Inventory, jobs growth today’s key housing market indicators
Despite some signs of a slowdown, local homes are still selling fast and at higher prices. May’s Northeast Tennessee Association of REALTORS® (NETAR) Home Sales Report is full of examples both.
The typical and average home sale prices hit new highs last month. The typical price increased to $250,000 last month. It used to be in the $200,000 and below range, but that changed during the surge of pandemic new residents. And for a couple of months this year it had a higher growth rate in the average price. That’s noteworthy because the average sales price was skewed by homes in the upper price ranges – 13% of all May sales were in the $500,000 and up range.
Those double-digit home price increase came during a month when there were fewer sales than the previous month or a year before. Sales were down 4% from April and 7% lower than in May last year.
Recent price increases and mortgage rate increases have clearly affected first-time buyers. It’s also beginning to shut out some of the affordable housing buyers. And it’s not over yet. The FED has signaled it plans to continue hiking rates to dampen inflation.
While the FED doesn’t set mortgage rates, interest rates indirectly affects them. And there’s a push from some FED insiders to target mortgage rates. The theory is cooling the red-hot housing market will help curb inflation.
That’s the plan. But May’s local housing report shows that demand remains strong even though there are clear signs it’s beginning to cool off.
Although builders have pulled all the stops to increase new inventory, the lack of supply in the new home and resale inventory is staggering. At the end of May, the region had barely a month of inventory. Things are tighter in some of the area’s city and community sub-markets. Almost half of them had less than a month’s inventory. Balanced market conditions are five to six months of inventory.
Demand in the new and existing housing markets has extended to the rental market. Although there were signs of some return-on-investment softening in the single-family and townhome rental sector during the first quarter, rent increases have outpaced wage increases.
The opposite continues in the apartment sector. There were 65,000 apartment units in the Tri-Cities region during the first quarter. Rents were up about 5% in the Johnson City metro area and almost 9% in Kingsport-Bristol, with no signs of slacking demand. One landlord said rents and new apartment construction will continue to increase until demand decreases. However, there are concerns that some submarkets could be at risk of oversupply.
So, what should hopeful buyers look for as the traditional spring-summer buying and selling season runs its course of strong demand and low inventory?
Real estate professionals are keeping a close eye on these two key metrics: Months of supply and employment growth.
So far this year, months of supply have hovered at or just below the one-month level.
Bureau of Labor Statistics reports show the region has recovered the jobs lost in the pandemic and is slowly adding new jobs. Employment has recovered in Johnson City while Kingsport and the twin cities are still struggling. The difference between a job and employment recovery is the jobs report focuses on metro areas, and employment is estimated at the county and city levels. And employment is based on where the employed person lives and not where the employment is located.
Most experts the current conditions to continue through the summer season, which usually peaks in June and July.
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