September 9, 2018

Benchmarking local housing with U.S. outlook


It’s been a decade since the Great Recession, and the housing market has healed and changed. Annual average home prices here in Northeast Tennessee have improved by 8.5 percent. All local major city markets are well above prerecession levels. And while state and U.S. sales numbers point to a market that has swooned, they are still at a record pace here.

Aaron Taylor
2018 NETAR President

Stronger lending and regulatory reforms in recent years have also prevented the formation of another housing bubble, says National Association of Realtors ® (NAR) Chief Economist Lawrence Yun, discounting concerns raised by other industry experts. “Over the past 10 years, prudent policy reforms and consumer protections have strengthened lending standards and eliminated loose credit, as evidenced by the higher-than-normal credit scores of those who are able to obtain a mortgage," Yun says. “Today, even as mortgage rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory and accompanying unsustainable home price increases.”

Yun's focus on insufficient inventory hits home with the local market. Although there has been a slight increase, we're still at record low levels. But the local price increases are not at unsustainable levels. Last year's annual increase was 2.1% when adjusted for inflation. July's year-to-date adjusted increase is about 1.7%. That's typical of the local market's conservative nature even during this period of record sales and record low inventory.

One area where the local and U.S. market conditions parallel is the new home sector. Yun says many markets are experiencing rising prices because of insufficient supply, not due to weak demand. Locally, the new home sector saw a big increase during the last half of last year. But the shine came off during the first half of this year in all counties except Sullivan and Greene. Across the region, new single-family permits were down almost 10 percent.

 The answer to some of the new home and inventory concerns will ease if builders are encouraged to increase supply. "And there is a good probability for solid home sales growth once the supply issue is addressed,” Yun says.

He's right.

Additional inventory will also help open up the market to prospective home buyers who are consequently—and increasingly—being priced out.

New local construction is expected to increase during the last half of this year. If that happens, it will be a welcome inventory addition.  But as Yun points out, “Rising material costs and labor shortages do not help builders to be excited about business." The lumber tariff is a pure, unforced policy error that raises costs and limits job creation and more home building.

Yun forecasts U.S.  existing-home sales will fall 1 percent this year. Locally, it looks like sales will increase somewhere in the 3 to 3.5 percent range. He predicts that home price growth will remain strong in many markets nationwide and rise about 5 percent. Current conditions point to a local average annual price increase that will be a little less than last year's 3.6 percent.

Will 2019 be a better year?

Yun thinks a rise in inventory and moderate price growth will push home sales higher. He forecasts that existing-home sales will increase 2 percent in 2019, and home prices will rise by 3.5 percent. It's a little early for a local forecast, but hopefully, the local market will follow the national pattern.

Aaron Taylor is the 2018 president of the Northeast Tennessee Association of Realtors®. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and over 100 affiliates.