Housing market’s road ahead bumpy, slow to change
By RICK CHANTRY
October’s Home Sales Report clearly defines there’s a market change underway. But it’s not exactly a sales or price bust. Here in NE Tenn. and SW Va. the readjustments are not quite so dramatic – especially when you employ some context.
Sales are down 20% from last year. Yes, that sounds like a lot. It is when you compare this year to the best sales year the region has ever seen. Look a little closer. Compare sales with the last normal market before the pandemic turned everything upside down.
October’s sales are slightly below what they were in October 2019, which was a solid year. And if you look at monthly sales patterns, last month’s sales are on the same basic track followed for the seven previous years.
The takeaway: What’s happening is a normalization of the market.
The region’s median single-family existing home sale price has significantly improved from past years. In October, it was $232,500, up 16% from last year. The market’s median – or mid-price point – has been flat since May. The range is $232,500 to $250,000. It’s a significant change from the past two years when there were monthly price bumps. Compared to the 2019, the price is up slightly over 45%. That means the typical seller pocketed $72,500 more than the typical October 2019 sale. The price growth rate will surely slow down, but price rollbacks are another matter.
There are all kinds of analyses and projections about where prices will land. That’s a difficult quest. It’s difficult because both the regional economy and the demographic are changing, and both are major home demand and price influencers.
DEMAND, PRICE INFLUENCERS
Much of the region’s population growth has been and will continue to be based on four factors. They are:
- The region’s high death rate.
- The region’s low birth rate.
- The number of residents who move to other areas every year.
- The number of new residents who move here.
The most current Census numbers show the region’s population projections is 0.04% year-over-year growth. There are some hot spots like Hawkins and Johnson counties, but the lion’s share goes to Washington and Sullivan counties. And the region’s two major markets – Johnson City and Kingsport – are claiming most of that influx of new residents. The population growth the region is experiencing is strongly dependent on attracting new residents. Back-of-the-envelope calculations show the Tri-Cities region must attract about 34 new residents daily to sustain the 2020 Census status quo.
This is a significant influencer. Like many other markets, the Tri-Cities region is suffering a housing shortage because of the lack of new inventory for a little over a decade. Local builders and the nation’s largest builder – D.R. Horton – are slowly chipping away at the new home inventory. Progress is slow due to labor and material costs, an unreliable supply chain, and inflation. D.R. Horton’s economists put the Tri-Cities region’s new home demand at 3,500 to 5,000 new homes during the next five years.
Existing home sales are also a factor. The region has thousands of owners who bought when mortgage prices were at rock bottom. Many will have to think twice about walking away from that low rate when they trade up or scale down and look at rates that could be in the 6% to 7% range.
Balanced market conditions are typically described as five to six months of inventory. Currently, we have a little under two months. That’s how long it would take to sell everything on the market at today’s sales pace. Existing home inventory – like the new home inventory – is increasing. But it won’t happen quickly. It took the local market four years to slip from balanced conditions to what it is today. The road back may not be as long, given current conditions, but it will be slow.
The best strategy for buyers to navigate that road is to find a reliable lender and understand what they can afford. Be just picky about partnering with a local Realtor®.
Sellers are still in the cat bird’s seat because it’s unlikely things will shift to a buyers’ market for quite a while. Still, they need solid local market conditions. As we said last week: Watchwords for a transitioning market: Stay focused, stay local.
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 1,800+ 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