News
August 24, 2019

Townhomes, condominiums move toward a higher profile

By KAREN RANDOLPH

There is little doubt about it, townhomes and condominiums are claiming a bigger role in the local housing market.

The headline for the Northeast Tennessee Association of Realtors’ (NETAR) July Trends Report was about residential sales posting a 9.5 percent gain after two declining months. A rebound of townhome and condominium closings drove that increase.

It would have been a good month without the townhome closings spike because single-family resales posted a healthy 8.4 percent increase from July last year, but townhomes sales were the icing on the market’s cake. Also, it arrived at the same time as news of the Trump administration’s plans to vastly expand the scope of condo purchases eligible for lower-down-payment loans.

The administration’s goal is an economic nudge to stimulate the entry-level condo market for first-time buyers because FHA-backed loans only require a 3.5 percent down payment and a lower credit score than conventional loans.  

Local buyers have ample low or no down payment options for U.S. Department of Agriculture (USDA) loans in all but the central city areas, from the Tennessee Housing Development Agency and some local lenders. The new FHA rule ups the game for first-time buyers – especially in the larger city markets.

 When you run the affordability numbers, a Tri-Cities area worker with good credit earning the median wage has the buying power to purchase a median priced home in our market.  However, there is a big “if” to that assumption.  The “If” is whether or not he or she can find one of those affordable homes in an inventory that is declining, where competition is fierce and where home prices are going higher and higher every month. They were up 8.6 percent last month.

This new rule is set to really expand homeownership, said Ben Carlson, secretary of the Department of Housing and Urban Development, which oversees the FHA.

The National Association of Realtors’® Chief Economist, Lawrence Yun, called the announcement great news for moderate to middle income homebuyers. Over 80 percent of condominiums could not accept people with FHA mortgages before this new rule. Secretary Carson has repeatedly said homeownership is a solid path to wealth building and now he is making it more accessible for first time buyers in the more affordable price points, he added.

That statement is accurate about both local and national conditions.

Townhomes are an increasingly important part of the local housing inventory. Approximately 600 of them were sold last year. Currently, the average year-to-date sale price for a condo is $129,091. They exist in the shadow of a single-family resale market where sales are nearing the 7,000 a year mark. The current average year-to-date sales price for a single-family resale is $177,097. The $50,000 price point difference is a big factor for many strapped first-time buyers.

The administration’s new rule has the potential to expand choices for potential first-time buyers who struggle with current market conditions and often give up the effort and continue renting.

Market trends are moving the townhome-condo market to a higher local profile without the new FHA incentive. Combining those market forces and the new FHA rules is winning position for housing affordability and the overall housing market.

NETAR is the voice for real estate in Northeast Tennessee. It’s the largest trade association in Northeast Tennessee, Southwest Virginia region representing over 1,200 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, monthly Trends Reports, and the regional market analytics can be found on the NETAR websites at https://netar.us/voice-real-estate-northeast-tennessee .

 

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