The Kentucky real estate market has generated a considerable amount of momentum in recent history. For several years, the Bluegrass State has managed to outdo itself in terms of both sales volume and units sold; more importantly, there’s nothing to suggest the trend won’t continue.
Real estate in Kentucky is on a proverbial hot streak, and a great deal of the state’s recent success is due to a strengthening economic climate amidst one of the country’s most affordable markets. More inventory is moving because — quite frankly — it’s cheaper to own real estate in most of Kentucky than it is to rent. As a result, investors may not only be able to find and acquire discounted properties, but also witness attractive profit margins because of growing demand.
The Top Kentucky Real Estate Markets
While the best real estate market in Kentucky is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Unemployment Rate: 4.4% (latest estimate by the Bureau Of Labor Statistics)
Population: 4,468,402 (latest estimate by the U.S. Census Bureau)
Median Household Income: $46,535 (latest estimate by the U.S. Census Bureau)
Percentage Of Vacant Homes: 12.30%
Foreclosure Rate: 1 in every 4,549
Kentucky Median Home Prices
The median home price in Kentucky has grown considerably, thanks — in large part — to two overwhelming factors: a thriving economy and the state’s close proximity to Illinois. The unique combination of economic expansion and affordable real estate has stimulated the market in a way that hasn’t been seen since before the most recent recession. With a better economic climate, it’s sufficient to say that the Kentucky real estate market will see more activity, further appreciating local real estate.
In addition to an economy that supports its own housing market, home prices in Kentucky have received an extra boost from their neighbor to the West: Illinois. For far too long, the state of Illinois has impeded the progress of its own housing market by implementing prohibitive homeownership taxes. As a result, prospective buyers in Illinois are crossing state lines into Kentucky to actively participate in a more affordable market. The increase in demand has helped drive up prices in Kentucky at a faster rate than the national average.
With the Kentucky real estate market firing on all cylinders, the median home value is now $147,300. It bears worth noting, however, that Kentucky’s average home price hasn’t always been as high as it is today. In fact, no more than eight years ago (December 2011), the median home value in Kentucky was about $110,000, or 33.9% lower than it is today. At that time, Kentucky was in the depths of a recession, but strong economic fundamentals and momentum generated by the United States housing market helped pull the state out of the doldrums.
To put things into perspective, the median home value in the United States increased 57.6% over the same period of time. That’s not to say the real estate market in Kentucky underperformed, but rather that the United States (as a whole) had a lot of ground to make up from the latest recession.
Appreciation rates in Kentucky over the last year have managed to maintain pace with national trends (even exceed) — 5.1% and 4.7%, respectively. In fact, the Kentucky real estate market has mounted such a strong recovery that home values have surpassed pre-recession highs. That said, there’s still room for growth; home values in Kentucky are expected to increase as much as 3.5% over the next 12 months. The country as a whole, on the other hand, should see prices appreciate somewhere in the neighborhood of 3.4%. As long as inventory remains tight and demand persists in the face of growing prices, home values should continue to rise.
Kentucky Median Rent Prices
Rental rates are directly correlated to their mortgage counterparts: When home prices increase, rental rates are likely to do the same. When home prices and demand increase, more people are priced out of the market and forced to rent. Added competition in the rental market translates into higher rates more often than not. Whereas home prices in the Kentucky housing market have increased 33.9% since 2011 (when they were at their lowest point of the recession), rents have increased a more modest 13.8%. At the end of 2011, the average rent list price was about $988 per month. Today, the average rent list price in Kentucky is $1,125 per month. As a general comparison, the average rent in the United States is $1,650.
With a median rent of $1,125 and a median home value of $147,300, Kentucky’s price-to-rent ratio is about 10.91. It is actually cheaper to buy a house than to rent one in the state of Kentucky. Despite nearly a decade’s worth of appreciation and marginal rental rate increases, more people are inclined to buy. While buying appears to be the most cost-effective living arrangement, renting remains an affordable alternative.
Kentucky Foreclosure Trends & Statistics
Data presented by RealtyTrac, a nationally respected real estate information provider, suggests the Kentucky real estate market has a relatively low distribution of foreclosures. The ratio of distressed homes in the state of Kentucky is actually lower than the national average. With approximately one out of every 3,831 homes in some stage of distress (default, auction or bank owned), Kentucky’s foreclosure rate is approximately 2.6%. The foreclosure rate across the entire country, however, is about 3.9%.
Kentucky has traditionally had an equity-rich real estate market. However, despite exhibiting a lower foreclosure rate than the national average, the state has managed to improve its equity position over the long term. “As recently as October, “the number of properties that received a foreclosure filing in KY was 4% higher than the previous month and 14% lower than the same time last year,” according to RealtyTrac.
Year-over-year decreases in Kentucky’s foreclosure rate may be attributed to the state’s improving economic climate. More job opportunities, lower unemployment, and higher wages have enabled more Kentucky residents to actively participate in the housing market. Perhaps even more importantly, improvements to nearly every economic indicator have helped more homeowners get out from underwater.
Despite recent improvements made by the Kentucky real estate market, there are still distressed pockets across the state worth keeping an eye on. Five counties, in particular, have a higher distribution if distressed homes than anywhere else in the Kentucky:
Robertson (1 in every 576)
Hardin (1 in every 1,281)
Jefferson (1 in every 1,660)
Kenton (1 in every 1,695)
Bath (1 in every 1,819)
Tax Lien Investing
Tax Lien or Deed: Tax Lien State
Interest Rate: 12%
Redemption Period: 1 Year
Kentucky Real Estate Investing
Today’s most successful real estate investors have made a habit out of relying on several important indicators. However, there’s one indicator that takes precedence over just about everything else: attractive profit margins. Only deals with worthwhile profit margins are acceptable for investors to acquire. Consequently, distressed assets traditionally boast the best profit margins of any available properties. Therefore, Kentucky real estate investors should pay special considerations to the state’s distressed property inventory.
Not surprisingly, distressed assets have become synonymous with motivated sellers. Delinquent homeowners, or even banks with no intentions of holding onto non-performing assets, are more likely to sell their assets a discount than to continue on their current path. Homeowners run the risk of filing bankruptcy and financial institutions aren’t in the business of holding real estate inventory that’s not cash flowing.
Distressed assets award savvy investors with higher profit margins than their traditional counterparts, and there’s no larger distribution of distressed assets in Kentucky than those which are currently up for auction. Auction homes make up 46.8% of Kentucky’s distressed inventory, which means investors searching for profit margins may tip the scales in their favor by attending a local auction.
It is worth noting, however, that 29.6% of Kentucky’s distressed real estate hasn’t been foreclosed on at all. Otherwise known as pre-foreclosures, slightly more than a quarter of the state’s distressed homes are merely at risk of foreclosure; there owners have simply fallen behind on payments. While some may have valid excuses for falling behind on payments, others may be in serious financial trouble. Those unable to “come current” on mortgage payments may be more inclined to sell their homes; it’s that, or face the ramifications of foreclosure.
In order to identify homeowners who are behind on payments (and perhaps motivated to sell), investors should take a trip to their local courthouse, where the information is made available to the public. There, they’ll be able to find the owners behind on payments, and — even more importantly — their address and contact information.
Pre-foreclosures and auctions currently represent the largest ratio of distressed homes in the Kentucky real estate market. However, knowing where to find distressed homes is only half the battle. Once investors secure deals, they need to know what to do with them, which begs the question: Which exit strategies are working the best for Kentucky real estate investors?
Despite having appreciated for the better part of a decade, Kentucky home values have remained relatively affordable — at least compared to the national average. Nonetheless, prices are higher than they have ever been. As a result, Kentucky real estate investors have found solace in the fact that their own market facilities the use of nearly every exit strategy. In particular, wholesaling, rehabbing and renting have served as viable options, and should continue to do so for the foreseeable future. As long as demand persists in the face of appreciation, investors should find themselves with plenty of opportunities in the Kentucky real estate market.
Kentucky Housing Market Predictions
It should go without saying, but predicting any market without an inherent degree of error is impossible. There is absolutely no way to guarantee the future of a respective market. However, it is possible to interpret historical data and make educated guesses. As long as those listening to the resulting information are aware that there is a margin of error, translating what the market is telling them could result in some valuable information. In fact, those with an “ear to the ground” are more likely to be able to anticipate what’s coming. As a result, it may not be a bad idea to make a few Kentucky housing market predictions.
Let’s take a look at what is most likely to happen in the Kentucky real estate market over the next year:
Every exit strategy will remain a viable option for investors: Kentucky real estate investors should enjoy a great deal of freedom when it comes to choosing between exit strategies. If for nothing else, real estate in Kentucky looks perfectly capable of catering to rehabbers, wholesalers and landlords.
Prices will continue to rise: Prices in the Kentucky real estate market have risen for eight consecutive years, and there’s nothing to suggest they will stop now. While appreciation rates are expected to temper slightly, there’s every reason to believe they’ll match national trends moving forward. Thanks largely, in part, to a distinct lack of inventory, homeowners are in a position to increase asking prices, to the tune of about 3.4% in the coming year.
Optimism in the industry will work to Kentucky’s favor: The Kentucky real estate market has a lot working in its favor, but optimism remains the state’s greatest resource at the moment. The steep decline in foreclosure activity suggests more residents are ready and willing to participate in the market. On top of that, improvements in the economy will stimulate a great deal of activity moving forward. For all intents and purposes, more people have expressed confidence in the local market.
The Kentucky real estate market may be summed up in one word: affordable. With median home values nearly $85,000 less than the national average, the Kentucky housing market awards today’s budget-conscious investors with plenty of opportunity. That said, Kentucky real estate has plenty of room to appreciate; perhaps even more importantly, demand remains intact. As a result, just about everyone in the Kentucky housing market should benefit from the current environment: buyers, sellers and investors.
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