It’s definitely not your parents’ housing market
Jan Stapleton - 2023 NETAR President
GRAY – Mid-year trend indicators are painting a clearer picture of the NE TN SW VA housing market and what’s coming. There are some good, and some not-so-good outlooks. One thing is for certain, it’s not going to be your parents’ housing market when inventory was plentiful, and prices appreciated at an average rate just below 3 percent.
Mortgage rates are not behaving as expected. Instead of settling in at the 6 percent range, the weekly average punched above the 7 percent mark last week. Higher rates have bumped average monthly mortgage payments by several hundred dollars.
Combined with buying preferences that have fixed the $300K to $399,999K price range as the market’s new normal. It also accounts for the most robust sales sector and inventory.
The affordability weakness and an anemic inventory picture will be top concerns as the market continues to settle into what looks a lot like what it was before the pandemic. One inventory inhibiting factor is 11 percent of local mortgaged properties have a 4 percent or lower rate. That’s hard to give up in a 6 or 7 percent market.
The overall economic health of the market was strengthened by the three-year pandemic era market. Currently, a little more than half (54 percent) of local mortgaged properties are equity rich. And only 2.8 percent are underwater. Foreclosure filings have increased but are well below the region’s average.
Since the first of the year, 3,698 existing home sales have closed. That’s down 17.8 percent from last year, which was the strongest market the region has seen in decades.
Breaking the market into its three major components offers some insight into both the new norm and what has happened.
The affordable market is down 11.2 percent from the first half of last year. So far, it has seen 1,507 closings and accounts for 24.9 percent of total sales. The affordable market share has increased since last year when it accounted for 26.6 percent of sales.
The move-up market is the hot spot even though sales are down 4.1% from last year. So far this year 1,468 sales have closed and the move-up market accounts for 39.7 percent of total sales. During the pre-pandemic years, it accounted for 17.3 percent of sales.
At mid-year, there were only two price bands with increases. The $300K-$399,999K range was up 13.2 percent and the $60,000-$69,999 range was up 13 percent.
The region’s luxury market is down 12.9 percent from last year with 364 sales that accounted for 9.8 percent of the market total. The pre-pandemic luxury market share was 1.9 percent of the market.
The dramatic increase in the move-up and luxury markets drove prices to record levels. That’s moderating. Although June’s year-to-date median price is an all-time high of $248,800, its growth rate is half of what it was last year.
During the market stabilization that began last year, the median and average sales prices moved closer together. June’s year-to-date average is $286,203. That’s signals price stability.
Currently, home prices are 10.7 percent higher than where they were this time last year. While sales may be near bottoming out, prices have not. Typically, they are the last thing to move during corrections.
June is usually the seasonal peak and pending sales data shows an spike in new contracts for homes in the move-up market. May. Locally prices are on a track that will increasingly depend on how sales perform and mortgage rates.
The local labor market will have a bigger housing role for the rest of this year and next year. One reason the affordable market has suffered is wages have lagged home price increases for five years in the Johnson City metro area and four years in the Kingsport-Bristol metro area. The labor market is adding jobs – in fact, the local payroll jobs level is a record high – but most of the new jobs are in the lower-paying service sectors where workers are feeling increasingly declining buying power.
Currently, most of the existing home purchases in all but the Greeneville area are exceeding the 30 percent of income benchmark for affordable housing.
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