It’s a new year! With back-to-back records made in 2016 and 2017 now in the books, is it realistic to think that 2018 could be another one?
If you’re looking for expert analysis, you’ve come to the right place. Since launching LouisvilleHomesBlog.com in 2006, I’ve been analyzing the stats of Louisville real estate each and every month. I’m looking at the numbers to see what has happened, identify trends and make predictions about what we can expect going forward.
Let’s get right to it!
1. Louisville Stays a Seller’s Market
If you haven’t checked out my Louisville Real Estate 2017 Year in Review you might give it a read. That’s looking back. This is looking forward. And the view is almost exactly the same.
Until we achieve a balanced market, home sellers will have the upper hand. Not only with amazing home appreciation rates but also when it comes to speed of sale and a higher price when selling.
Looking at the chart to the right, you’ll see that our absorption rate has been under 3 months during the entire past year. This metric looks at how many months will it take to sell out all of our inventory if no new listings come onto the market and the sales rate remains constant.
It will take a large influx of new listings to push our absorption rate higher and I don’t believe that will happen in 2018.
While the American economy is booming, buyers across the nation are currently putting a premium on move-in ready homes. Sellers who have homes that aren’t especially updated can now pull in a good portion of those buyers because choices are so limited.
2. Buyers Having Fewer Options
Speaking of which… Louisville home buyers have far fewer options to choose from. This goes hand-in-hand with point #1. When one side is up (Sellers) the other side is invariably down (Buyers).
For the most part, real estate transactions come in pairs. When a home seller does quite well on the sale of their current home, they will currently pay more on the buying side. If the values are similar, it’s a somewhat balanced result. Sellers that are moving up in price won’t do nearly as well as those who are downsizing in 2018.
What does this mean for Louisville renters? After all, new apartment developments just… keep… happening.
According to Zumper.com, the average rental rate for 2-bedroom apartments in Louisville have gone up 8% in the past year to $950/month. For 1-bedroom units, the average is up 13.8% to $910/month. It’s clear that if these renters could qualify for a loan, they’ll do far better buying than renting here in Louisville. The payment (principal and interest) on a 30-year loan of $150,000 at today’s rates is just $760/month.
3. Top Agents Earn the Lion’s Share
This past year has been a very strong one for Louisville real estate with 12,564 transactions reported by GLAR. That’s a huge number!
But when you stop and consider that there are about 4,300 Realtors, not to mention, real estate agents who aren’t Realtors, you realize that’s not as much as you might think. On average that would be 2.92 deals for each agent during the course of the entire year. Take that number and multiply times the average price of a home sold in 2017, $206,390, then take 3% commission we arrive at $18,079 for the year. That’s before broker split, agency fees, taxes, CE, marketing, and several other costs.
To be fair, a portion of these agents aren’t full time and do not require a full salary. But it’s still something to consider. The majority of people becoming agents in Louisville aren’t making a great of income.
Before the switch to the new database system, I was able to gather data on Louisville real estate agents and slice-and-dice the numbers to come up with average salaries for agents who sold real estate. After three years of doing this, here’s what I found.
The top 20% of agents made about 2/3 of all income.
The top 10% of agents made a little less than 1/2.
The top 5% of agents made about 1/3.
It was like clockwork. Each of the three years I performed this calculation the results turned out essentially same. Therefore, unless something unforeseen happens Louisville’s top agents will likely continue to earn the lion’s share of income in 2018.
4. Interest Rates Are Still Incredibly Low
The picture above tells it better than any words I could type. Mortage rates have been below 5% since 2010 and are even lower now.
There is the expectation that rates will rise in 2018 as they did this past year. But experts are looking for the gain to be modest and certainly no more than 1%.
When rates are low, as they are now, more homes exchange hands. More new construction is also taking place in Louisville and the surrounding counties, albeit at far higher prices than just 5 years ago. The effect of lower interest rates on all real estate sectors will be to make them more active.
Conclusion: Louisville Real Estate in 2018
Last year I predicted that 2017 would not surpass the previous year. It turns out, I was wrong. By the slimmest of margins.
As of today, both the new listings number and our absorption rate values are lower than they were at the same point last year. I will be surprised if 2018 somehow breaks our current record. Stranger things have happened but if I had to lay some money on it, I’d say we would land closer to the 12,000 unit mark for 2018.
Here’s hoping I’m wrong again!