Stress signs show up in NE Tenn.’s booming housing market

Northeast Tennessee’s housing market is cued up for another record sales year. Builders are straining to keep up with new home demand, and the existing home market is absorbing new listings volume as soon as it comes on the market. But there some economic stress signs cropping up. Earlier this year foreclosure reports raised a red flag. It followed a report showing that the Tri-Cities had more foreclosure sales in 2017 than it did before the recession. The latest stress signal is properties that were seriously underwater during the first three months of this year.

While the first quarter saw the smallest U.S. decrease in seriously underwater properties since ATTOM Data Solutions began tracking them in 2013, there were increases in local markets. During Q1 there were 9,913 seriously underwater properties in NE Tenn. compared to 7,647 last year.

All counties but Sullivan saw the market share of seriously underwater properties jump into the double-digit rate during the first quarter. Last year only one county had that dubious distinction.

ATTOM’s Q1 U.S. Home Equity and Underwater Report defines seriously underwater as, a property that has a loan to value ratio of 125% or above, meaning the property owner owed at least 25% more than the estimated market value of the property.

Share of mortgaged properties that are seriously underwater.

At the same time, the report showed the number of equity-rich properties increased nationwide during the first quarter, but they were still down from the Q2 2017 peak. The report defines equity rich as a property with a loan to value ratio of 50% or lower, meaning the property owner had at least 50% equity.

Locally equity-rich properties declined in every NE Tennessee county except Carter and Washington where they were unchanged from last year. The primary driver of the decline is homeowners cashing in equity to either trade up or scale back for retirement or for a major home upgrade. It’s also noteworthy that the local share of equity-rich property is greater than the share in both Tennessee and the U.S. During Q1 there were 22,023 equity-rich properties in NE Tenn. compared to 27,116 last year

Share of mortgaged properties that are equity rich.

“We’ve reached a tipping point in this housing boom where enough homeowners have regained both sufficient equity and sufficient confidence to tap into their home equity — resulting in a noticeably slower decline in seriously underwater properties and slower growth in equity-rich properties,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “This tapping of equity could take the form of a cash-out refinance, home equity loan or simply a home sale. We saw the biggest quarterly drop in average homeownership tenure for homeowners who sold in the first quarter since Q4 2008, evidence that more homeowners are reaching that equity-tapping tipping point more quickly and deciding to sell.”

Locally the shift may be rooted in issues other than the progression of the housing recovery. Historically the local share of equity-rich properties has been larger than the state or national levels, but many owners have been – some still are – reluctant to put their homes on the market. There are several reasons that act as a choke point for expanding the existing home inventory on the market. One is owners who would like something new can’t find what they want on the market. Another is the recession broke the unquestioned faith that property values would always go up.

The Q1 underwater properties report alights with an ATTOM report that showed a spike in the notice of trustee sales replacing an increase in home repossessions in the Tri-Cities region this year. The Northeast Tennessee Association of Realtors Trends Report shows 137 foreclosure sales so far this year. That accounts for 10.1% of all existing home sales that were listed on the local multiple listing service (MLS). That’s about half the market share of foreclosure sales reported by the Trends Report during the recession. This year’s number is shy of the actual total since some foreclosures are not listed on the MLS.