November 4, 2018

A slower roll for home sales might not be all bad


Last year the top question for the army of people making their living in the real estate industry was “is this party ending anytime soon?” Back then the local market was in its third year of monthly record-setting sales. With just a couple of months left in this year the conversation – but not the sales pace - has shifted gears. Whatever you want to call it - a slowdown or softening - is in sight. That moves the question for those who read economic tea leaves to: “how much?”

Aaron Taylor
2018 NETAR President

Researchers at CoreLogic predict increasing mortgage rates will mean a 10 percent increase in buyers’ mortgage payments next year. That’s twice the rate expected for an increase in home prices and is expected to cut into sales.

Mortgage Bankers’ Association gurus think mortgages rates are headed for the low to mid-five percent range next year pushing conditions back to a buyers’ market.

Robert Shiller, the Nobel Prize winner behind the Chase-Shiller Report, doesn’t expect a sharp turn in the market. But the latest Case-Shiller Home Price Index shows gains have fallen below 6 percent for the first time in a year.

The National Association of Realtors® (NAR) chief economist Lawrence Yun doesn’t see a housing recession looming in 2019 or 2010. He blames a low inventory of moderately-priced homes as the chief reason why home sales are sluggish. That’s a pretty good assessment of what things look like for the local housing market.

Market and economic data monitored at the Northeast Tennessee Association of Realtors®(NETAR) point to continued short-term sales growth. September’s closings were 15.6 percent better than September last year and the year-to-date trend data shows a 10.2 percent increase over the first nine months of last year. It’s also noteworthy that September’s year-to-date sales are almost 17 percent better than they were in 2016. That’s the year the region has it best sales increase year since 2008.

And the current pending sales report shows 150 approved contracts in the pipeline. Of course, some of those will fall through before closing but given current conditions the expected softening of the market will come after the books are closed on 2018.

Local conditions that pushed the market into the sellers’ favor started in May 2015. So, if the market has in fact peaked and softens in 2019 it will have posted 44 months of record-level sales. Here’s where some long-range context puts the local housing economy in perspective.

Local sales bottomed in 2010 and improved every year after that. The best year was 2016 when the annual sales increase was 15.3 percent. So even if higher mortgage rates, a slowing of new home construction and other market forces put a 5 percent crimp in the market off-peak numbers here still look pretty good.

Average single-family resale prices have been increasing in the range of 2.3 percent since 2015 to 3.6% last year. The annualized number based on September’s average is 4.5%. That should come down a little with the monthly reports for the fourth quarter. Here’s the long-range context: The 2017 annual average price is 21.3% higher than it was at the bottom of the recession and was 8.5 percent better than it was the year before the recession hit the local market.

The Tri-Cities regional housing market will likely slow its roll in 2019. But there are positives to that. It would give the market time to replenish some of the rock-bottom inventory numbers that have become the norm. And a higher inventory would give buyers a bit more buying power.