December 23, 2018

Tri-Cities region's housing market well-positioned for a slower sales pace


November’s Northeast Tennessee Association of Realtors®’ (NETAR) Trends Report again contradicts the chatter about a big housing market decline. But even if the economy and market soften to the range housing economists expect, a little math shows the local effect would not be catastrophic.

2019 NETAR President

For instance. If mortgage rates follow the expected increase path to the 5.5 percent level next year economists at the National Association of Realtors® (NAR) say it would crimp home sales by 10 percent. If this year’s annualized sales base on November’s report were reduced by 10 percent, we would be looking at a year when sales would be about equal to what they were in 2016.

That was the first full year of the market pace that began May 2015 and pushed annual sales past the 6,000 a year for the first time ever. It was also the year the combined single-family and townhome sales volume exceeded $1 billion.

The most current predictions are that a slowing economy will see home sales drop by 2 percent. Calculated against the annualized total for this year that would mean about 135 fewer local single-family resales.

Resales have averaged better than 500 a month every year since 2016. And, to get to a year when 135 fewer sales would make a significant dint, you must go back to 2009. That’s the year the local housing market hit the bottom of the effects of the Great Recession and averaged 314 resales a month.

None of these examples are intended to throw shade on the very real indication that housing will not boom in 2019 as it has for the past three years. Instead, they are intended to add some context to the doom and gloom some pundits are chattering about. It’s likely that some part of the housing market will soften, but it’s just as likely that the slow-down won’t be significant. The main reason for that observation is the booming national and local labor market.

Another consideration is although local home sales have been hot for three years, prices have not outpaced the ability of a family making the median local income to buy a home. Still affordability has declined. That’s what happens when home prices increase faster than wages. But locally the tight inventory has made availability a bigger issue that affordability for many individuals and families.

This has been a good year for housing in the Tri-Cities region. At the end of November single-family resales where 56 closing from equaling the 2017 annual sales and there are 903 approved contracts in the pipeline headed for closing. Some of them will fall out, as they always do. But it’s safe to say enough will make it to the closing table to give the local market another healthy annual housing market increase. Currently, it looks like annual sales will be in the 8 percent range; the average appreciation should be in the 4 percent range; and the total volume for single-family, condo and town home sales will be above $1 billion for the third straight year.

If the truth is told, a slight cooling off might not be such a bad thing if it gives the market time to catch its breath and rebuild inventory to normal levels. What market watchers should be concerned about is jobs creation and wages in relation to the home prices. That’s the core ingredients for housing affordability, and the available of affordable housing is a key component of sustained economic growth.