Central Ky. home sales finally rise, but building continues to weaken

Area realtors hopeful; new construction lags

ssloan@herald-leader.comAugust 19, 2011 

For the first time in more than a year, monthly residential home sales rose in Central Kentucky.

The 11.1 percent July increase also was notable because the effects of the federal homebuyer tax credit, which primarily ended in June 2010, were not a factor.

"We do have good comparisons now year over year, which we did not have before this month," said Barb Curtis, president of the Lexington-Bluegrass Association of Realtors.

Last month's sales of 592 homes was down 25 percent from the 788 homes sold in July 2009, but it still was a welcome change after numerous declines that hit double-digit percentages during the past year.

The hope is that the increase might be the spark that leads to improvement in the long-weak market.

But another economic indicator — building permits — seems to suggest the housing market is still searching for a bottom, as the number of permits issued for single-family homes is dropping to levels not seen since 1981.

In June 2010, Realtors sold 804 homes in Central Kentucky counties, up 3.5 percent from June 2009. It was the last time until last month that sales had risen compared to the previous year. During that time, the drops in home sales ranged from a high of 40 percent in October to a low of 8 percent in March, with most being 20 percent or higher.

But beginning a few months ago, the Realtors group noted that the number of pending sales began to increase compared to the previous year. And last month, the number of pending sales was up 15 percent, Curtis said.

"Hopefully this is the forecast of things to come," she said.

July also marked the first decline since May 2010 in a measure called months of inventory, which is the average amount of time a home is on the market. That fell 10 percent, to 10.9 months from 12.1 months. In a healthy housing market, that measure should be about five or six months. Any time span shorter than that is a seller's market, and anything longer is a buyer's market, which Curtis emphasized.

"There are still a lot of homes to choose from, but there aren't as many as there were," she said. "Interest rates are absolutely wonderful, so it's a great time to buy."

She said some people are finding that mortgage rates make buying a home cheaper than renting one, and some builders are renting out homes they have been unable to sell.

The bad news

Just as Curtis noted, it's been a tough time for area builders. Even last month, when home sales rose, it was due to existing homes.

Realtors in the 14 Central Kentucky counties that LBAR represents sold 595 existing homes, compared to 518 in July 2010. Sales of newly built homes, by contrast, fell to 38 from 67 a year earlier.

And that could be getting worse. The number of permits issued to build single-family homes in Lexington has fallen to what are possibly all-time lows.

The city issued just 23 such permits in July, said Dewey Crowe, director of Lexington's Division of Building Inspection.

"We can't even find in our records a month that low," he said. "We came close to that in January with 25, but that's a winter month and in a down cycle."

Crowe said the city was on track to issue the fewest residential permits since 1981, when interest rates had soared because of economic issues. That year, 525 permits were issued. With 2011 more than half over, there have been 263.

The year-to-date figure is down 36 percent from last year, proving "we're still looking for the bottom," Crowe said.

That said, the uptick in sales might "translate into additional permits and more construction," he said, "but so far, we're not seeing it."

Todd Johnson, executive vice president of the Home Builders Association of Lexington, said "any activity in the market is positive news for any part of this industry" at this point.

He said home builders are seeing some activity, but increased lending restrictions are making it difficult for some to build speculative houses — those built without buyers lined up — to try to spur sales.

The future

But if business picks up, builders might encounter other problems. Tim Haymaker, owner of Lexington's Haymaker Development Co., said there are few available housing lots for builders in Lexington, and banks' caution about loans is slowing the availability of others.

"What's on the ground is going to be what's on the ground unless you've got really deep pockets and can make these things work without being highly leveraged," he said.

In Haymaker's case, he has been arranging financing in different ways and plans to add 60 to 70 lots in his Summerfield development on Winchester Road between New Circle Road and Hamburg. He also hopes to finish 50 more lots in his Coventry development on Georgetown Road at Citation Drive by spring.

But as well as things are going for Haymaker, he said, he doesn't expect it to jolt the city's numbers.

"I think you'll see our lots as a percentage of the whole go up, but I don't think you'll see the whole go up since some other developments are winding down," he said. "There just aren't many lots in the market."

Reach Scott Sloan at (859) 231-1447 or 1-800-950-6397, Ext. 1447.

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