Kentucky Real Estate Market Trends & Analysis


The Kentucky real estate market has generated a considerable amount of momentum in recent history. For two years now, the Bluegrass State has increased demand in the face of rapid appreciation onset by COVID-19. Real estate in Kentucky is on a proverbial hot streak, and a great deal of the state’s recent activity is due to interest in one of the country’s most affordable markets. It should be noted, however, that affordability is relative. Despite being more affordable than many of its counterparts, the state of Kentucky is seeing its median home value test new highs each month. The rapid increase in prices has altered the investor landscape, and real estate entrepreneurs should pay special considerations to where the market is going in 2022.

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:

Kentucky Real Estate Fees & Regulations

Real Estate

Closing Conducted by: Attorneys
Conveyance: Grant Deed

Foreclosure Procedure

Primary Foreclosure Method: Judicial
Process Period: 5 - 6 months
Notice of Sale: Court
Redemption Period: Up to 12 Months

Taxes

Income Tax: 2.0% - 6.0%
Corporate Tax: 4 - 6%
Sales Tax: 6.00%
Estate Tax: No
Inheritance Tax: 0.16%
Median Property Tax: 0.72%
Property Taxes by County: http://www.tax-rates.org/kentucky/property-tax#Counties

Average Transactional Costs

Closing Cost: $2,430.00
Transfer Fee: 0.10%
Origination Fee: $1,790.00

Kentucky Housing Market Overview


  • Median Home Value: $182,676

  • 1-Year Appreciation Rate: +14.4%

  • Pending Sales: 6,947 (-11.0% year over year)

  • Homes Sold: 4,515 (-14.0% year over year)

  • Median Closing Price: $223,000 (+11.5% year over year)

  • Median Rent Price: $946

  • 1-Year Rental Rate Increase: +9.1%

  • Price-To-Rent Ratio: 16.09

  • Average Days On Market: 85

  • Months Of Inventory: 2.2

  • Unemployment Rate: 4.1% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 4,509,394 (latest estimate by the U.S. Census Bureau)

  • Total Foreclosures (Q3 2021): 330 (+16.3% year over year)

Kentucky Median Home Prices


The median home price in Kentucky has grown considerably, thanks—in large part—to two overwhelming factors: supply and demand. In the wake of the pandemic, pent-up demand has converged with low interest rates and bigger savings accounts to create overwhelming competition. That said, there aren't enough homes in the Kentucky housing market to satiate demand. In addition to new builds being delayed by COVID-19, a distinct lack of inventory has created a historic seller's market. With more people competing over less inventory, sellers have been able to raise their prices for the better part of two years.

In addition to supply and demand constraints, 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 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 usual.

With the Kentucky real estate market seeing more demand than ever, the median home value is now $182,676. It bears worth noting, however, that Kentucky’s average home price hasn’t always been as high as it is today. About 10 years ago, the median home value in Kentucky was about $110,000, or 66.0% 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. In the last two years alone, since the pandemic was officially declared a global emergency, the median home value in Kentucky has increased 21.3%.

To put things into perspective, the median home value in the United States has increased 28.8% since the onset of the pandemic. Today, the median home value in the U.S. is $320,662, and 75.5% higher than that of Kentucky's.

Appreciation rates in the United States have outpaced Kentucky, and there's no reason to believe the trend won't continue. Nonetheless, real estate in Kentucky is expected to continue increasing in value for the foreseeable future. While it's too soon to tell just how much the median home value will increase, many forecasts call for a slower appreciation rate than in the last 12 months.

Kentucky Median Rent Prices


Increases in the Kentucky housing market have impacted the rental market on a local level. Not surprisingly, increases in home prices have priced buyers out of the market and forced them to rent. The resulting increase in renters has created more demand for leases and driven up rental rates all across Kentucky.

According to the latest data released by Apartment List, the median rent in Kentucky has increased 9.1% in the last year and now sits around $946. The latest increase in rents hasn't kept pace with home value appreciation over the last year. As a result, renters can expect to pay the following in rents (for now):

  • Studio: $671

  • 1-Bedroom: $749

  • 2-Bedroom: $932

  • 3-Bedroom: $1,128

  • 4-Bedroom: $1,336


For context, the national average rent price is about $1,309, or 38.3% higher than the average renter pays in the Kentucky housing market. While it is too soon to see how rent increases will play out, it's safe to assume rents will increase in Kentucky at a faster rate than last year. As more buyers turn to renting, demand will work against renters and increase rental rates.

Kentucky Foreclosure Trends & Statistics


According to ATTOM Data Solutions’ Year-End 2021 U.S. Foreclosure Market Report, 151,153 U.S. properties were reported to have received default notices, been sold at auction, or were repossessed by the bank in 2021, "down 29 percent from 2020 and down 95 percent from a peak of nearly 2.9 million in 2010, to the lowest level since tracking began in 2005."

Despite expectations that foreclosures would rise exponentially, filings remained relatively low throughout 2021. “The COVID-19 foreclosure tsunami that some people had anticipated is clearly not happening,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “Government and mortgage industry efforts have prevented millions of unnecessary foreclosures, and while it’s likely that we’ll see a slight increase in the first quarter, we probably won’t see foreclosure activity back to normal levels before the end of 2022.”

Foreclosures declined over most of 2021. However, it is important to note that the end of the year saw a reversal in trends. While slight, foreclosures started to increase on a national level. As foreclosure moratoriums expired and government assistance ended, more distressed homeowners found themselves in the foreclosure process. More importantly, it's safe to assume the momentum will continue in Kentucky in 2022.

Tax Lien Investing


  • Tax Lien or Deed: Tax Lien State

  • Interest Rate: 12%

  • Redemption Period: 1 Year

Kentucky Real Estate Investing


Investors have fared well in recent history, especially following years of historical appreciation. Equity in investments held for just a few years has increased significantly. That said, the same equity many investors covet is simultaneously eroding profit margins on shorter-term flips. Homes have increased in value so much that attractive profit margins are growing harder to come by.

According to the latest Home Flipping Report, “the typical gross-flipping profit of $68,847 in the third quarter of 2021 translated into just a 32.3 percent return on investment compared to the original acquisition price. The national gross-flipping ROI was down from 33.2 percent in the second quarter of 2021 and from 43.8 percent a year earlier, to its lowest point since the first quarter of 2011.”

With attractive profit margins growing harder to find, investors are turning to another strategy: long-term rental properties. For starters, it has never been cheaper to use institutional money to buy a home. To stimulate the national housing market, the Fed announced it would keep interest rates low to make buying a home more attractive. According to Freddie Mac, the monthly average commitment rate on a 30-year fixed-rate mortgage is currently around 3.56%. Will increasing with each passing day in 2022, it's still affordable to borrow money. The lower interest rates associated with today's purchases will decrease monthly mortgage obligations. Therefore, investors who use today's rates may increase monthly cash flow and increase profit margins on long-term rental properties.

Today's landlords will also find their assets receiving plenty of attention. With a price-to-rent ratio of 16.09, affordability doesn't substantially favor renters or buyers. However, the city's distinct lack of inventory means more people will be forced to rent (even those who want to buy will be relegated to the renter pool). Demand for rental properties should increase for the foreseeable future, simultaneously lowering the risk of vacancy and increasing the amount of rent landlords may charge.

Investors are lucky to have several viable exit strategies at their disposal, but none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many essential market indicators are pointing towards becoming a buy-and-hold investor in Kentucky to ignore.

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 valuable information. 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:

  • More Investors Will Turn To Rentals: It became clear that Kentucky's housing market couldn't keep up with demand in the past year. With just over a few months of inventory, existing listings will sell fast, and those who didn't buy will be forced to rent. As a result, the growing need for rental properties will help investors compensate for the lack of profit margins on short-term flips.

  • Prices will continue to rise: Prices in the Kentucky real estate market have risen for more than a decade, 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 inch higher. Thanks primarily, in part, to a distinct lack of inventory, homeowners are in a position to increase asking prices.

Summary


The Kentucky real estate market may be summed up in one word: affordable. With median home values considerably less than the national average, the Kentucky housing market awards today’s budget-conscious investors with plenty of opportunities. 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.

Sources:



https://www.zillow.com/ky/home-values/
https://www.zillow.com/home-values/
https://www.census.gov/quickfacts/fact/table/KY/PST045218
https://www.bls.gov/regions/southeast/kentucky.htm#eag
http://www.freddiemac.com/pmms/
https://listwithclever.com/real-estate-blog/average-time-to-sell-a-house-in-kentucky/
https://www.kyrealtors.com/about-us/news/ky-home-sales-retreating-remain-above-pre-pandemic-levels
https://www.attomdata.com/news/market-trends/foreclosures/attom-year-end-2021-u-s-foreclosure-market-report/
https://www.attomdata.com/news/market-trends/foreclosures/attom-september-and-q3-2021-u-s-foreclosure-market-report/

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