Kingsport new home activity increased during the first half of this year, and unlike what’s being reported about the national new home market there’s no sign of a sales decline. But there’re some differences from what was being built last year.
If you look at the median market value and the living space, there’s a slight move toward smaller, less-expensive homes. Averages show a bigger shift distributed across the market. And when you look at the share of new homes by price range, there’s a big shift the $200,000 and below tier. It doubled from last year. At the same time, the market share of new high-end homes – those with a $400,000 and above market value – didn’t change. The middle tier’s share declined.
There was a 35% increase in the number of new single-family home permits issued during the first six months of this year compared to last year. It would have been higher if the weatherman had cooperated. Builders don’t pull permits when it’s too wet to work. Still, the mid-year increase is much stronger than the 7% growth projection for the region.
Nationally, new home sales fell to their slowest pace in eight months in June, and the median selling price dropped to its lowest point in more than a year, according to government reports. One of the largest declines was a 7.7% drop in the South, which has been a strong growth region.
Lawrence Yun, chief economist at the National Association of Realtors (NAR), said part of the decline can be seen in a 9% drop in construction. Less new construction means fewer new home sales, he said on Linkedin. “We need to assure barriers to home construction, such as big lot sizes and high impact fees are lessened.”
Rising material and labor costs are big concerns for local developers. Soft lumber alone has added about $5,000 to the cost of a new home, and since framing typically accounts for about 18% of the construction costs, the soft lumber tariffs on Canadian imports are a big deal. Tariffs increasing the price of aluminum and steel building materials is also an issue. And then there’s the shortage of truckers. One builder said getting the lumber when he needs it delivered is almost as big an issue as cost.
Despite the headwinds, Travis Patterson, Patterson Homes, says his business is doing very well. We’re a custom home builder, and the demand for custom homes is really good, he said. “I get five or six calls every week, and we’re getting a high percentage of them (as customers).”
Patterson Homes led Kingsport’s new home construction market during the first half of the year, and Patterson looks for business to pick up in late summer and early fall.
Eric Kistner, Bridge Point Realty, tells a similar story. A new phase at Edinburgh and a development at Riverwatch across from Rotherwood in the Hawkins County portion of Kingsport are prime examples. He says smaller homes line up with the national trend. It’s a combination of what consumers want meshing with market forces that are pushing costs higher, he added.
Higher development costs are a segue to Kistner’s views about the future of new home development. A core issue he – and other developers – cite is the lack of lots and the costs behind that shortage. The way we build roads puts the cost on the developer, and the high standards those roads are held to sets up a risk-reward standard that is a disincentive for developers, he said.
He thinks it’s ironic that city and county leaders will jump at incentives to get a new restaurant – for example – but back away from incentivizing infrastructure that will lead to new single-family housing. New housing equals new population and each new resident added to the population has a dependable, long-term positive economic impact, he said.
Kistner likes to invoke Ronald Regan when he talks about this issue. “If you want more of something, subsidize it; if you want less of something you tax it.” He also likes to cite Adam Smith’s assertion in the Wealth of Nations that building infrastructure is among the core functions of government.
He and others think government partnering with developers on infrastructure to open areas for new single-family home expansion would be a better model for economic development than the current system. The idea dovetails with something Federal Reserve Chair Jerome Powell said during a hearing before the House Committee on Financial Services in July. Responding to a question about housing and its effect on current monetary policy, Powell said that while still important to the American Dream housing isn’t the economic driver it once was. He said that factors holding back the housing market are more labor market and supply-side issues than monetary policy.
Meanwhile, business in Kingsport’s new home market is brisk. But there’s a looming issue. Much of Kingsport’s housing stock is old, inventory of that housing for resale is tight, and now that the area is beginning to see some population growth development of single-family housing will become an increasing challenge. Currently, some of that housing challenge is being met with apartment developments developed with government incentives, which begs another question: Is Kingsport moving away from being a dominantly home-owner community.