August 6, 2017

High demand drives local housing market to new norms


Here's a housing market puzzle that has some local market watchers scratching their heads.

What's driving the housing demand that has seen two years of record-setting sales, pushed prices to a nine-year high and created a market where 4.5 months of inventory has replaced the 10 to the 11-months historic norm?

2017 NETAR President

Home sales in the 11-county area monitored by the Northeast Tennessee Association of Realtor's Trends Reports took off like a rocket in mid-2015. At the close of that year, annual sales had the best increase since the Great Recession.

Demand did not let up in 2016. By year's end, single-family resales had broken through the 6,000 homes limit for the first time. Moreover, the annual increase was even more impressive. It was up 15.3% from the 2015 record high.

Last year was also the first $1 billion-dollar sales volume year for the single-family, townhome and condo resales.

The sales pace has eased off that record-setting pace this year. However, at mid-year they were still 2.4% better than last year, so technically resales are still in record territory.

Here's the sticking point: The classic drivers of housing demand are:

  • Changes in demographics – population growth or new household formations.
  • Job creation.

While we are seeing some slow population growth and moderate job creation, neither is high enough to explain the housing demand we have experienced.  

Commuter patterns are a factor because the population growth and job creation are not distributed evenly across the region. The common belief is the Tri-Cities has distinctly different cities with residents who are loyal to their town, but the commuter patterns tell a different story. Check out the main thoroughfares during commute time, and you will see traffic that can sometimes rival what you see in larger metro areas.

Census data backs that up. Look up the relationship between where people work and where they live, and you see:

  • 85.5% of Elizabethton's workers are non-residents.
  • 83.2% of Erwin's workers live outside the city.
  • 82.7% of Bristol VA workers commute from somewhere else.
  • 78.3% of Bristol TN workers do not live where they work.
  • 76.9% of Johnson City workers are commuters.
  • 76.7% of Kingsport workers commute to work.

The level of demand is one instance where the local housing market condition somewhat mirrors what you read about in the national press. Demand is not letting up, and tight inventories are beginning to look like housing shortages – especially in the particular price ranges. Locally, that range is $200,000 and below.

On paper, the numbers make it look like market holiday for sellers. We are in a hot market, and multiple offers on a home are happening more often. That is music to a seller's ears, but most sellers are also buyers. What sellers really want is a committed buyer to move the deal to the closing table without delays or the hassles that come with some contingency offers (contingent on the sale of another home, for instance). It is one reason pending sales are moving to the closing table at a slower than normal pace.

The pros and cons of a contingency offer is a topic buyers should have a heart-to-heart talk about with their Realtor®. Deals with a contingency of selling another home have increased as evidenced by the rate of pending sales moving to closing at the normal time has decreased. It is one reason why monthly closings are lagging last year's totals.

The main economic effect on the supply of housing is the building of new homes. New permits across the region were the best we have seen since 2009, but it was only a 7% annual increase.  Unfortunately, the supply of new homes is price inelastic in the short run.  We need more new homes, but developers are slow to react to market changes due to the length of time it takes to get a new development through the regulatory planning stages. And builders are not capable of ramping up production quickly due to shortages in the local labor market.   

High demand and low supply of homes points to a housing market with many challenges. This is  a market where the expertise of a professional Realtor® is a critical factor. Whether you are buying or selling real estate, it is important to call your Realtor® first.  Realtors® have real insight into the market, what makes it move, and the nuances to consider before making this most important financial and lifestyle decision.

Eric Kistner is the 2017 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.