It’s been a fast-paced summer for Lexington’s real estate market. With low mortgage interest rates and growing signs of a strengthening economy, more people in Fayette County are looking to make the leap into homeownership.
But especially for first-time buyers looking for properties priced below $200,000, the for-sale signs are not popping up fast enough.
“It’s been a wild time,” said Ryan Hilliard, Realtor with Berkshire Hathaway deMovellan Properties. “We have a huge first-time homebuyer demand ... but we don’t have the inventory to meet that demand. We are seeing multiple offers on properties within the first few days.”
A month ago, Hilliard listed a four-bedroom ranch in the Wyndham Hills area for $185,000. The property had 11 showings scheduled on its first day on the market and four offers that night. Experiences like that have been a common occurrence for properties that have come up for sale this spring and summer, according to many local real estate agents.
Tight inventory
As of June, Fayette County had 1.8 months of total inventory available to meet the current demand, but only 1.3 months of inventory on the market in the price range of $50,000 to $199,999, said Ty Brown, president of the Lexington- Bluegrass Association of Realtors and a broker and Realtor with Weichert Realtors - Towne and Country. That means that at the current rate of selling, assuming no new homes in that price range were added for sale, Fayette County would be sold out in about six weeks.
“A healthy, natural market has between fi ve and six months [of inventory],” Brown said. “Less is, by definition, a seller’s market.”
The average sale price for all homes in Fayette County during the fi rst six months of this year has remained relatively steady as compared with the fi rst half of 2015, edging up 1 percent from $212,380 to $213,960, according to LBAR. The average days on the market during that time, however, has dropped 36 percent, from 69 days to 44 days. The average days on the market for the month of June alone was even lower, at 34 days. The statistical trends for LBAR’s 22-county region for the first half of the year were similar, with average sale price rising three percent, from $184,526 in 2015 to $189,292 in 2016, and average days on market falling 34 percent, from 114 to 75.
In response, Brown said, home buyers have had to be prepared to act quickly if they find a home that fits their needs, sometimes with bids at equal or above a seller’s asking price.
Investment and rentals
The experience of rising real estate sales and low inventory isn’t particular to Lexington or the Bluegrass. Some real estate analysts have attributed it in part to a strong rental demand, both locally and across the country. Returns on rental investments can typically range from 5 to 10 percent, and many investors who bought properties for potential rental income during the recession haven’t been quick to relinquish them as the market has rebounded. Some investors are also working to acquire more.
“The rental market has increased and it is still hot right now,” said David O’Neill, property valuation administrator for Fayette County. “We are seeing an increase in rental units, and that includes apartments as well as houses that are being rented.”
Since 2006, Fayette County added 3,600 new rental units and almost $400 million in new apartment construction to its property tax rolls, O’Neill said.
In addition, from 2006 to 2016, the percentage of all single-family homes in Fayette County classified as non-owner occupied has risen from 19.1 percent to 22.1 percent. For homes valued below $200,000, however, the percentage that are non-owner occupied has increased at a much faster rate, rising from 22 percent in 2006 to 27.8 percent in 2016.
The benefits of home ownership fell generally out of favor for many during the recession. Additional driving factors behind the increase in rental demand in recent years may include the projected population growth in the Bluegrass, which is expected to increase from 310,000 to 375,000 by 2030, and the increased enrollment of university students looking for off -campus housing, O’Neill said.
Those factors, combined with uncertainty about the stock market and low interest rates, have led some investors to snap up more property, even as the housing market turns up, Hilliard said.
“The rental market in Lexington is so strong, and rental prices have been going up,” Hilliard said. “The investors I’ve worked with have been really satisfied making real estate a part of their investment portfolio.”
Recovery boosts tax rolls
While demand for rental properties may be adding to the competition for property in today’s market, the increase in real estate activity has contributed to a bump in local property values. Fayette County added almost $1 billion to its real property tax roll in 2016, which is now at $25 billion, O’Neill said. And the numbers indicate that the real estate market has almost completely rebounded, he added.
“We are back to pre-recession levels in terms of volumes of sales,” O’Neill said. “We are not back to the peak, … but we are not far from it.”
According to statistics from the Fayette County PVA’s office, the Fayette County market experienced its lowest single-family home sales of the past decade in 2011, at 3,534 sales for the year. By 2015, total annual home sales in Lexington increased by roughly 50 percent, to 5,298. Total sales for 2016 are currently on track to match or surpass that, with 2,665 sales recorded in the first six months of the year. The market’s peak from before the recession, in 2006, was 5,983.
Although buying is a challenge in a fast-moving, high-demand market, the increase in the number first-time homebuyers is a good sign for all levels of local real estate, Brown said.
“First-time home buyers are the catalyst for the market,” Brown said. “They allow a move-up chain of events up the ranks of the market.”
Brown said that with the many sources of real estate information available, including websites like Zillow, today’s buyers are generally savvy consumers, although they still rely on Realtors to weed out bad information, interpret trends and navigate swift action in the market. The lending process has also become more strict since the recession, Brown said, which presumably means borrowers are better qualifi ed to purchase.
Brown said he doesn’t see the current demand dropping off anytime soon, but it won’t last forever.
“I expect this uptick in activity and prices to level off over the next two years, but that may be a good thing,” Brown said. “No one in our business, or anyone, wants to see the pre-recession type of activity and another ‘bubble.’”