How a hot market really sucks

As I was driving home today after a closing, I got to thinking about how the market is always  changing.

When I got into this, it was much like today.  Buyers felt lucky just to get a house and sellers were drunk with power.

Then there was the looming threat of a nationwide crisis.  We were convinced it wouldn’t  make it to Kentucky.  We all said things like “We didn’t see the crazy appreciation like California, Arizona or Florida did, so we won’t see any changes.”  Only we said that with the same fear in our voices as the kids from that Stephen King movie when they talked about Pennywise the clown.

Then “IT” happened. (See what I did there?)

It slowly went from being a seller’s market to a buyer’s market.

Nobody was happy.

Seller’s were bringing cash to the closing to payoff their houses.  Buyers were afraid their new house would continue to depreciate.  Buyers were hitting sellers up with big repair lists.  They felt the seller should just appreciate that they picked their house among the other 50 houses in the neighborhood for sale.

Then in late 2012/early 2013 we had this euphoric time.  Sellers were happy because their houses were selling in less than 6 to 12 months.  Buyers were happy because prices had stabilized.  Sellers were okay to do whatever repairs were requested since they were happy to have sold their house.  Buyers weren’t asking for as many repairs since they were happy too.  They knew the house wouldn’t be worth less by the time of the closing.  It was great!

Only it didn’t last.

Prices started going up.  Fewer houses were on the market.

Prices kept going up.  Even fewer houses were on the market.

Prices went up even more.  And even fewer houses were on the market.

And now we are back to where we were when I started, only a little worse.  Prices are sky high.  Buyers resent it but know they have to pay the price.  So, they are hitting up the sellers with big repair lists.  Sellers feel like they are doing a favor to the buyer just by accepting their offer.  They don’t want to do repairs.

Basically, nobody is happy right now.

What does this do to my property value?

I get asked that question a lot.

Believe it or not, most of the things we worry about don’t really have all that much effect on the value of a house….so no need to rush out of the neighborhood when there is a big change coming.

A friend of mine was upset because the city made part of his huge backyard into a retention basin to solve flooding issues.  He was worried that it would make his house worth less.

I told him that his backyard is so big, losing this space didn’t have any impact on how he or future buyers would use it.  There was still plenty of room for a pool, swing set, firepit or any outdoor thing people want in their backyard.  I told him that about the only person who might not buy his house now would be somebody who wanted to build a huge garage in that space.

I think part of what is hard for owners to realize is that the person buying your house when you sell won’t have the “Before” picture in their head of how it used to be.  Only the current owner will know what the good old days were like.

I had a friend say that Ball Homes building on the opposite side of the fairway from Greenbrier would hurt the property values.  I told her that while the view of a wooded hillside was preferable to seeing a new neighborhood, it was still nice to have a beautiful fairway to separate them, so it would not have any impact on value.  Only the current owners who remember the wooded hillside will ever know the difference.  The next buyers will say “Wow, look how pretty the golf course is” and how nice it is to have so much space behind your house in Lexington.

Then there are threats of new development.  Andover Hills and Andover Forest residents are afraid that if the foreclosed golf course fell into the hands of developers that their property values would plummet.  The residents of Squire Oak are concerned what several houses, townhouses and 3 story apartment buildings on the property along Armstrong Mill owned by Overbrook Farms would do to them.

There is no need to consider selling if you live in those neighborhoods.  Sure, it would be nicer to have less traffic, fewer homes, not lose the green space if you are lucky enough to back up to it…..but it will not have much impact, if any,  on property values.  Plus, Lexington is only going to become more dense.  We should all get used to it.  I often see houses with terrible lots sell for practically the same amount as houses with average lots.  There are several houses that back to New Circle Road, the interstate, a shopping center, a light industrial area.  They usually sell for within 1-2% of what the houses with average lots do.

This might be the time to discuss the difference between property values and desirability.  A house that used to back to a farm and now backs to a 3 story apartment complex had a prime lot and now has a below average lot.  The value might not change much at all, especially in a sellers market.  What it does do is make the house less desirable.  That just means it might take more showings before catching a buyer in a slower market.  Corner lots or houses on the main drag through their neighborhood experience this already but nobody notices.

Want to know something funny?  YOU have the most control over your own property value.  A clean, updated house that is move in ready will always sell for top dollar regardless of the market and what is around it.

Got $500k or more? It’s your market

Once a month the local MLS sends out the sales statistics.  Being into numbers, it is always fun to drop a K-Cup in the Keurig and check it out.

I guess the biggest news is that when you compare Fayette Co sales in September 2016 to September 2017, the number of new listings was down 16% and the number of sales were down 13%.   Hard to sell houses when fewer are for sale.

This whole year has been a frenzy.  Agents and buyers are struggling to find houses.  Everybody is talking about what a hot market it is…..but I think the word we use should be tight.  It’s a tight market.

The hot market was last year.  There were more sales in 2016.

January 2017 beat January 2016.  390 sales compared to 318.

Every other month in 2016 saw 40-90 more sales each month.

The fine line between a seller’s market and a buyer’s market has always been which side of 6 months of inventory we are on.  Less than 6 months is a seller’s market.  More than 6 months is a buyer’s market.  In Lexington, it is a seller’s market up to $500k.   It is REALLY a seller’s market under $250k.   Got $500k or more?  It is very much a buyer’s market.  That is why prices on houses in this price range have been pretty flat for several years.  It’s a great time to move into this price range, especially if you are selling something cheaper.

I just finished that cup of coffee, so I guess my closing remarks will be that it is an interesting time to be in real estate.

 

What neighborhood is the winner in this market?

Masterson.  Formally know by it’s full name, Masterson Station.  While the whole neighborhood has seen values really go up, I think the true winners are the single story homes in the 1000-1350 square foot range.

Many many years ago, half of Masterson was in foreclosure.  That happened to a lot of the newer neighborhoods where the first owners bought at the top of the previous hot market with sketchy no money down loans.

I remember I would often spend ALL day with first time buyers just in Masterson when the market collapsed.  I would schedule 8-10 houses, all just blocks apart.  It would get confusing after a few.  I would find myself saying stuff like “This is the Roxbury plan by Schneider Homes.  It is the same floor plan as the 2nd, 3rd and 6th house we saw earlier, only this one has blue vinyl in the kitchen instead of tan, and it has a deck instead of a patio…..oh, and this one has a fenced back yard too.”  Then my client would say something like “I thought the 2nd and 6th house were the two story houses?”  Then I was like “No, it was the 4th house that was the two story.  It was a Ball Home plan.  The Fairfax is the name I think…..yes, that is it.  The Fairfax is the one I told you about that sometimes has an open loft instead of the 3rd bedroom, and realtors often call that a 3rd bedroom because they know nobody will come see it if they said it was REALLY a 2 bedroom house.”  Then my client would ask “What was the 5th house?  I don’t even remember it!”  I’d reply “The 5th house was the only occupied house we saw today.  The water was on and we both used the restroom.”  Client be like “Oh, I remember now. How do you keep all this straight?”  And I’d be like “It is taking every bit of concentration I have.”

Back then, $125k was like $155k is today.

Then the market improved.  I was amazed these houses were selling around $130k.

Then it got better.  I started seeing a lot of $140k houses a year ago.

Now a decent one is $150k, some are even higher!

That is a huge turn around from half the neighborhood being vacant houses that took 6 months to sell.

 

Is building the answer?

A lot of people think that we need to build our way out of the shortage of houses for sale.

I don’t.

The only places left to build in Fayette County are on the edges of town at a time when there is more and more interest in living closer in.  No builder is going to use the little bit of land we have left for anything less than a $173,950 house, which is the base price of the cheapest model Ball Homes will build in Masterson Station.  A quick search on LBAR shows the cheapest actively listed new construction home is $202,900.

I think the problem is affordability for first time buyers.  I have always said that it is the first time buyer who greases the entire real estate market.  They are usually the only group that doesn’t need to sell a house in order to buy.  It is like the bases are loaded and the first time buyer is the one who hits the home run so everybody standing on all those bases gets to move.

A lot of first time buyers are and will continue to look outside of Fayette County.  They will look in Lexington neighborhoods they would not have considered 10 years ago to make their numbers work.   They might even consider a townhouse or condo.

Like my baseball example, the bases are loaded.  The first time buyer is waiting to hit their home run, only there are no balls being thrown.  If more affordable houses come on the market, it will make sellers in all price ranges less worried about finding their next house.  Sellers know they can sell quickly but are worried about finding a house.  Remove that fear and we’ll have more houses for sale.