Two-Year Review – Louisville Housing Market – December 2022

Louisville, like most of the Midwest, you’ve heard me say before, is generally consistent, low risk, and relatively unexciting. For real estate investors, or should I say “long-term real estate investors”, this is good news. We just don’t have the ups and downs in the Louisville housing market like the east and west coast markets.

The prime rate has such a profound impact on both the residential and commercial real estate markets. It is the main driver in the volume of transactions since most people purchase real estate using leverage. In December 2020, the rate was 0.9% and was that way through March 2022 when it increased to 0.33%. Then, it increased to 3.08% by December 2022. Word on the grapevine is that an additional rate hike of 50-75bp is slated for today, December 14, 2022. That would bring the prime rate to the highest level since 2007.

So what does this mean for Louisville real estate? First, we’ve all noticed a significant slowdown in the volume of transactions. The chart above shows that November 2022 saw 1,123 closed sales, the lowest since January 2022. For all of 2022, the market has averaged 1,470 sales per month. Furthermore, from March 2022 to October 2022, the market averaged 1,594 sales per month, which has generally been the appetite in the market for the last 2-3 years. However, seasonally, we must look at November through February as the “slow” season in Louisville. For the 2020 season, the average was 1,350 homes per month, in 2021 it was 1,392 sales per month and now, the volume has dropped to 1,123 sales per month, a 17% decrease for this winter.

Inventory is another factor we review when we appraise properties. Generally, we consider a healthy market to have 3 to 6 months of inventory at any one time. This generally leads to sales prices that are about 95% to 97% of list price with a 30-90 day window on the market. Since December 2020 (and prior), inventory has ranged from 0.8 to 1.7 months, which lead to crazy sales contracts, cash deals, contract prices over asking, and generally multiple offers on every house. Most people were putting 15-20 contracts down on homes before they got one. Now, November 2022 showed that inventory has finally broken the 2-month threshold at 2.2 months. In my opinion, this is actually healthy because it leads buyers to make better decisions and not overspend.

But what about prices? So what if inventory is up and volume is down? From the chart above, we can see that the average list price, average sale price and median sale price are all down for November. However, compared to November 2021, the list price is up 3.8%, the sale price is up 1.8% and the median sale price is flat (up $500). So, my opinion is that although there is more inventory and fewer properties to sell, real estate values are holding for now.

In 2007, during the subprime meltdown, we saw properties that were significantly overleveraged, and overvalued and borrowers that really shouldn’t have qualified for a loan. I would think that NINJA loans (no income, no job, no assets) are hopefully a thing of the past. Now, properties, because of the tighter lending standards after the last recession, are not overvalued and borrower credit strength is higher.

I think the Louisville housing market will weather this storm. I think prices will be flat for 2023 and into 2024 and then start to increase slowly by 2025.

As we move into 2023, feel free to contact us for an appraisal.