Market’s still messy, but as competitive as ever
Jan Stapleton - 2023 NETAR President
Despite a perfect affordability storm that continues to thwart many aspiring homeowners, the local housing market remains as competitive as ever. Small changes – some encouraging and some stuck in stagnant quo status – painted a mixed picture in August.
On the ground, the market still looks a little messy. But the 30,000 foot view is better than what you read about or see on the TV news.
August’s sales were down, and closings continued trending toward pre-pandemic levels. Prices took a small breather from four months of gains but remained on track for an annual appreciation that’s better than the local historical average.
Inventory levels hint it’s gaining a little better toehold and moved past the two-months of supply number. And the early read on pending sales shows they’re inching higher while the time a home sits on the market before selling slowly improves. There’s plenty pluses and minuses and it’s not unreasonable to expect more as we head into the fourth quarter and the annual holidays season.
Mortgage rates will continue to get most of the attention. Will the FED bump interest rates, or take a wait-and-see approach to an improving inflation picture? In many ways, it’s more about what the FED intends to do. Another 25-basis point increase won’t change the big picture. What matters is their tell to the media on how long the intent to keep rates elevated.
There are several things that have to happen before the market recovers on the national level and stabilized on the local level.
The first is for inventory to pick up some steam. Even the small increase like the one in August goosed sales higher. More sales would ease some of the pressure on prices and let them settle into whatever the new local normal will be. There’re two schools of thought on that issue. One is that prices will decline. The other is after decades of low home prices, the local market has matured, and the current price level is pretty close to a new norm.
The last improvement is for mortgage rates to cool off. Buyers are reportedly looking for a 5 to a 5.5 percent sweet spot.
But don’t expect either inventory or lower rates to happen quickly. If rates cool to fast, it would create demand that would wipe out a slow, steady inventory increase toward balanced market condition. The local market has lived with that dynamic for a couple of years. Still, there are encouraging signs. Despite higher rates, the second quarter local home loans increased 27 percent from the previous quarter. And there’s also the fact housing cycles are slow to change.
Although local conditions are often not in sync with the national level happenings, there is a current parallel. National Association of Realtors® (NAR) Chief Economist Lawrence Yun, recently summed it up this way: “The small gains in contract signing show the potential for further increases in light of the fact that many people lost out on multiple home buying offers. However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.”
The light at the end of the tunnel is there. At NAR’s real estate forecast summit, Yun said, “Home sales are essentially bottoming out this year” before an anticipated upturn going into next year, but this is contingent on mortgage rates falling.
Contingent on lower mortgage rates and more inventory are key.
From a trend perspective, August’s sales flattened out with a small upturn. The small monthly dip in prices is most likely a reaction to vacations, and buyers’ wait-and-see posture. Another dynamic is builders are cranking out new home, condos, and townhomes as fast as they can and almost half of the new product on the market is in the same price range as the move-up market for existing homes. That means homes that are priced right are selling.
The local market is still a little messy on the ground level, but from 30,000 feet it looks better than what it gets credit for.
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