After two years of quick sales and ballooning prices, experts say Lexington’s residential real estate market will remain strong, even as mortgage rates increase and houses remain on the market longer.
Rick Queen with Turf Town Properties said he expects the real estate market to be quiet in Lexington through February. He said the market should pick up in March, April and May and remain brisk throughout the rest of the year.
“We’re seeing more homes on the market in the $100,000 to $200,000 range,” he said. “Buyers are ready to move up, and investors are selling because the interest rates are making those investments no longer a good deal.”
According to Realtor.com, current mortgage rates as of mid-February in Lexington are 6.13% for a 30-year fixed loan, 5.22% for a 15-year fixed, and 6.76% for a 5-year adjustable-rate mortgage. Nationally, a 30-year fixed rate mortgage is 6.24%, up about 3% over this time last year, while a 15-year fixed rate mortgage is 5.51%, also up about 3% over last year.
Queen said, in his experience, mortgage lenders are getting more creative in finding ways to get people into loans. In some cases, he said, mortgage rates are declining while other interest rates continue to rise. While rates are nothing like the 3% and 4% rates borrowers saw during the COVID-19 pandemic, they are far from mortgage rate highs in the 1990s.
According to Freddie Mac, interest rates since the 1970s have fluctuated. In the ’70s, data from Freddie Mac showed 30-year fixed-rate mortgages were in the mid-7% range, but climbed to 11.2% in 1979 amid peak inflation. In 1981, mortgage rates peaked at an annual average of 16.63% caused by the Federal Reserve raising rates to stem inflation. By the end of the ’80s, mortgage rates had fallen to around 10%, where they would mostly stay until 1998 when rates dropped to 6.94%.
Queen said the current interest rate increase is impacting the trend of purchasing properties to run them as Airbnbs. While Lexington had many Airbnb properties, he said, a good number of those in downtown Lexington went on the market at the end of 2022.
Additionally, interest rates and inflation are affecting the house-flipping industry.
“It has really slowed down,” he said. “The cost of entry for house flippers is higher, making it more difficult to turn a profit. Additionally, increases in the cost of homes, materials and labor are going up. That’s not to say there aren’t flippers still out there, but the flipping business has really slowed down.”
Housing in central Kentucky, he said, remains a good value, and more affordable housing is not far off. Developments in and around Fayette County, as well as grants through the federal government for residents at certain income levels, will make homeownership more attainable in the coming two years.
The key for buyers and sellers over the next six to 12 months, he said, is patience and finding a real estate agent who can walk you through all of the complexities of the current market.
Kelley Nisbet, 2023 president of Bluegrass Realtors, said she anticipates prices to remain the same, but that sales numbers won’t come close to the pandemic boom.
“It’s likely that the number of transactions trends down in 2023 when compared with 2022 and certainly when looking back to 2021 or 2020,” she said. “There have been an extraordinary number of sales the past few years, especially during the height of the pandemic, and that pace can’t keep up forever. That said, we fully expect pricing to remain strong as we still have a significant shortage of homes for sale.”
Home prices, she said, continue to rise, even if houses stay on the market longer.
In her estimation, this year will be a good time to buy a home.
“The best time to buy a home is yesterday. The next best time is today,” she said. “The truth is home values only go up when considered over an extended period of time. Housing remains in short supply and won’t change any time soon, which will elevate homes in the region.”
With the limited housing supply, the market remains in sellers’ pockets, she said.
“Prices are likely to remain strong as demand continues to outstrip supply,” she said. “Although we are unlikely to see the same buyer fever we saw in 2020 and 2021, it remains a seller’s market as months of inventory have hovered around three months or less throughout 2022.”