Housing market primed for more normalization
Jan Stapleton - 2023 NETAR President
Some forecasts are all about a turbulent market this year. Others are calling it a nobody’s market and focus on frothy sales and price conditions. There will likely be some of both on the short-term horizon. Yet the one thing that isn’t getting as much attention is given current conditions this year could be a robust market.
That’s how last year ended, even though the last half of the year was turbulent and frothy. One example is NETAR’s December and year-end reports. It showed that although sales declined for the first time in a decade; it was the third straight year for double-digit price increases.
The median existing-home sales price – that’s the middle of the market – was up 15.1% last year. The year before, it was up 17.6%. In 2020 it was up 11.1%. Those are five times greater than the historical price appreciation. Between 1999 and 2019, the average annual price increased by 2.7%. The Tri-Cities area historical norm has typically lagged the national average of 3% to 5%.
So far, the regional median price has not seen a big decline. It closed the year at $230,000. That number will probably see some revision when all the closings that came in late are added to the mix. The point is the annual closing price was 0.8% off the all-time high of $250,000 – set in May last year. While headlines about prices plummeting dominated the media during the last half of the year, local prices were in the falt and in the $245,000 to $228,000 range.
A conservative outlook for this year is a small price increase. That’s what National Association of Realtors (NAR) Chief Economist Lawrence Yun thinks will happen in some of the smaller regional markets like the Tri-Cities. It’s not unusual for these smaller regional markets to outperform the majors.
Inventory and affordability will be two critical market drivers this year. Several experts think mortgage rates will drop below 6% as the market moves into the prime home buying and selling season.
Combine that with affordability pushing down sales opens the door for inventory to gain a better foothold. But that doesn’t mean a quick return to balanced conditions. The outlook is for inventory to remain tight, which puts upward pressure on prices.
Local single-family and condo existing home sales first decline in a decade put the 2022 annual sales total at a level close to what it was in 2019 – the year before the pandemic turned everything upside down. That suggests the market has room to continue adjusting to something resembling normal conditions.
Of course, much of what happens depends on new home production. Several factors slowed the new home sector during the fourth quarter of last year. Now we’re beginning to see some builders offering incentives.
And there’s a big question about the existing home sales inventory. The time owners spend in a home before moving has increased from an average of seven to about 10 years. And many of those owners bought or refinanced to bargain basement mortgage rates. Owners have seen above-average equity gains, so the question is whether they will put their homes on the market and trade up or keep the properties with the low mortgage rate to use as investment properties to buffer the cost of a new home.
The odds favor a moderately robust local prime buying and selling season this year if mortgage rates drop below 6% as expected and the inventory situation continues improving. The overall state of the local market is for another year of transition to standard conditions.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,600+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us