closings, according to Builder’s Local Leaders ranking. None of those leaders was a national or even regional builder; indeed, St. Louis–based McBride & Son Cos. closed its sales office here earlier this year.

But it wasn’t too long ago when the top 10 builders in Kansas City were capturing only around 10% of the market’s closings. And the larger local companies appear to be coming back stronger after the recession.

“Any spec in this market is being sold,” says Chad Buck, owner of C&M Builders, which has operated here for a dozen years and closes between 40 and 60 homes annually. “We put 20 specs on the ground for the spring and should have put 30 or 40 because we sold all of them.” Buck projects his company’s closings will be up by 15% this year.

J.S. Robinson Fine Homes has doubled its business in the last 12 months and is on pace to double it again in the next 12 months, says Robinson. His company expects to close between 24 and 30 homes in 2012 (compared to more than 100 closings during last boom years), and Robinson says he’s “equally busy” selling all three of his categories of homes, which range in price from $275,000 to $450,000, $500,000 to $800,000, and $1 million-plus.

Robinson adds that his company has had luck lately securing loans for spec home construction, so it can respond to “good activity” from buyers in the suburbs of Overland Park, Lenexa, Olathe, and Shawnee, where jobs have been heading and business has been brisk.

Another top 10 builder, Rausch Coleman Homes, expects to close 98 homes in this market in 2012, or 21 units more than it did last year, says its office manager Chastity Tillitson. She notes that the company currently has only one spec home available in one of its six subdivisions “where we’d normally have five or six [specs].”

Home Prices Rising

Rausch Coleman’s selling prices—at between $130,000 to $230,000, says Tillitson—are quite a bit lower than the market’s average. While the 701 new-home closings through the first five months of the year were off by 5% compared to the same period a year ago, the median selling price was $283,514, up 16%, reports HWMI. Conversely, the median price for resale closings was $167,406, up 1%. There were also 3,948 closings of bank-owned homes whose median price was $117,905, down 6%.

In its snapshot of market conditions as of June 30, HWMI identifies a growing population, healthy transportation and distribution sectors, and the low cost of doing business as Kansas City’s market strengths. Obviously, builders here are optimistic about Kansas City’s future. The 1,953 single- and multifamily permits pulled by builders in the first six months of the year were the most since 2008, confirms the Home Builders Association of Greater Kansas City. “[Customer] confidence is growing, and the increasing demand for a newly built home is real,” Sara Corless, the association’s executive director, told the Kansas City Business Journal.

The Kansas City Regional Association of Realtors states that in June alone, existing-homes sales increased by 12% to 2,482, and their average selling price increased 5% to $172,040. The 253 new homes sold in June were 32% more than during the same month a year ago, and their average selling price of $311,266 up 3%.

As important, Kansas City’s new-home inventory is scarcer: In June there were 1,090 new homes available for sale, down 16% from June 2011. And while it was on the upswing earlier this year, existing-home inventory, at 13,253 units in June, was 17% below the June 2011 number.

Will Growth Last?

These shortages notwithstanding, pending contracts for new and existing homes in June were up 17% to 2,193. All signs point to 2012 becoming the third consecutive year that home starts in Kansas City exceed the previous year’s.

“That things seem to be picking up has been supported by statistics, real data,” says Steve Banks, president of the Realtor association. He specifically cites the steady increase in home sales since January as well as the parallel decrease in inventory as evidence that “maybe we’ve hit bottom and we’re finally moving in the right direction.”

Banks notes, though, that some of the nine counties that comprise Kansas City’s MSA are doing better than others and average selling prices vary widely. So he’s keeping an eye on transactions, inventory levels, and pending sales to determine just how sustaining the market’s recovery is.

Buck of C&M Builders says he’s also watching lot prices, which have been creeping up lately, because, he explains, “there hasn’t been much lot development in recent years, so a controlled number of lots are on the ground.” He notes that many of the neighborhoods where his company and other builders are active are adding new phases for the first time in years.

Christensen of Cardinal Crest Homes still thinks too many customers are sitting on the fence. “There’s a lot of pent-up demand,” he observes. But he is confident that his startup company can close at least five homes this year (at prices ranging from $330,000 to $550,000). He likes the fact that a handful of developers controls this market, so no one builder dominates. And Christensen is already dreaming about a future—perhaps eight to 10 years from now—when Cardinal Crest is closing 100 to 150 homes per year and ranks among the market’s leading builders.

John Caulfield is a senior editor for Builder magazine.

Learn more about markets featured in this article: Kansas City, MO.