Tri-Cities foreclosures up 61% in housing market with tight inventory, high demand

Entrepreneurs are scrambling to seize opportunities in markets’ tight inventory and high demand for homes.

The Tri-Cities is one of the local markets bucking the national foreclosure market trend. And entrepreneurs are taking advantage of it, repurposing of other buildings and new apartment construction to cash in on a housing market where demand has driven inventory to record lows.

ATTOM Data Solutions’ May Foreclosure Report shows U.S. foreclosure starts down 6% in May, but 43% of the local markets in the nation had increased. Combining county-level foreclosure data from analysis shows the Tri-Cities region had a 61.5% increase.

A total of 33,623 U.S. properties started the foreclosure process in May, down 6% from a year ago — the 35th consecutive month with a year-over-year decrease. Counter to the national trend, 23 states and the District of Columbia posted a year-over-year increase in foreclosure starts in May, including Texas (up 53%), California (up 3%), Georgia (up 15%); Pennsylvania (up 6%); and South Carolina (up 31%).

Most of the local new foreclosures (94) were repossessions. The remaining 40 were notice of trustee sales.

A drill down to the county level shows only two counties had declines in the number of new foreclosures last month compared to May last year. There were six fewer in Hawkins County and three fewer in Bristol, VA.

Kingsport had one of the largest increase in new foreclosures. The city is also a hotbed of both existing home sales and efforts to cash in on the hot market.

Foreclosures are attracting almost as much attention these days as they did during the early days of the housing market’s recovery from the recession. But much fewer of the foreclosures are going to first-time buyers. Flippers and investors are snapping them up and grousing about the increasing price increases they are having to pay compared to a couple of years ago when some foreclosures were selling half of the market rate.

The flipping market is stronger now due to the shortage of existing and new homes on the market.

The Northeast Tennessee Association of Realtors’ May Trends report put the regional inventory at a little over four months while it was much tighter in all of the local city markets. May was also the single best month for single-family resales in 10 years.

A localization of ATTOM’s Q1 Flipping Report said, “Record low inventories of homes for sale and new home construction that is lagging demand has upped the interest in home flipping in the Tri-Cities region. And the fact that flippers are seeing a lower gross return on investment (ROI) than they did last year but are still doing better than the national average this year doesn’t hurt.”  The report also found that must of the flips was being sold in the $200,000 and below price range, which typically accounts for three of every four existing home sales in the region.

Of course, not all of the flips are in the lower price range. There’s also quite a bit of activity in the $250,000 to $300,000 price range in some city neighborhoods.

Town Lofts construction site. Clicking on photo renders larger version.

The homes across the street from the Town Park Lofts are hot for investors since the complex with its retail space is considered a linchpin to the next phase of Kingsport downtown development. Rapid construction on the 263-unit luxury apartment complex – once known as Supermarket Row –  has kept many locals marveling at the pace.

Meanwhile, the competition to keep occupancy rates up is picking up. The Valcap Group, property managers for Brandy Mill, Allandale Falls, Crosscreek and the Landings picked up over 80 residents during the first weeks of a $1 Summer Move In campaign. The battle to attract and retain residents to keep occupancy rates high has been compared to a game of musical chairs.

The housing inventory shortage also moved investors to snap up what developments are left of those abandoned during the recession and other properties to demolishing use for new homes and townhomes. The most current example is the demolition of the old Dickson Elementary School for a project that is being called Cherokee Bend.

Kingsport Alderman Joe Begley is one of the principals in the property’s redevelopment. According to a Times-News report on the project, the development will “probably have 25 to 30 units – some single-family houses, duplexes and perhaps eight townhomes.” The price range was reported at $175,000 to $200,000.   Begley told the newspaper, “you’ll probably see houses come up there first, ideally by early fall.”

 

Tri-Cities job creation flat in May; how recovery stacks up so far

Tri-Cities employers added no new non-farm jobs in May. There were 1,700 fewer people employed, and the unemployment rate increased to 3.2%. That’s not all that bad. During the past five years, jobs have declined three times during the April-May transition. And the Bureau of Labor Statistics (BLS) reports are preliminary and not seasonally adjusted. So, there will be adjustments during the next two months. But don’t expect much change for the positive. The May-June reports always show a jobs decline as schools shut down for the summer.

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According to the numbers the Tri-Cities continues to be at full employment as it has been most of this year. The “we’re hiring” signs have not come down. There are jobs for almost every who wants work. And there is still grousing that employers can’t find enough skilled workers. At the same time, the local average private sector wage continues to be among the lowest in the state. There has been improvement, but when adjusted for inflation against the pre-recession benchmark, the annual private sector wage in the Johnson City metro area left workers with $31 a week less buying power at the end of 2017. The buying power for Kingsport-Bristol MSA private sector workers was down $67 a week.

The most current inflation-adjusted household incomes also show Kingsport-Bristol peaked in 2008 and declined by 6.3% in 2016. The Johnson City MAS peak was in 2005. It had declined by 10.5% in 2016.  Data for 2017 will be available this fall.

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That’s not unique to the Tri-Cities. According to a Washington Post analysis of May’s BLS real earnings report, wages are not just flat for the biggest group of workers – they’re falling. That analysis focused on manufacturing and construction jobs and nonsupervisory workers in the service industries like health care. Those workers account for four-fifths of the privately employed workers in the United States.

Economists say falling wages could increase levels of U.S. inequity, which are already at historic levels. In the workforce, it means those who already make less are falling further behind when the economy is seeing 2.9% growth.  That means almost all of the gains of that economic growth are going to those already at the top of the economic ladder.

A rising jobless rate when the labor force is increasing is a good sign because the employment situation is pulling more people into the market. When the unemployment rate falls because of participation, it’s usually a bad sign.

BOOMING ECONOMY

In many ways, the Tri-Cities economy is booming. The labor market is improving even though there are some soft dynamics at play. That soft dynamic is the difference between having a job and a good job, and a deeper dive into the data shows the local economy is generating more jobs than good jobs.  The housing market is booming. Existing home sales are up. So is the average sales price. And a record low inventory of homes for sales has pushed it into a sellers’ market. Builders are straining to keep up with new home demand and retail sales tax collections are up, so consumers are confident.

GROWTH RATE SLOWING

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Almost all sectors continue to see growth, but the growth rate is slowing down. For instance, employers are adding jobs, but the year-over-year moving average trend has been negative for eight months. The declines range from 0.1% to 0.3%. That’s not enough for a dramatic immediate visible effect, but it does show a slowing growth rate.

The year-over-year employment trend growth rate is positive. But it had declined by a fraction of a point each month since June last year when it peaked at 2.1%. Last month it was 1%. The labor force picture is similar. While the improving jobs market has pulled more people into the labor force, the growth rate is slowing, and the number of workers aging out of the labor force is increasing. The labor market and economic bottom line are it will become increasingly difficult to achieve economic growth with a declining labor force unless there’s a significant productivity increase from technology.

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Rising prices and a very tight inventory is beginning to take a slight toll on existing home sales. They’re still at record levels, but like other sectors, the growth rate is beginning to slow.

HOW THE RECOVERY STACKS UP

The Great Restructuring of the economy from the Great Recession isn’t complete yet. And although there has been progressing in this slow recovery, a comparison of the labor force and employment to the region’s pre-recession benchmark illustrates how much things have changed. There are 14,918 fewer employed people and 20,426 fewer people in the labor force than before the recession.  That shows that much of the full-employment status comes from a smaller labor force and less employment. Most of that is due to a rapidly aging population, and a labor market reset from a manufacturing-based to a service-based economy. Technology also took a big bite out of employment.  Add that to the region’s historic underemployment situation, and you have a soft recovery from the Great Recession. There has been progress on beefing up the local skilled workforce. But it’s a structural labor market problem with a slow recovery curve.

MAY PRIVATE SECTOR WAGES UP

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One bright spot in May’s report is average weekly wages for private sector works in the Tri-Cities’ two metro area increased. The preliminary, non-adjusted total for Kingsport-Bristol was $662.40, up 5.1% from May last year. The weekly average in the Johnson City MSA was $762.60, up 9.9% from last year.

May’s private sector wage average in the Johnson City MSA ranked 6th among Tennessee’s 10 metro area while Kingsport-Bristol was next to last.

UNEMPLOYMENT RATES

Here’s how May’s unemployment rates looked in the cities above 25,000 population and counties that make up the Tri-Cities region.

Carter – 3.5%, up 0.2%

Greene – 3.3%, up 0.1%

Hawkins – 3.4%, up 0.1%

Johnson – 2.9%, unchanged

Sullivan – 3.1%, up 0.1%

Unicoi – 3.2%, up 0.3%

Washington County 3%, up 0.2%

Bristol – 3.4%, up 0.3%

Johnson City – 3%, up 0.2%

Kingsport – 3.1%, unchanged

Tennessee – 3%, up 0.2%

United State – 3.6%, down 0.1%

 

 

Housing affordability takes a hit in Washington Co.; gets small increase in Sullivan

Home price increases and wages that are not increasing as fast dealt a blow to housing affordability as measured by Washington County’s Home Price Index during Q2 this year. At the same time, Sullivan County’s index improved, according to ATTOM Data Solution’s Home Affordability Report.

ATTOM’s Report calculates an affordability index based on a percentage of income needed to buy a median-priced home relative to historic averages. An index above 100 indicates the median home price is more affordable than the historic average. An index below 100 indicates median home prices are less affordable.

Sullivan County’s Q2 index was 102, an improvement for the previous index of 97. That’s based on an 8% increase in the median home price and a 1% annual growth in wages. The data behind the index also shows that it takes 17.8% of the annualized wages to buy a median price home.

Washington County’s index dropped to 105 from 111. That’s based on an 18% increase in the median home price and a 2% increase in the annualized wage growth. The report says it takes 25.8% of wages to buy a median-priced home.

On the surface, the Q2 indices contradict the Northeast Tennessee Association of Realtors (NETAR) Trends Report which shows resales of single-family homes in Sullivan County have outpaced Washington County. Actually, both the Trends Report and ATTOM’s HPI are correct. They just focus on different data sets but compliment each other by illustrating different aspects of the housing market.  Sullivan County and Kingsport have outpaced Washington County and Johnson City resales. And there’s anecdotal evidence part of that was – and may still be – some residents leaving Washington County and Johnson City for more affordable housing in Kingsport and Sullivan County.

Compare what ATTOM’s wage and median price data says for an affordability example. The median home prices cited are $109,000 in Sullivan County and $139,900 in Washington County. The percentage of wages to buy a median-priced home is 8.4% lower in Sullivan than in Washington.

Another factor is the abundance of rental properties that are the result of a flurry of major apartment complex coming online last year and more on the way. That has increased the competition among the older complexes and the new complexes for tenants – especially in Kingsport where some believe the apartment complex market has been overbuilt.

Nationwide the Q2 home affordability index of 95 was the lowest level since Q3 2008.

“Slowing home price appreciation in the second quarter was not enough to counteract an 11 percent increase in mortgage rates compared to a year ago, resulting in the worst home affordability we’ve seen in nearly 10 years,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Meanwhile home price appreciation continued to outpace wage growth, speeding up the affordability treadmill for prospective homebuyers even without the rise in mortgage rates.”

Locally availability has been as much of an issue as affordability as the market contends with some of the lowest inventory levels that are the tightest many real estate professionals can remember. In May the region covered by the Trends Report had a little over four months supply of home on the market and in the primary city markets inventory was tighter.

Sullivan and Washington’s homes were most affordable in Q1 2013. That’s  when the median home price was $80,700, and the average weekly wage was $946 in Sullivan and $103,950 in Washington County with an average weekly wage of $700.

They were least affordable in Sullivan County during Q2 2006 when the median price was $95,000, and the average weekly wage was $736. Washington County’s  affordable low mark was Q3 2007 when the median home price was $129,000, and the average weekly wage was $597.

 

 

Local homeowners lean on HELOCs to tap equity; home purchase loan originations decline

Tri-Cities homeowners – especially those in the Kingsport-Bristol Metropolitan Statistical Area (MSA) – leaned on Home Equity Loans during the first quarter to put their equity to work amid increasing home prices and rising rates. At the same time, loans based on short-term rates – like HELOCs – will see rate increases due to the recent 25-point increase in the federal fund rate. The Fed has also signaled that more increases are likely.

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ATTOM Data Solution’s Q1 Residential Property Loan Origination Report outlines the increase in HELOCs while local originations for home purchases and refinancing declined.

Kingsport-Bristol was among the 165 MSAs analyzed with the biggest increase in HELOC originations from the previous quarter. With a 112% increase, it was second to Chattanooga, up 165%, in Tennessee. Athens, Ga. led the nation with a 176% increase over the previous quarter.

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A year-over-year comparison shows Kingsport-Bristol’s increase at 92%. ATTOM focused on the 50 MSAs with over a million population for this metric so Kingsport-Bristol wasn’t included among the increase leaders. Hartford, Conn. led the nation with an 80% increase. Nashville was up 74% from last year.

HELOC originations in the Johnson City MSA were up 49% from Q4 last year. The year-over-year increase was 14%.

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There were 1,087 HELCO originations in the Tri-Cities region, up 92.9% from the previous quarter and 65.5% higher than last year.

ATTOM’s report is derived from publicly recorded mortgages and deeds of trust. Counts and dollar volumes for the two most recent quarters are preliminary since they are projected based on data at the time the report was made.

“Putting home equity to work is the name of the game in the 2018 housing market — both for current homeowners as well as homebuyers,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “With interest rates rising and home price appreciation accelerating, current homeowners are increasingly turning to home equity lines of credit rather than refinances to tap their home’s equity.”

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How will the Fed’s recent 25 basis point increase affect those tapping equity with HELOCS?

Holden Lewis, research analyst at NerdWallet, says the recent Fed rate hikes will most likely to bite for those with HELOCs and credit cards. Loans based on short-term rates – that includes HELOCs and ARMs – will be immediate increases in their rates.

Total Tri-Cities loan originations – driven by HELOCs – were up 7% from the previous quarter and 5.7% higher than last year.

In the Johnson City MSA, there were up 8% from Q4 and 10% higher than last year. Kingsport-Bristol lagged the region with a 7% increase from the previous quarter and a 3% increase from last year.

Home loan originations in the seven-county Tri-Cities region were 26.1% lower than Q4 last year and down 7.7% from last year.

Purchase originations in the three-county Johnson City MSA were down 12% from the previous quarter and down 5% from last year.

In the four-county Kingsport-Bristol MSA purchase originations were down 39% from the previous quarter and down 21% from last year.

Refi loan originations were down 1.6% from the previous quarter in the Tri-Cities and down 16.6% from last year.

Johnson City was the local exception in refi originations. They were 24% higher than the previous quarter and up 19% from last year.

In Kingsport-Bristol they were 17% lower than Q4 last year and down 39% from Q1 last year.

ATTOM Data Solutions analyzed recorded mortgage and deed of trust data for single family homes, condos, townhomes and multi-family properties of two to four units for this report. Each recorded mortgage or deed of trust was counted as a separate loan origination. Dollar volume was calculated by multiplying the total number of loan originations by the average loan amount for those loan originations. Origination counts and dollar volumes are projected for the most recent two quarters based on historical share of mortgage and deed of trust data recorded and collected within 45 days from the end of a quarter — which is when ATTOM pulls data for the report.

 

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