Kentucky Real Estate Market Chilling Out

Snowmen lined Lexington’s streets in past winters.

This year, the Herald-Leader reports, it’s For Sale signs.

The signs have been multiplying since last summer when the national housing slump arrived in the Bluegrass State, and even the optimistic forecasters say this unwanted visitor is unlikely to leave before next summer.

So what’s the problem? Kentucky mortgage rates are low. The economy is strong. But there’s too much inventory for the market to recover for at least another six months. After that, it’s anyone’s guess.

“Everything I am reading says the second and third quarter should really look up,” says Becky Murphy, president of the Lexington-Bluegrass Association of Realtors.

Others aren’t as sure.

“The best indicator … is probably the housing futures market, and it is showing price declines (and sluggish demand) for at least a year to a year and a half,” said Brent Ambrose, a Pennsylvania State University economist who previously headed the Center for Real Estate Studies at the University of Kentucky.

Falling home prices and weak demand can be good news for buyers in a tepid Kentucky housing market, but sellers, on the other hand, are starting down more long delays and financial stress.

“You just have to wait and see what you get. I think a well-priced house will sell, even in this market,” said Katie Blair of the local Realtors association.

“With [mortgage rates] that have dropped… a little bit, and the weather, hopefully, will get better, I’m feeling pretty optimistic,” she said. “We have the time to wait.”

On Bay Colony Lane in Masterson Station, Eric and Kristy Little “put the ‘for sale’ sign in the yard on the first of October.”

The listing price was about $217,000. Today it’s $205,000.

They have had only a few expressions of interest. No offers.

“I’m still optimistic,” Kristy Little says. “You just have to be patient. I knew going into it that October wasn’t the best time to sell.”

Now, rather than continuing the for sale by owner approach, the couple is looking into getting a Realtor. Kristy Little is hoping that with good weather and tax refunds in their pockets, buyers will come out to look.

“It’s just really frustrating,” she said. “Because I know this is a really good location and the area appreciates so quickly. I just think this is a great deal.”

Many other homeowners in the Kentucky housing market and all around the country are feeling the same frustrations as the Littles.

Existing home sales declined in 40 states and in half the United States’ metro areas during the last three months of 2006, and home prices have followed suit, the National Association of Realtors reported last week.

Meanwhile, the Commerce Department said new housing starts plunged 14.3 percent in January to the lowest level since August 1997.

Why are sales slow?

The selection of new and existing houses is the highest in years and prices are beginning to fall. The economy is strong and employment is strong, so why are home sales so sluggish?

“I think they (buyers) are sitting on the sidelines waiting to see if prices maybe aren’t going to go down a little bit,” Blair said.

“The good side of that is once people wait and see, we are going to have a lot of additional people buying and that will be good for the industry.”

The Realtors’ association says sales of houses, town houses and condominium apartments in the Lexington area were down 3.2 percent in 2006 after five consecutive years of record sales.

The average sales price was up 1.8 percent compared with 2005, but the area’s average days on market came in 10 longer than in 2005.

Sales in the first half of 2006 paralleled the record-breaking pace of 2005, but slowed in the second half of the year.

In December, 5 percent fewer houses, town houses and condominiums were sold than in December 2005, and prices were down nearly 6 percent as home loans became too expensive for many residents.

It also took 20 days longer to sell a house in December, and the inventory of unsold properties was 48 percent higher than a year earlier.

“The past year (2006) was still our third-best year ever,” Murphy said.

ARTICLE AND PHOTO SOURCE: Lexington Herald-Leader