Why home prices are so hot – is it a bubble?
April home sales are running well above pre-pandemic levels. Put comparisons to last year aside because they are what real estate professionals call a “bad comp.” It’s a comparison of today’s vibrant market to one that was stepping back in the face of a pandemic-inducted economic shutdown.
Both sales and price appreciation are well above those pandemic numbers. However, month to month, April’s sales were down 3.7 prcent. So, why were buyers holding back?
This reason is simple. They’re not; we simply don’t have enough inventory to meet the demand.
If conditions were normal, there would be 4-to-6 months of inventory on the market. Last month it was 1.3 months for the region monitored by the Northeast Tennessee Association of REALTORS® (NETAR). Things were tighter in some of the city markets. They had less than a month of inventory.
The last time the NE Tenn. – SW Va. market had normal, balanced market conditions was 2017. Back then, inventory stood at a 5.8-month supply, and there were 3,596 active listings. There were 991 active listings in April.
That’s good news for homeowners – especially those who have or plan to put their homes on the market. Sales prices are at an all-time high.
That tells us buyers are in the market. And the competition is fierce. It’s becoming common for new listings to see multiple offers the same day they go public. And sellers are accepting offers at a rapid pace. Half of the homes sold last month were on the market for 53 days or less.
Although the fierce competition extends to all price ranges, there were some standouts in April. Homes in the $250,000 – $299,999 saw the highest year-over-year growth, up 63.5 percent. Close behind were those in the $180,000-$199,000 price range. They were up 61.3 percent. Homes with the largest number of resales were in the $200,000 – $249,000 range. Their growth rate was 43.4 percent. Properties in the $300,000 – $399,999 price range were up 60.4 percent.
High-end and luxury homes were not included in that comparison since they account for a smaller share – 11 percent – of total sales. Still, the demand is high. Those in the $400,000 – $499,999 were up 218.8 percent. At the top of the price scale – $500,000 and above – were up 121 percent.
With sales and prices like that, it’s natural that there’s a lot of chatter about a housing bubble and price declines in the future. Anything can happen, but as Lawrence Yun, chief economist at the National Association of REALTORS® (NAR), points out, “the fundamentals to today’s market versus what happened during the Great Recession are different.” Back then, the local market had over 5,000 active listings compared to 991 today. And mortgage underwriting standards are considered sound – maybe even tight – today.
“That’s why we need to expand supply,” according to Yun. That applies to the local as well as the national market.
There are varied suggestions to stimulate supply. They range from loosening lumber tariffs to regulatory measures. NAR, NETAR, and the state association, Tennessee REALTORS®, are working with builders and lawmakers to examine the possibilities.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee – Southwest Virginia region representing over 1,400 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, Trends Reports, and the regional market analytics can be found on the NETAR websites at https://netar.us/voice-real-estate-northeast-tennessee.