Cash sales combine with distressed sales as headwind for Tri-Cities home sales price appreciation

There are two nagging questions about the current Tri-Cities region housing market.

  • If sales are at all-time highs and the inventory is tight, why haven’t prices increased more than the area’s typical conservative appreciation?
  • Given the conditions in issue 1 – why aren’t we in a sellers’ market?
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There are some good answers to those questions and NETAR President Eric Kistner has gone over them in his weekly columns. But one that hasn’t gotten much attention is cash sales. Normally you wouldn’t think that cash sales as a headwind for price appreciation. But they are.

If you were a buyer would you rather take a little less from a cash buyer or market and negotiate for a couple of months?

Many sellers – 3,573 of them to be precise – went the cash sales route last year. That’s almost half of all sales in the seven-county regional market. And since many of those sales came with some extra discount when the numbers are crunched it affected both the median and average annual sales price.

According to Attom Data Solutions cash sales nationwide dropped to a nine-year low in 2016 and accounted for 28.3% of all home sales.

Here in the Tri-Cities region that wasn’t the case. Cash sales were a little off the pace of previous years, but not that much.

Add distressed sales to the downward pressure exerted by cash sales, and you’ll see existing home sales price appreciation has some steady headwinds.

Another factor is the availability of new homes. Currently, builders are operating at less than half of their pre-recession capacity. That’s important because a healthy new home market tends to increase the sales price of existing homes.

Last year distressed sales were down in the Tri-Cities, but they still accounted for anywhere from 12% to 24% of total sales across the region.

Lump cash and distressed sales together, and you have touched a little more than 60% of all sales.

 

 

Washington Co. posts region’s strongest 2016 economic ouput growth

Washington County TN’s 2016 inflation-adjusted economic output was a full point better than the six other Tri-Cities counties. Combined with solid growth in Carter and Unicoi counties, the Johnson City metro area moved ahead of Kingsport-Bristol in the National Association of Counties 2016 recovery dashboard’s economic output category.

Sullivan County – the county with the highest real gross domestic product – was tied for the weakest 2016 output growth rate.

Here’s how NACO’s county inflation-adjusted economic growth rates looked in the Johnson City MSA:

  • Washington Co.- up 2.6%
  • Unicoi Co. – up 2%.
  • Carter Co. – up 1.6%

The rates for the Kingsport-Bristol counties were:

  • Hawkins – up 1.6%
  • Scott Co. VA – up 1.4%
  • Washington Co. VA – up 1.3%
  • Sullivan Co – up 1.3%

The Bureau of Economic Analysis’ report on the GDP for metro areas won’t be available until September. It collects county-level GDP data but doesn’t release it. However, there’s movement to change that so more detailed growth information is available at the county level.

Earlier GDP reports:

Tri-Cities GDP shows some stirrings of growth, but recovery is a tedious thing 

Kingsport-Bristol, Johnson City MSA manufacturing real GDP better than it was in 2001 with a lot fewer employees 

Johnson City MSA retail GDP up 29.4% – Kingsport-Bristol up 5.7% since 2001

 

 

 

Tri-Cities commercial construction sees flat growth,  new permit value up

New Tri-Cities commercial real estate construction closed the year with one permit less than 2015, but unlike most of the 18 markets monitored by The Market Edge total, local permit value increased. The Tri-Cities was also the only MSA in East Tennessee where the estimated construction cost commercial projects increased.

2016-annual

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Sullivan Co. led the seven-county region with 279 new permits followed by Washington Co. TN with 220. Both counties had modest year-over-year growth. Sullivan Co. was up 2.2%, and Washington Co. was up 1.9%.

Although Sullivan Co. saw more new permit growth, Washington Co. TN’s posted the most estimated project costs growth.

Total estimated cost for Tri-Cities projects last year was $317.3 million, up from $295.6 million in 2015.

Lawrence Yun, National Association of Realtors’ chief economist, says “the U.S. economy is poised for slight improvement in 2017. “Last year was the 11th year in a row of subpar GDP growth, but renewed corporate optimism leading to a focus on investment and a desperately needed boost in residential construction should pave the way for modest expansion this year of around 2.4%,” he said. “Steady hiring and low local unemployment levels are finally supporting higher wages and increased spending, which in turn bodes well for sustained demand for all commercial property types.”

Although the local economy has yet to reach pre-recession levels in nonfarm job creation and total output it is seeing slow improvement much like the national economy.

Yun says at least in the short-term, the possibility of a more tax-friendly business environment combined with the positive benefits of 1031 exchanges could quicken the pace of economic growth and support stronger commercial market fundamentals. The industrial sector — already enjoying increased demand from the soaring popularity of e-commerce — could see a further decline in vacancy rates if increased manufacturing comes to fruition and accelerates the need for more warehouse space.

“The positive direction for commercial real estate this year will be guided by the steadily expanding U.S. economy, which has legs to grow and continues to be one of the top economic performers and safest bets in the world,” concluded Yun.

Here’s a snapshot of how each area county finished the year in the number of permits and year-over-year change.

Carter – 35, unchanged from last year.

Greene – 68, up two permits.

Hawkins – 13, down two permits.

Sullivan – 279, up six permits.

Washington Co. TN – 220, up four permits.

Scott Co. – 9 – down four permits.

Washington Co. VA – 83, down seven permits.

 

Here’s the county-by-county snapshot for total estimated construction cost.

Carter – $7.5 million up $1.9 million.

Greene – $39.2 million, up $6.1 million.

Hawkins – $3.5 million, down $2.3 million.

Sullivan – $152.4 million, up $4.3 million.

Washington Co. TN – $74,1 million, up $15.5 million

Scott – $1.8 million, up $1.1 million.

Washington Co. VA – $39.8 million, down $4.9 million.

 

 

 

Johnson City leads region in growth of lower-income households

Johnson City led the other major Tri-Cities cities in the increase of lower-income households during the 2008-2015 recovery from the Great Recession.  In many ways that recovery is still underway. This lower-income households trend follows the pattern in the changes in the middle and higher-income households reviewed in earlier posts. Links to those reports are at the bottom of this post.

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Lower-income households for this study are the Census Bureau’s income ranges of Less than $10,000 a year; $10,000 to $14,999; and $15,000 to $24,999.

During the study period, the number of households in these income ranges increased in Bristol, TN, Johnson City and Kingsport. The share of total households also increased.

The increase and share is noteworthy when you consider that while Johnson City has about 19% more population than Kingsport it has almost double the number of lower-income households. It’s also noteworthy that while Johnson City has the highest share of lower-income households, it also has the highest share of higher-income households, but trails both Bristol and Kingsport in the share of households in the middle-income ranges.

Lower-income households increased by 12.7% during the study period – 2,402 households. Of the three income ranges the largest growth came in $10,000 to $14,999 range, up 14.1% followed by the upper $15,000 to $24,999 range – up 12.7%. The bottom range $10,000 and below increased 8.1%.

One of the first questions that come to mind when looking at this grouping of households by income is how does it relate to the poverty rates.

It’s not an easy question because the poverty rate is based on individuals and not households.

However, here’s a snapshot of each city’s total lower-income households compared to the 2015 percentage of all people whose income was below the poverty level during the same period.

Bristol – 31.9% – 16.2%

Johnson City – 44.7% – 23.1%

Kingsport – 34.3% – 20.1%

EARLIER REPORTS

Johnson City had the highest number of higher-income households and had the largest gain 2008-2015

Johnson City leads lower middle-income Tri-Cities growth; Bristol has largest share of middle-income households

Johnson City, Kingsport eek out 2015 population gains; demographic issue weighs on local economy 

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bristol-lower-income

 

 

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