Learn more about the housing market in Kentucky

Every state is unique when it comes to the real estate market. That’s why it’s critical to understand the market you live or operate in. Whether you’re renting, buying, or selling, it will impact many aspects of your life.  

Kentucky Housing Market Overview 

Kentucky is known for cultural, industrial, and artistic outputs like bluegrass music, the Kentucky Derby, and bourbon whiskey, while being home to legendary figures like Muhammad Ali.  

In 2024, Kentucky faces many challenges. The state’s average income is below the national average (Kentucky’s mean household income is $57,200). Additionally, Kentucky has the sixth highest poverty rate in America. Over 16% of citizens live below the poverty line (the national average is 11.8%). Kentuckians often face a variety of socioeconomic difficulties, including food deserts and limited public transportation and healthcare options. 

Some of these factors likely contribute to the state’s low housing prices and appreciation compared to other states. However, the other side of these things is that owning a home is affordable in many Kentucky cities from a price standpoint. Income, though, isn’t keeping up with prices, so that presents difficulties for many citizens. 

Kentucky Housing Market Trends 

To understand the Kentucky real estate market, it’s important to keep up with trends. Let’s look at some key ones in Kentucky: 

Note: These statistics are based on Redfin’s monthly housing data from May 2024. 

Median Home Price 

The median sale price for homes in Kentucky is currently $268,500, up 6.6% from last year in May. Per US News and World Report, KY is 5th in the country in housing affordability and 9th when it comes to cost of living. Thus, overall, this state is quite affordable. That said, it’s worth noting that some cities in Kentucky tend to have higher home prices. For example, the median home price as of May 2024 in Lexington, Kentucky is $330K (per Redfin). 

Number of Homes Sold in April 2024 

4,320 homes sold in Kentucky in May of this year, up 1.6% from May of last year. This metric gives us a good picture of the current sales volume in Kentucky. However, keep in mind that this number might be inflated compared to other months since nationally speaking, sales usually peak during the spring and summer months and slow in the winter. In fact, the National Association of Realtors (NAR) predicts that in February and March alone, sales activity increases by as much as 34% and prices by 3%. 

Median Days on Market (DOM) 

Days on market (DOM) is a measure of the average length of time a home remains listed on the market before being put under contract. A lower DOM signals a highly competitive seller’s market with more pressure on buyers to make higher offers and remove contingencies. A higher DOM signals a buyer’s market as sales are slower and sellers have less leverage. 

The current median days on market (DOM) in Kentucky is 35 days. This means, on average, homes in Kentucky stay on the market for around 35 days before being put under contract. Kentucky is a somewhat competitive sellers’ market. 

New Housing Supply

Housing supply is an issue in Kentucky. It’s tight in a somewhat competitive housing market. The two months of supply in Kentucky right now backs this up, a number that is well below the four to five months of supply experts generally say represent a healthy market. 

Property Tax Rate 

The average property tax rate in Kentucky is 0.83%, according to Rocket Mortgage. This places Kentucky’s average property tax rate near the middle of the pack in the U.S. However, keep in mind that property taxes vary widely depending on the specific county of Kentucky and the market value of the home. 

Foreclosure Rate in Q1 of 2024 

In the first quarter of 2024, 1 in every 2,280 homes experienced a foreclosure filing (according to recent data from ATTOM). Based on this data, Kentucky’s foreclosure rate is close to the middle compared to all the other U.S. states. 

Hottest Local Markets in Kentucky 

Although Kentucky properties may not be as in-demand as some neighboring states, the state still features local housing markets with good prospects for homeowners and investors. Below we cover a few of these markets. 

1. Lexington

This city is renowned for its horse farms and thoroughbred racetracks like Keeneland. So renowned, in fact, that the city is often referred to as the “Horse Capital of the World.” It’s also the second most populated city in Kentucky with a dense suburban feel and residents who commonly own their homes. 

The housing market is extremely competitive in Lexington. Houses put up for sale receive 3 offers, on average, and the market has a DOM of 24 days. Per data from Zillow, this sellers’ market is 7th out of the top 50 cities in KY with the fastest-growing home prices in the state. 

2. Louisville

Louisville is the hometown of one of the most notable sports figures in history (this author would also argue he’s the greatest boxer of all-time, but that’s a different kind of article), Muhammad Ali. It’s also home to the most famous annual horse race in the world: The Kentucky Derby.  

The housing market here is also quite competitive with the same amount of average offers and DOM as Lexington. However, the median sale price is much lower at $267,000. 

3. Newport

Located right next to the river, Newport is a combination of modern and historic Kentucky. The Newport Aquarium and the World Peace Bell are part of a lovely downtown. It’s a small but growing community with a healthy local business scene. 

The median home price in May of 2024 was $251,500 with a DOM of five days. Northern Kentucky is building about 1,600 new homes per year recently, but many of these aren’t widely affordable. According to a Northern Kentucky Area Development District (NKADD) study, the eight counties covered in the study (including Campbell County, which Newport is located in) need 6,650 units in the next five years to meet reasonable economic development.  

Economic Factors Impacting the Kentucky Housing Market 

A holistic view of the Kentucky housing market requires a basic understanding of the main economic drivers affecting the market. Let’s look at a few critical ones below: 

Mortgage Rates 

High mortgage rates are a continuing challenge for would-be homeowners in the U.S. Kentucky’s average rates for 30-year mortgages in June of 2024 are 6.97%, which is close to the national average. Higher interest rates deter borrowing and discourage those who already own homes from putting their homes on the market. Many homeowners report feeling “locked in” to their current homes, as it is unlikely they will secure a mortgage rate as low as their current one on their next property. Prospective buyers in Kentucky should monitor mortgage rates in the coming months for a better understanding of how they impact the housing market. 

Inflation and Cost of Living 

Mortgage rates are tied to inflation, another massive contributing factor to the affordability of housing and the state of housing markets in general. Inflation has increased the cost of living for many across the U.S., including in Kentucky. This means fewer people can truly afford to limit housing costs to less than 30% of their monthly income. 

Population Changes and Demographics 

Population, migration, employment, and other demographic factors can each influence the housing market. Increased migration can lead to inflated prices and rents as demand increases, while slowing population growth can lead to more affordability for residents. Kentucky’s population growth from 2020 to 2023 was a modest 1%. The amount of citizens 65+ grew almost 37% between 2010 and 2022, which is a substantial number that displays an aging population. 

Kentucky Housing Market Forecast 

As shown in the NKADD study earlier, affordability (particularly in Northern Kentucky) is an ongoing concern. The average income isn’t keeping up with the rise in prices. A lack of variety in price points and rentals is also making things difficult for the general workforce.  

Central Kentucky is seeing a lot of the same issues, and the outlook isn’t great there, either. Median homes prices in this area were at an all-time high at the end of 2023. Bluegrass realtors believe that homebuyers may face extreme competition as interest rates drop and more buyers come back into the market. If demand goes up, prices will follow suit. 

Likelihood of Kentucky Housing Market Crash  

Experts generally agree that a housing market crash in Kentucky is unlikely. Even with high interest payments and increasing home prices, inventory is going up (not enough to meet demand, but it’s still climbing) and demand remains strong. 

However, what some leaders call first-time homelessness is a major issue that Kentucky is trying to address. The market is pricing many people out. And this presents a problem that isn’t going anywhere soon. So, even if a housing market crash is unlikely, the outlook is concerning in other ways. 

Forecast for The U.S. Housing Market 

Now that we’ve looked at the housing market in Kentucky, let’s zoom out a little bit. What about the U.S. housing market? What do you need to keep an eye on in the coming years? 

The United States’s current median existing-home sale price is around $384,500 per the National Association of Realtors. The inventory, though, remains low. A balanced market typically has a 5-to-6-month supply, but the current figure is 2.9. 

We’re currently in a seller’s market with buyers looking at continued rising house prices. The same trend can be seen with renters. Housing continues to appreciate, in general.  

Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research, National Association of Realtors, believes the housing market will appreciate 15 to 25% over the next five years. He thinks that the seller’s market will continue because housing inventory will remain low. In five years, however, he predicts a more balanced market, in which neither party has a built-in advantage. Thus, the market will shift to a case-by-case basis to determine what kinds of deals people can get. 

Hybrid work also impacts the housing market. This shift in work culture means suburbia will continue to grow. States like Texas, the Carolinas, Tennessee, and Florida should see continual growth. 

The number of single-family homes built decreased over the past couple years while the number of multi-family homes increased due to lower prices and a demand for affordable housing. Higher mortgage rates and inflation (affecting price of materials) were the main causes.  

Lower income households continue to struggle in the current housing market. This trend appears likely to continue into the foreseeable future. Without enhanced supply or helpful subsidies, the outlook is that many Americans will still wrestle with housing affordability in the years to come.  

Kentucky Rental Market 

The rental and buying market are obviously closely linked. When home prices fall, landlords are more likely to buy properties to rent out. Home prices and rental prices are correlated as well because a hot market means prices rise.  

Rents were more unaffordable than ever in 2021 and 2022. In 2022, 22.4 million households paying rent said it was unaffordable, which is the highest that figure has ever been, according to a January report from the Joint Center for Housing Studies at Harvard University. The study found that half of all renters in the United States spent over 30% of their income on rent and utilities.  

The markets cooled in 2023, though, due to new units and decelerating demand. But a serious problem persists: Rent increases are still outpacing income gains.  

Moreover, high interest rates are keeping borrowing and transaction activity down. Over half the banks surveyed by the Federal Reserve reported that demand for multifamily loans decreased year-over-year. 

The pandemic caused a housing disparity that isn’t going away anytime soon. Unaffordable housing is a serious issue across America. Whether high rents or low income is the main cause doesn’t change the fact that this problem is widespread.  

This short summary leads directly into Kentucky’s current rental market, with key trends from Zillow. 

Kentucky Rental Market Key Trends 

• Median rent: $1,365 (this is 37% below the national median) 

• Month-over-month rent change: +65 

• Year-over-year rent change: +85 

• Available rentals: 3,045 

Conclusion 

The Kentucky real estate market in 2024 is marked by a blend of challenges and growth, making it crucial for potential buyers and sellers to stay informed about market trends. Whether you’re looking to purchase a home soon or sell your property in Kentucky, the macro- and micro- economic trends outlined above will affect your decision-making. Market dynamics like changes in home prices, inventory levels, and interest rates will continue to be critical for stakeholders in Kentucky real estate.