Is there a limit to sellers’ pricing power?
Mortgage rates increased to an 11-year high last month. Inflation was at a 40-year high. And the typical existing home sales price topped out at an all-time high. March’s median home sales price was almost double what it was in 2012. Combined, they beg the question: What happened to the predicted slower market, and how long will this go on?
The local market has been a hot mess so far this year. There are signs that the market is cooling off, but it hasn’t shown up in sales or prices yet. And local sellers have not begun dropping their asking prices as they have in some other markets. They haven’t because demand is still very high, and there are buyers who have not reached the limit to what they can afford.
Last month’s median listing price was $239,900. It was unchanged from February and at a 15-month high. The local focus has turned to the median listing price because it best identifies the middle of the market. A market center baseline is important since continued demand for higher-priced homes has skewed the average listing price. It’s $115,440 higher than half of all the homes listed last month and competition for expensive homes is expected to heat up.
The limits to sellers’ power and the current market status will be tested during the second quarter. One sign of market slowing is last month’s median sales price was less than the listing price. Homes that sold below the listing price were primarily cash sales those with conventional loans. Sales with FHA, THDA, USDA, and VA loans went for more than the listing price.
Almost everyone recognizes that mortgage rates and home prices will rise further, according to a monthly consumer sentiment index from Fannie Mae. “If consumer pessimism toward home-buying conditions continues, and the recent mortgage rate increases are sustained, then we expect to see a greater cooling of the housing market than previously forecast,” Mark Palim, vice president and deputy chief economist at Fannie Mae, wrote about the consumer sentiment index’s findings.
However, some buyers may see it as an opening in the market just like local buyers did in March. They may want to rush ahead of further mortgage rate increases or see an uptick in new listings as an invitation to stay active.
Housing demand remains high, Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, writes on the association’s blog. Plus, a severe housing shortage due to under building over the last decade will cushion the housing market from rapid deceleration. Local builders have priced up the pace, and a national builder moved into the region, and so far, this year has pulled most of the local new building permits. Despite the surge of local new home construction, that local real estate segment still has not reached the same capacity as it did in 2005 and 2006.
“Housing demand will remain strong due to favorable demographics and shifts in buyers’ preferences as teleworking remains in place,” Evangelou writes.
Locally, much of that high demand is being driven by new residents moving to the area. Some REALTORS® report that up to half of their new business is from out-of-state or out-of-area residents despite reports that the cross-state relocation trend is weakening.
Attracting new residents is expected to continue as it did even before the pandemic. Those new residents are a demographic necessity due to the region’s declining population pressures. Based on current and previous year’s death rates and out-migration, the Tri-Cities region must attract more than 9,000 new residents a year to maintain its current population status quo.
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