Housing turn-over cycle; a slow road to balanced
By RICK CHANTRY
The local housing market is finally showing more signs that it’s stabilizing. Some of the signs are faint, and it would be wishful thinking to expect a quick turnaround. It took almost four years for it to evolve to its current status. Getting back to a balanced status quo is a necessary waypoint that’s still on the horizon.
Housing economists are calling what’s now happening a turn-over housing cycle. Here are some of those turn-over signs and why the cracks in the red-hot market are moving so slow:
- Home sales have lagged last year’s totals every month since March. What’s more telling is June’s and July’s sales are slightly below pre-pandemic levels for the same months. That’s significant because the 2022 year-to-year comparisons pit a slowly stabilizing market against the region’s all-time 2021 highs. Comparing this year to 2019 matches this year to one that was robust but less frantic than the pandemic-driven chaos.
- The search for stabilizing price signs is wonkier because housing prices are incredibly sticky. They are not likely to decline quickly because there’s no big factor that will cause owners to sell below the current market price. Prices are still increasing, and the year-to-year comparison remains on a double-digit path. But the increase for the past three months has been less than the year-to-date average. That doesn’t point to a big price decrease. It’s certainly not a price cut signal. But it does suggest the typical sales price is moving toward a new normal.
- Inventory is a major stress point on the path toward balanced housing market fundamentals. New listings have increased, but many are being snapped up at a rate that keeps a lid on active inventory. That puts positive gains on a glacial pace. August’s number was slightly less than last year. The number of new homes is also increasing, but at a slower rate, due to inflation, material costs, continued supply chain issues, and the labor shortage. Without more new homes – and the rental shortage – homeowners who would like to sell are stuck. Many are sitting tight until inventory loosens up.
- The last time the region had balanced conditions was in 2018. There was an average 5.3-month inventory of homes for sale on the market that year. So far, this year months of inventory have increased every month across the region. The rate of increase is about 1/10th of a percent per month on the path toward a 5.5 to 6 months of inventory benchmark.
- Time on market is another demand indicator to watch. It’s increasing. That’s a sign that demand is weakening. Weaker demand puts downward pressure on prices. But like other pointers, the pace is agonizingly slow. In August, the average home that closed was on the market for 45 days. That has increased by one-day-a-month increments since April. It’s a sure sign demand is weakening. But it’s still more than double the time a home was on the market during August 2019.
One thing economists and economic geographers use to gauge the housing supply is market tightness. It’s the ratio of housing units to occupied households. The Tri-Cities area ratio is 1.10 to 1.4, which is rated as very tight to average.
Cracks to the red-hot housing market are showing up. As we move toward more seasonal conditions some will become more defined. Still, given current conditions, a recovery to balanced conditions looks to be in the slow lane.
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