Sales Volume Falls Dramatically as Tax Credit Ends

Mt. Washington, KY-

The First Time Homebuyers Tax Credit that expired April 30th is playing out and soon the real estate market will be left to fend for itself.  Buyers have until June 30th to close their deals to reap the benefits.


Many real estate agents in Louisville described April as a mad scramble.  The effect was felt in Mt. Washington too.  The tax credit created a wave of buying and thus the law of waves applies: the higher the crest the deeper the trough.


Pending sales are up in March and April of this year by about 28% over 2009 and our "May Effect" is stronger too.  Sales volume dropped a precipitous 35% in ‘09 this year it plummeted 53%.


So far there is no noticeable affect on prices.  As the summer continues the rest of the story will unfold and we’ll know if prices are holding or sinking.


For the time being interest rates at or below 5% for 30 year fixed mortgages will continue to be an incentive to buy and will help drive demand.


Stay tuned for an update on how prices hold up.

Mt. Washington Homes Withstand Recession!

The recession started in December 2007 so I ran the numbers on five of the metro area’s most populous counties to see how our  market is weathering the storm.

Louisville has historically been stable, avoiding the effervescent fevers and crashes that other parts of the country sometimes suffer.

But this downturn is different because it’s broader and deeper than the pullbacks of recent memory.   It’s no surprise  that our market is getting battered with the rest of the country but some areas have a cold while others have the flu.

The 1st chart below points out we have suffered a pandemic.  Jefferson and  all the major east-end counties are in negative territory since the downturn started in ‘07.

Going back a little farther, to the beginning of 2005, flushes out the sickest areas.  Bullitt and Shelby Counties show they were beginning to weaken, probably from the fast pace of new construction, while Spencer County is revealed to be clearly overbuilt.

Meanwhile, Mt. Washington plugs along, the steadiest of the steady with no appreciable decline in real estate values since the onset of the recession of ‘07.

Do Above Ground Pools Add Value?

One of my clients asked me about the value of his above-ground pool.  He bought a 'fixer' in an east end subdivision and wants to know if he should keep the pool or get rid of it.  

I couldn't find enough sales in his subdivision to make a graphical study so I searched the MLS to identify a couple of similarly priced subdivisions that did.  

In the course of my efforts I learned that the above-ground pool mecca of our metro area is Hillview and the areas directly to the north and east of it.  I chose one subdivision from this area, Hunter's Hollow.  

Next, I went east just inside the Gene Snyder to Fern Creek were I found the sister developments of Farmgate and Farmgate Springs.  

My results will surprise many real estate veterans, appraiser and real estate agents alike.  Appraiser's are trained not to give them any value since they aren't considered "real estate" according to Fannie Mae appraisal guidelines.  Realtor's typically follow suit.

For years as an appraiser I have had to deal with the dilemma by skirting the issue.  Time and again, I noticed these houses sold for a premium.  When I had to appraise a house with an above ground pool I dealt with issue by making sure to include other houses with them.  That way I could give them value but under the underwriter's radar.

Based on the sales in Hunter's Hollow an above ground pool adds about $5,500 to the value of a property.  The typical property used in my study from this subdivision is 1,100 Sq.Ft. and the pool tends to give it a $5.00 per Sq.Ft. premium.  

In Farmgate and Farmgate Springs a typical is about $5 to $7 per Sq.Ft. but the houses are larger.  The average house in my survey was about 1,450 Sq.Ft. in these developments so an above ground pool tends to add about $7,000 to $10,000.  Not too shabby.  

Take a look at my graphs here-  Value Added by Above-Ground Pools

A note of caution.  First, if these types of pools aren't well accepted in your subdivision I don't think you'll realize similar gains.  They were fairly common in the subdivisions I did my study on which means people there like them.  Second, my years of experience has taught me that the people that have these pools tend to have more disposable income than their neighbors.  This often translates to their houses being better maintained and updated too.  Regardless, there is no denying that above ground pools add considerable value in some neighborhoods.  

Land Costs Around Louisville

A recurring question I deal with is the topic of land costs in our metro area.  Especially from incoming transplants.

One of the advantages of our city is land, land, land.  It's not a big deal if you are moving from a similar size city or smaller one but those down sizing metro areas often get a glint in their eyes when the think about realizing long held dreams of buying a home with land.

Land can add considerable cost to a property especially in Jefferson County.  This pushes the vast majority of buyers outside Jefferson County and into the outlying areas where it's possible to pick up an acre of ground in a deed restricted subdivision starting at around $20,000.

Consider Heritage Hills in Spencer County.  It requires a minimum of 1,700 Sq.Ft. and is near Taylorsville Lake and Tanglewood Golf Course.  One acre lots are typically $21,000.

In the Orchards at Plum Creek in Shelby County prices double to $42,000 for a typical 1 acre lot where the minimum size house is 2,000 Sq.Ft.

1 to 2 Acre Lots by County-

• Bullitt        $30k to $65k
• Jefferson   $32k to $350k
• Oldham    $43k to $190k
• Shelby      $20k to $180k
• Spencer    $18k to 50k

Costs within Jefferson County vary considerable depending on which side of town it's on.  The south end and southwest are relatively affordable , about on par with Bullitt County, but if you want to live in the east side of town the cheapest seats start at $80,000 and the median price is $208,000 for a +/-1 acre site.


So, that's the sparse skinny on vacant ground.  If you don't want to build keep in mind that those houses you are looking at have contributing 'land' costs and the better the location the higher the underlying cost.  That's why a modest 1960's 1.5 story around the park can cost a $100,000 more than a similar house in a less desirable location.  For an extreme example think about picking up a modest house here in Louisville and dropping it on the beach in Malibu, CA; you've just created a million dollar property.... you get the point.

Appreciation Rates Around Louisville Kentucky

Thoroughbred breeding is about blood lines, bourbon is about maturity, and real estate is about location, location, location.

The most expensive locations tend to be the most recession proof, are in the highest demand, and tend to appreciate better than average.  This holds true for the bluegrass state too.  

I just ran the numbers for five of Louisville's most popular counties to see how they were weathering the recession which I just learned began in December 2007.  I used the beginning of 2005 as my basis so the net gains and losses posted below are in relation to where the market was in January of '05.

The quick facts are:
County                             Net
Bullitt County                     0

Jefferson County              +4%
Oldham County                +2%
Shelby County                  -1%
Spencer County               -14%

If you would like to see a chart click on the county for a pop up graph.

One note about my methodology.  The "West End" of Louisville is a basket case so I have omitted it from my Jefferson County numbers, along with Old Louisville, because it was expedient.  I'll eventually do a post on it but   I think this gives a more realistic portrayal of it's market.  Shively and other western neighborhoods that are to the south of the Algonquin Parkway are included. I also omitted houses less than 5 years old from the sales data in all the counties. I did this for several reasons but some of the main ones are as follows: gives a better representation of appreciation, builders often don't list new houses on the MLS so many would be missed anyway, houses tend to depreciate rapidly in the first five years and then tend to 'sink or float'.

Beware the Boogie Man (child molesters)

Does the Boogie Man live next door or down the street? How close is his domicile and what does he look like? Should you have extra concern for your children's safety when they go out to play or is your street as safe as it appears?

Whether it's mentioned or not these questions run through every parents head when they are looking for a new home. Before you pluck down all your hard-earned savings and take on the burden of a 15 to 30 year mortgage it's a good idea to know your neighbors a little better. The last thing you want is to unnecessarily put your children in harm's way and/or have buyer's remorse after moving into your new house.

Although there's no national register of sour pusses (boy, I wish I had the resources to start that one!), there are national registers for sex offenders.

I analyzed 29 popular zip codes in the Metro Louisville and gave them a "Boogie Man" ranking.

Boogie Man Chart

I was surprised at the results and you will be too. In all fairness, I'm not sure how accurate the numbers are for Southern Indiana but they are the best available. Let me explain, there are four zip codes that hold 4 of the 5 worst rankings. The zip codes are from across the river in Southern Indiana. Sex offender registries are maintained at the state level so if someone knows about a flaw in the Indiana data base let me know because their numbers look horrible!

After tabulating the number of registered offenders in each zip code I used estimated current populations for each one to determine my "Boogie Man" ranking.  In one zip code fully 1% of the population were registered; think about it, that's 1 out of every one hundred people!  That's creeeepy.

Some of the safest areas are also the most expensive and the most popular. St. Matthews, the Highlands, Glenview, Hurstbourne, Lyndon, and Prospect all scored very well and are at the bottom of the list.

Not far behind are a few outside Jefferson County- Mt. Washington, Crestwood, and Taylorsville, located in Bullitt, Oldham, and Spencer Counties.

The worst performers, the abode of the "Boogie Man", are Clarksville, Sellersburg, New Albany, located in Southern Indiana, as well as Old Louisville.  Other problem areas included West Buechel, Shively, and the Iroquois Park area.

Check your own address, daycare or schools in the Louisville area, as well as Southern Indiana. Be safe, and protect your children!

If you would like to download my "Boogie Man Ranking" it's on my website- http://kennedyvalue.com/Blog.aspx

P.S.  Sorry my website is such a mess.  I'm trying to redo it myself.  Maybe I'll have time to finish it by the time the kids are 18.

'Liquid' Real Estate

According to conventional wisdom, real estate isn’t a ‘liquid’ asset because it cannot be converted to cash quickly.  I’m not referring to cashing out equity in a refinance. I speak specifically about the ability to sell property quickly for full market value.  In this feature I have highlighted the market performance of five popular subdivisions with a spot light on liquidity.

Not all real estate is created equally and some is more liquid than others.  In this case I'm focusing on nice, attractive, well-built, houses coveted by the successful in the $300,000 and up price range.

I have analyzed several developments and areas, 15 to be precise, with special consideration to three primary indicators of market strength.  These indicators, when combined, paint a telling portrait of supply and demand, and market health.

My key indicators are as follows-  "Days on market" refers to the number of days it takes to sell a home.  The lower the better.  "Inventory" refers to the supply of houses and I prefer to consider it in terms of how many months supply there is based on sales in the past quarter and the past year.  Finally, the "x factor" accounts for all the listings that expired or were canceled. I consider this my "struggle" factor.  As a general rule, an "x factor" under about 1.5 is good with 2.0 or above bad.  The lower the better.

One of my favorite locals historically for ‘liquid’ real estate is the Indian Hills area.  It sits just north of Brownsboro Road (Hwy 42) just inside the Watterson Expressway (I-264). These aren’t cheap seats either. In 2009 the median home price was $437,500.  In prior years these houses sold in 65 days or less and from 2003 to 2006 they sold in less than 50 days typically.  Now under stress, the typical marketing time rocketed to 158 days in '09 but it's back down to 119 days so far this year.  The "x" factor has remained respectably below 1.5 during the entire time and now sits at just 1.2.

A little farther out, near anchorage, sits Owl Creek just south of Old Lagrange Rd. and north of Middletown (Shelbyville Rd.).  With a median price of $325,000 this subdivision was a strong performer in 2009 and only has a 4 month supply of homes on the market, the lowest of the 16 subdivision and areas I sampled for this piece.  It's "x" factor was the second lowest at an even 1.0.  It took just over 100 days to sell a house there in '09 but otherwise performance was very good.

Turning back towards town I found a rock star performer- Crescent Hill. It's epicenter is Hillcrest Ave. & Frankfort Ave.  It's the cheapest subdivision analyzed with a median price of just $247,000.  It's high mark?  It took the typical home just 50 days to sell with a respectable "x factor" of 1.2.  It is doubtful if this trend will continue as strongly in the near future because it has a relatively high inventory of about 10 months supply.

For good measure I thought I'd throw in a high profile Oldham County subdivision.  I'm including it for name recognition, not for it's performance, or lack of.  Hillcrest, which lies on the north side of Hwy 42 between Prospect and Goshen gets a "weak" rating in my analysis. It has a median price of $502,450 which is the highest of the developments I analyzed.  Typically, it took 152 days to sell a house in this pearl of Oldham.  While it's "x factor" remained just inside the safe mark of 1.4 it has an 11 month supply of houses on the market.  If you have to sell, this would not be a nice place to live.  

The poor performer award goes to... Locust Creek.  With a median price of $492,500 and the momentum of the 2008 Homeramma in its favor, I only wonder how a development could do a bigger belly-flop.  If you live here and you want to move, sit down for the next line.  The typical marketing time is 254 days and there is a full one year supply of houses on the market already.  The "x factor" is 2.1 which ranks poor and my heretofore undisclosed "strength indicator" (more on this perhaps in another post) identifies it as the worst performer by a significant margin.  This is a real Wizard of Oz development at the moment because it will make you want to tap you shoes and "go home"- to somewhere else.

Subdivision Strength Ranking  (click here for chart)

Finally, for perspective, the typical marketing time in Jefferson County is 132 days with a baseline ‘x’ factor of 1.2. When you consider the median sale price in the county is $133,900 over the same period as my other examples it is evident that there are some neighborhoods in Louisville where you can sink a substantial amount of money into a house yet enjoy the liquidity usually afforded only to less expensive properties.