July 29, 2018

Mid-year indicators show housing market still growth positive


June's Northeast Tennessee Association of Realtors® (NETAR) Trends Report – and the data behind it - get a lot of attention from market watchers. That's because it benchmarks mid-year market conditions and offers pretty good indicators of what the rest of the year will look like.

Aaron Taylor
2018 NETAR President

There are six months to go, but at the market's current pace year-end sales and the average price should be a little better than last year. That says a lot about the stability of the local housing market at a time when other markets are reporting declining sales.  During the beginning of the current record-setting pace that began in May of 2015 home sales have exhausted excess inventory. And while our regional and local markets face the same inventory crunch felt in other markets, prices here have increased at a modest pace. That's good news for affordability and the local economy.

The role of real estate in the economy isn't something you hear a lot about. Economists put it at about 15 percent of the U.S. Gross Domestic Product. A localization by NETAR found a $1.7 billion economic impact for the Tri-Cities last year. A slide deck of that project can be found on the NETART Website at .

There's no question that housing led the Tri-Cities region and its local economies out of the recession. In fact, assessments by both NETAR and the National Association of Counties show that it's still leading other economic sectors. And now that we have begun to see some region-wide population it begs the question: How long can the market sustain this pace?

The most prudent answer is time will tell. There are strong positive and negative headwinds at play.

The local new home sector saw strong growth in the second half of last year. The Market Edge in Knoxville projected 7 percent growth this year. But even at that pace that sector's performance is little better than half of its pre-recession capacity despite strong demand.

Regional numbers for the first half of this year are not available yet, but early indicators in one major city market point to more new residential permits, smaller homes and an average price decline from the first half of 2017. That combined with the modest price increases for existing home sales has kept housing in the affordable range. And that's critical to an area that has to grow its population by attracting new residents.

 So which way are the mid-year indictors pointing?

The existing home resales trend is tracking slightly better than the past two years. During the first six months of this year, sales were 9.1 percent better than last year.

The year-to-date average sales price is 4.5 percent better than it was this time last year, but the growth rate has been slowing since a March peak.

An annualization of both metrics is at or just above 4 percent. So, a prudent annual projection would be slightly lower than the annualization but better than last year.

The condominium market is running slightly below last year's record pace.

NETAR's forward-looking pending sales index shows that metric's growth rate is slowing, but still better than it was last year.

Only one of the 11 county markets monitored by the Trends Report shows fewer sales and a lower sales price and mid-year compared to the same period last year.

Inventory continues to be an issue. In June the region had a 3.9-month supply of existing homes for sale. That's the lowest it has been in 13 months. Add to that an increasing ratio of new listing to new approved contracts, and you have a signal of a little relief. But demand for resales - like the demand for new homes - still exceeds supply.

The two non-housing trends to watch are job and wage growth. The region is seeing slow growth of both. But the three-county Johnson City metro area's job growth has been negative for a little over a half year.

Overall, the indicators point to a regional housing market bucking some headwinds but one that still has additional growth capacity.

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 al most 100 affiliates.