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When Mike and Allyson Heissenbuttel started looking to buy their first home in Lexington four months ago, they knew the local housing market was heating up – but they didn’t expect it to sizzle quite that fast.
With the lease on their Mentelle Park home coming up for renewal, the couple started actively looking for a place to call their own. They wanted something close to downtown and priced under $300,000, and they didn’t mind the idea of putting a little work into it. They found a house that fit the bill in the nearby Kenwick neighborhood and made an offer the same day, Mike Heissenbuttel said.
But they lost out right away to a bidder who offered more than the asking price for the property. The same thing happened on the second house they found. And the third. And the fourth.
“We lost out on three other offers to someone bidding over asking price,” Mike Heissenbuttel said. “On the last one, we were going to offer over asking price, and the Realtor said, ‘Don’t bother – that’s not enough.’”
And the Heissenbuttels aren’t the only ones, according to some local Realtors, who said Lexington has been experiencing the most active real estate scene they’ve witnessed in decades.
“It’s the busiest market I can remember, and I’ve been selling real estate for 30-plus years,” said Becky Reinhold, principal broker for Bluegrass Sotheby’s International Realty and Realtor for the Heissenbuttels. “Demand is high and inventory is low, especially in the below-$400,000 price range.”
Reinhold attributes the recent frenzy to low interest rates paired with an increase in consumer confidence, both converging at a time when many would-be first-time homebuyers are deciding they have waited long enough.
While it’s not a completely uncommon story in today’s local market, such frenzied bidding wars are still more the exception than the rule, even for the current highly active real estate environment. While lower-priced property listings have been somewhat limited, that is not the case for homebuyers with slightly higher budgets, said Turf Town Properties Realtor Rick Queen.
“I think it’s really more a matter of price range,” Queen said. “For homes priced up to $300,000, there’s a very low inventory in the whole area ... There’s a real shortage of properties for sale in that price range, but as you climb out of that level, the inventories are very decent.”
Although many are quick to point to concerns about inventory and supply, the prevalence of new buyers and the resulting rise in demand has been the real driving force behind the current market activity, Queen said.
The Heissenbuttels, who are in their late 20s, are among a growing number of millennials, both nationwide and in Fayette County, who are making the leap into homeownership a little later in life than previous generations, said David O’Neill, Fayette County’s property valuation administrator. According to a recent Fayette County Housing Demand Study, homeownership rates in Lexington, which dropped from 55.3 percent in 2005 to 51.5 percent in 2015, are expected to rise back up to 52.75 percent by 2025.
At the same time, Lexington’s population is on pace to top 350,000 by 2025, according to the study. To accommodate that growth, the city would need to bring an estimated 22,780 additional housing units online between 2015 and 2025.
“That’s a rate that Lexington is nowhere near – nor have we ever been,” said O’Neill. “So therefore, demand is going to continue to be high, and prices are probably going to continue to increase.”
And it’s not just the first-time buyers who are feeling the urgency to move fast, said Bluegrass Sotheby’s Realtor Mina Mattone. Mattone sees a lot of young professionals these days who are very attached to their neighborhoods and just biding their time in smaller living spaces as they wait for the right real estate sign to appear in front of a bigger and better house nearby.
Mattone recently sold a five-bedroom Victorian on Central Avenue priced just under $600,000 in less than a day, she said. A couple walking by the home a few hours after she planted the for-sale sign asked to look around, and an agreement of almost full price was cemented by noon the next day. When Mattone sold the exact same house four years prior, it lingered on the market with little interest for six months before coming under contract.
“That doesn’t happen every day,” Mattone said. “But it’s just a very different market.”
A shortage of supply
One major factor in the frenzy that some homebuyers like the Heissenbuttels have been experiencing is an unusually low inventory of homes on the market, especially for those at lower price points.
“A lot of that is because Lexington is not replenishing its supply of entry-level homes,” O’Neill said.
New homes that are being built tend to fall into higher price ranges, O’Neill said.
At the same time, the low sales inventory has driven up demand for rentals. More investors have jumped into the market to vie for homes they can convert into long-term rental income, O’Neill said, which means even fewer available properties for today’s first-time home shoppers than before.
The issue of a sufficient housing supply is one that needs to be addressed as the city looks to update its Comprehensive Plan in 2018, O’Neill said, and the debate is already underway on whether to expand the Urban Services Boundary, the growth boundary that limits development on rural areas within Fayette County.
“Something’s got to give,” O’Neill said. “For whatever reason, people don’t seem to be terribly incentivized to pursue further infill development [under the current system]. Hopefully that will change with our next Comprehensive Plan.”
For Queen, while a mild winter and an early spring launched a very active buying season in the Bluegrass, the bigger picture shows a market that has been building steadily and consistently. But that doesn’t mean local buyers are leaping to snap up any deal they can find, he warned.
“I don’t think that it is absolutely unreal from the past couple of years,” Queen said. “Almost all of Fayette County has been busy, but certainly price and location still drive the business. … People are looking more for homes that are ready to move into, and ones that suit their lifestyles a little better.”
Neighborhoods on the rise
Neighborhoods that have been perennially desirable have continued to maintain steady popularity in the current climate, O’ Neill said. Reinhold said neighborhoods such as Chevy Chase, Kenwick, Ashland Park, Glendover and Lansdowne have been especially attractive to buyers, as has the downtown area.
“Downtown is eclectic enough to attract the young hipsters and professional 40-somethings as well as the semi-retired ‘cool’ older groups,” Reinhold said. “[They] all appreciate being able to walk to restaurants and events. There is no one stereotype or average price range for downtown, and that’s what makes it a fun place to live.”
But rising demand has also contributed to a notable increase in turnover activity in a growing number of older communities built after World War II, such as the Southland Drive corridor and areas along Clays Mill Road.
Smaller homes in the Southland area that were available not too long ago for less than $100,000 are now selling for twice that amount, according to Mattone.
“There’s a whole generation of older people who are moving on, and young people are just buying them up like hotcakes,” Mattone said. “It’s the up-and-coming place to be.”
Queen has been seeing a lot of transition in not-so-old neighborhoods like Hartland Gardens, where original homeowners who have lived there for 15 to 20 years and are now looking to move on to the next stage in their lives.
In addition, some newer neighborhoods, such as Masterson Station and Chilesburg, have tightened up, with very few options presenting themselves for resale, Queen said.
Advice for buyers and sellers
The scarcity of inventory means it is an excellent time to sell, Mattone said – provided the owner knows where they plan to move.
And in a fast-moving market, it is worth the investment for potential sellers to get their homes market-ready before they invite buyers to look, Queen said.
“You don’t really have a second chance to bring buyers back to a home if everything wasn’t complete when it hit the market,” Queen said.
At the same time, homebuyers should be sure to consider all the options and be willing to open their search criteria a little wider than they might have initially intended, Queen said.
“There are certain areas that look appealing and that might not be as price sensitive as other markets,” Queen said.
Reinhold suggests that buyers try to stay patient, and if there is no imperative to buy, they might wait until the real estate cycle slows naturally, which typically happens a bit later in the fall.
For the Heissenbuttels, their search eventually paid off, although it still meant moving fast enough to beat other buyers to the punch. When Mike Heissenbuttel found a promising new listing for a house on Tahoma Road on an early morning in June, he called Reinhold right away to get him in as quickly as possible. He walked through the house at 9 a.m. the same day, while his wife was at work, and they worked up a full-price offer on the spot, which was accepted.
“In the end it worked out,” Mike Heissenbuttel said. “I think we ended up getting the best house we looked at, but the process has been just draining.”
His advice to other homebuyers is not to let the pressure get to them.
“Even though it seems like you’re never going to find it, you will,” he said. “You just have to be patient.”