Welcome to 2011 and the latest edition of The Hangover, my analysis of the Central Kentucky housing market. It’s a new year, and the final numbers are in for 2010, undoubtedly one of the most challenging and interesting markets I’ve lived and worked through since becoming a Realtor® in 1993! Our official monthly market report has been released by the Lexington Bluegrass Association of Realtors®, and here is my take on the numbers, what they mean, and where we are headed.

A New Year for the Kentucky Housing Market

The three main categories I focus on are pending sales, total inventory numbers, and average sales price. The headlines always report on our market in terms of sales closed, and of course that’s an important number, since it doesn’t matter how much property sells if it never closes. However, looking at closings is like looking in the rear view mirror…that’s an indicator of past activity, sometimes as far back as a year. Pending numbers give me a better feel of what’s happening now…how many buyers are out in the marketplace. Inventory numbers are also an important indicator of how the market “feels”, both to the consumer and to real estate professionals. I think it contributes to the overall market mood…when I hear customers or clients say things like “there seem to be a lot of for sale signs up in  my neighborhood”, what they’re really saying is “will my house ever sell?”, or if they are a buyer, they might be thinking “what’s the rush?”. Finally, average sales price is just an indicator to me of market stability, although other factors, like the tax credit, can manipulate this number.

Overall, the local market was worse in several ways compared to 2009…sales units were down, dollar volume closed was down, inventory and supply numbers were up, days on market were up, etc. The average sales price of Lexington homes was up, mainly as a result of the tax credit pushing most first time buyers to the first three months of the year, and then that buyer evaporated for the rest of the year. It is a sliver of good news though, and we will take what we can get! Many parts of the country would love to trade places with us with respect to our market conditions.

Lexington homes

What does 2011 hold in store? I’m expecting a market that looks much like 2010. The key factor will be when the first time buyer returns to our market, we will see the trickle up effect improve all price ranges. What’s keeping them away? Huge inventory levels, continued low interest rates, and lending policies that have swung way too far to the conservative side. The first two items combine to create absolutely no sense of urgency…why rush when the choices and the deals just get better and better? Lending policies do not need to return to the insane days of “no documentation” or “low documentation” loans, but they do need to relax from where they are now. The first quarter sales numbers will look horrible, but remember those numbers will be compared to the first quarter of 2010 when our market was artificially stimulated by the tax credit.

I am frequently asked about the foreclosure situation and how it affects our market of Lexington homes. While some specific neighborhoods have been battered by high foreclosure rates, overall, our local area and the state as a whole still falls way below the national average in the number of foreclosures taking place, but there are more than ever in our marketplace, with no apparent end in sight.  Foreclosures affect our inventory levels and ultimately our average sales prices, and will continue to do so. While many of these properties don’t compete with other listings as a result of their inferior condition, I am seeing more and more foreclosures and/or short sales come to market in average or above average condition. They are not just the physically distressed properties like they once were.

What’s the good news? Interest rates have ticked up a little but still are very low, making this one of the greatest buying opportunities of all time. The retail spending numbers from Christmas seemed to indicate a little more consumer confidence, at least until the Visa bill arrives this month! Also, despite worse than normal weather locally, open house traffic has been strong for this time of year…throw in a couple of decent weekends weather wise, and we could see folks come out the woodwork!

Here is the Pending Sale chart with the December 2010 number:

Market Statistics - Click to Enlarge

As always, my goal is to provide accurate, timely information on our local market. Feel free to call or email with any questions or comments. Should you have friends or family in need of a real estate pro, please pass my name on to them.