Sullivan, Greene counties bright spots in lackluster Tri-Cities area new home market

Tri-Cities new home construction is lagging last year with two exceptions. Sullivan and Greene counties saw more new residential permit pulls than the other counties. And almost all of the Sullivan County growth was in Kingsport.

The local new permit lull contrasts increases in the two other metro regions in East Tennessee. Chattanooga saw a 23.6% increase and the Knoxville market was up 10.6%, according to the Market Edge’s mid-year Residential Building Permit Trend report.

Lousy weather during the first quarter, rapidly increasing materials, and labor cost plus new code requirements in some counties are some of the headwinds builders are wrestling with this year. Builders are also facing a shortage of lots. And although it is not reflected in the number of new permits most builders say they are seeing continued high foot traffic and buyer demand. The slowdown also parallels what’s happening on the national level.  Lower building activity across the national pushed new home starts down in June by 12.3%.

Washington County TN, typically the region’s most active new home market, saw 30 fewer new permits than last year, and the drop-off wasn’t just in the mainstream new homes. The number of high-end permits also trailed Sullivan County’s new permit pace. The Market Edge defines high-end homes as those with 4,000 sq. ft. or more or with a construction cost of $400,000 or more.

Travis Patterson, Patterson Homes in Kingsport, says his business was very good during the first half of the year. “I get five or six calls every week, and we’re getting a high percentage of them as new customers,” he said. So far this year Patterson Homes is leading new permit pulls in Kingsport.

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.

It’s not unusual to see new permit activity during the second half of the year outperform the first six months, and that what it will take if the region lives up to its 2018 projected 7% growth.

The region’s new home sector has been slowly improving since 2015, but it is still underperforming its pre-recession level by a little more than half. Some of that is the result of low population growth and the slow improvement in the local economy. Another part is a restructuring of the local economy marked by an aging population and a labor market dynamic that is seeing the creation of fewer jobs that pay at or above the median wage levels.

New home demand exploded during the last half of 2017. Since the demand hasn’t slacked off, and many buyers are looking for single-story, smaller homes. Builders like Patterson have moved to accommodate that market demand while some of the other custom home builders are content with fewer high-end customers.

Here’s how new permit activity looked in the seven-county region during the first half of the year compared to the same period last year.

Carter – 43 – 56.

Greene – 61 – 52.

Hawkins – 11 – 14.

Sullivan – 131 – 129

Washington TN – 180 – 210.

Scott VA – 10 – 17.

Washington VA – 33 – 39.

So far this year, Sullivan Co. saw the largest number of high-end home permits (11) followed by Washington Co. TN (9) then Washington Co. VA (8). There were three high-end permits in Greene Co. and two in Carter Co.

According to the Market Edge report, there were 33 Tri-Cities high-end home permits in the first half of the year. That’s less than half of the last year’s annual total of 89.

 

Tri-Cities jobs growth rate slows; labor market at full employment, but…

The Tri-Cities labor market is slogging through the seasonal slump by slowing adding nonfarm jobs.

So far this year, employers are averaging 40 new jobs a month. Last year they grew at an average rate of 134 a month. July’s non-adjusted, preliminary total is up 2,100 from last year.  The gains in the Kingsport-Bristol MSA came in construction; manufacturing; trade; transportation and utilities; and leisure and hospitality. The Johnson City MSA saw gains in the information sector; financial activities; and professional and business services. Other sectors lost jobs or were flat in both metro areas. Johnson City’s labor market has also reversed the job loss trend from the first half of the year.

Render a larger file by clicking on charts.

July’s employment was up 1.5% in the seven-county region, but an increase in the labor force kept the unemployment rate at last month’s 4.3%. It was the 17th straight month the region’s jobless rate has been under 5%.

Here’s where the data and the feel of the local economy come into conflict.

By the numbers, the Tri-Cities is at full employment. Economists define full employment as any time a country has a jobless rate equal to or below the non-accelerating inflation rate of unemployment (NAIRU). Estimates of this measure are based on the historical relationship between the unemployment rate and changes in the pace of inflation. If the jobless rate is below the NAIRU, the economy is at full employment. Currently, the NAIRU is 4.6%. That calculation is made on the national level, so you have to use it with the local employment rate for a full-employment picture. Since the local jobless rate is 4.3%, the Tri-Cities is technically at full employment.

But even at full employment – and reports that there are actually more jobs than interested workers – local agencies that provide food relief say demand keeps increasing. It has become a comment lament locally and nation wide that goes like this, Many people are getting by, but not getting ahead. There’s also an uptick in complaints about homeless people in the upper end of the downtown area, and pan handlers are common in some areas.

Also, on the economic stress side of the picture, the number of properties with seriously underwater mortgages is up sharply from this time last year, and new foreclosure filings are increasing.

The consumer credit growth rate has been trending lower and since it’s the lubricant that keeps the economy humming that’s a concern. Consumer credit does not include mortgages.

Retail sales tax collections are up, but the Johnson City metro area is struggling to maintain its market share from last year. So far this year, collections in the Kingsport-Bristol metro area have met or exceeded its 2017 annual market share.

Economists are also concerned about subprime auto bonds, where loans to people with patchy credit histories are packaged into securities then sold to big investors. Bloomberg reported earlier this year the collateral behind the bonds is getting dicey as owners are increasingly falling behind on their loans.

But on the positive side of the picture:

Local existing home sales just posted their 7th straight monthly year-to-year record. New pending sales are at a high for the year, and the average sales price is 3.7% better than it was during the first seven months of last year. That’s important because the existing housing market and consumer spending continue driving the local economy’s recovery. The home sales growth rate is slowing, but the market is on track for another record year.

Things are not as rosy in the new home construction area. At mid-year, new residential permits were down almost 10% from the first half of last year. Greene and Sullivan county markets were exceptions to the downturn.

Even though the nonfarm jobs growth rate is less than last year, there were 200 more nonfarm jobs than they were in July 2008. The downside is the economy is creating more sub-par jobs. Nationwide four of every 10 workers say they’re underpaid. There are also complains in Kingsport about a slow high-end, and professional jobs erosion in the medical sector as the Ballad merger moves forward.

The year-to-year number of people employed has increased every month since July 2015, but there are 15,278 fewer people working than there were at the pre-recession peak.

The region’s year-to-year month labor force increased for six straight months in July, but like employment a comparison to the pre-recession high is sobering. There were 17,376 fewer people in the labor force in July than the April 2009 high point.

Private sector wages are increasing in the Johnson City metro area, but not in Kingsport-Bristol.

Some of the region’s labor force woes can be written off to an aging labor force, and that’s not getting any better. Workers aging out of current full-time jobs will increase for the next decade. At the same time, the share of older workers still on the job is increasing as many take up part-time or contract work.

Another positive note is the region saw some population growth, according to Census estimates. The number of new residents will take on definition next month when those estimates are refined.

There’s no argument that the economy is growing, but that slowing growth is riddled with sustainability questions.

Local housing market look good, but there are stress signals

A recent headline on the Wall Street Journal’s Real Time Economics blog proclaimed, “U.S. Labor Market Looks Great; Housing Not So Much.”  I’m not about to argue with that assessment. But If you dig past the national data and look at what’s happening here in Northeast Tennessee an accurate headline would be: “Housing Market Looks Great; Labor Market No So Much.”

Northeast Tennessee’s Housing Market has seen seven straight months of year-to-year existing home sales records. Although the growth rate is slowing, overall sales are still on pace for what started in May 2015.  The growth has moved a market where 11-months of inventory was normal to less than four months. The benchmark for normal market conditions is six months.

Underwater properties

But home prices have not seen the big runup being seen in other markets feeling the same inventory pinch. That’s because the big metro markets skew the median price to the right side of the median curve when local prices are compared to national reports. In fact, when July’s year-to-date average price is adjusted for inflation it’s 0.8% better than it was last year. The inflation rate last month was 2.95% compared to 1.7% July last year.

Overall local home prices have seen what this market is known for – conservative appreciation. And while there are exceptions, this is not quite the red-hot price market some like to talk about. Sales are hot, and there are good gains to be made in some price ranges – but not necessarily across the board.  That’s because a big part of the average price increase is driven by more sales the $200,000 to $300,000 range due to the inventory crunch in the $200,000 and below market, which accounts for almost 75% of all home sales.

Equity-rich properties

And the fact that the local new home industry is still lagging pre-recession levels by about half doesn’t help to inventory picture. Builders had a good year in 2017 and 2018 will be equally good, but there’s a trend toward smaller, lower-priced new homes this year. One of the complications with existing home inventory is the folks who have the means don’t have much product to look at. And some are looking for product that basically is not on the market. So, they’re staying put.

There’s no question to the fact that the housing market lifted the area economy out of the economy, and consumer spending got a huge shot in the arm with lower gas prices. Those are still the two big drivers. And yes, the labor market has improved. But neither employment nor the nonfarm job count has recovered to pre-recession levels. Some of that is due to an aging labor force dropping out of the jobs market. Another factor is the area is still in the throes of converting from a manufacturing-based economy to a service and healthcare economy. A bright spot is the job loss picture in Johnson City metro area looks like its working itself out. It was the only metro area in the state showing job losses for the first half of the year.

The local labor market is creating jobs, but many of them are on the lower end of what it takes for a family of three to have a modest, yet adequate, standard of living.

Wages are still a mixed bag. The inflation-adjusted family incomes are still lagging pre-recession highs, but there have been gains for the average sage for full-time male workers. Full-time female workers have seen bigger gains and that should continue as more of them assume higher-level jobs. The mixed bag is private sector wages. Buying power for private sector wages adjusted for information from the year before the great recession shows anemic growth. It’s less than 1% in the four-county Kingsport-Bristol MSA and barely over 1% in the three-county Johnson City MSA. The strength of the region’s government sector wages is the driver behind the increase in total individual wages.

And despite the strengths of the local housing market, there are some red flag. They don’t necessarily signal and a big change in a housing market that currently has some of the best growth rates in the state. But they should be looked at as economic stress signals.

Attom Data Solutions’ Q2 U.S. Home Equity & Underwater Report found 10.1% of the mortgaged homes national wide were seriously underwater. That means the owner owed 25% more on the property than its estimated value.

There was a time when the local share of underwater properties was less than the national number. But that wasn’t the case in Q2. When compared to the Q2 last year every county in the region had an increase of homes with mortgages that were seriously underwater. And ever county was higher than the national norm. Only two counties were less than the state share. But just because an owner is underwater doesn’t mean a foreclosure is pending in all cases.

The share of seriously underwater properties has dropped well below 10% in bellwether housing markets such as California, Washington, Texas, Colorado and New York, but the underwater rate remains stubbornly high in markets where price appreciation has not been as strong during the housing recovery of the last six years,” said Daren Blomquist, senior vice president with Attom Data Solutions.

The other side of that report is an analysis of equity right homes. Attom defines equity rich of a home that has a loan to value ratio of 50% or lower, meaning the property owner has at least 50% equity.

This report used to show the local housing market had a higher share of equity-rich homes than the national share in almost every county market. At the end of Q2, one local county had a better share than the national number. The rest showed big declines from Q2 last year. That’s not necessarily a bad thing. Earlier Attom reports show local homeowners have been tapping their equity to buying another home, remodel an existing home or upgrading one that has just been bought or for any number of other reasons.

“Nationwide the number of equity-rich homeowners is more than twice the number of seriously underwater homeowners, but the gap between home equity haves and have-nots persists because home price appreciation is certainly not uniform across local markets or even within local markets,” according to Blomquist.

Locally, all but three counties had a higher percentage of equity-rich properties than those that were seriously underwater.

Attom’s July report on new foreclosure filings found U.S. foreclosure starts increased less than 1% from a year ago, but some local markets reported much more extreme increases.

The local market dropped into those reporting more extreme increases.

The regional total for new filings increased to 110 from 82 July last year. Only two counties county had fewer new filings. Washington County Tenn. had the largest number of new filings.

In many ways, the July new filings report was an extension of the Q2 report. It showed an uptick in new filings, and Blomquist attributed to new filings to lower lending standards that began in 2014.

The best way to look at the local economy this summer is it’s pretty darn good, but there are stress signs that shouldn’t be ignored.

 

 

 

 

Index points to more strong home sales in Sullivan, Washington, Hawkins counties

Look for a continuation of brisk existing home sales in Hawkins, Sullivan and Washington counties for the next 90 days.

Those three local counties have a pre-mover index that’s higher the than Tennessee and national benchmark, according to Attom Data Solutions‘  Q2 Pre-Mover Index.

The index is predictive of a high percentage of homeowners moving in the third quarter. The full methodology is at the bottom of this report.

The Northeast Tennessee Association of Realtors reported area home sales posted their 7th straight record month in July and a year-to-date and market share analysis of that report show Washington, Sullivan, and Hawkins among the most lively local markets.

The index also points to Washington County having the highest share of investment properties with a pre-move indicator.

Sullivan County has the higher Q2 index in the region – 178, followed by Hawkins county – 172 – then Washington county – 164.  An index above 100 indicates more sales than the national average.

The indexes for all three counties have declined from Q2 last year, and Hawkins County has the lowest decline – 10%- compared to Sullivan, down 25% and Washington down 35%.

Tennessee Q2 index is 94, so statewide resales are below what’s expected national wide in the next three months.

“A higher pre-mover index bodes well for local real estate agents, home improvement stores, moving companies and others that benefit from the halo effect of a home sale,” said Daren Blomquist, senior vice president at Attom Data Solutions. “Meanwhile markets with a low pre-mover index likely have a scarcity of inventory available to buy or relatively weak demand from prospective buyers — or some combination of both — which is not optimal for businesses that rely on the home sale halo effect.”

Washington County has the highest percentage of single-family homes with a pre-mover indicator that was being purchased as investment properties. Here’s how that component of the index looked for the three local counties included in the report.

Washington County – 3.9%.

Sullivan – 2%

Hawkins – 0%

Investment properties had a 4.6% share of the home with a pre-mover indicator while Tennessee had 6.7%.

Homes with a pre-mover indicator for secondary homes were:

Hawkins – 1.8%

Sullivan – 2%

Washington – 1.9%

U.S. – 4.6%.

Tennessee – 2.6%.

The primary home occupancy types are:

Hawkins – 98.2%

Sullivan – 96%

Washington – 94.2

U.S. – 92.2%

Tennessee – 90.7%

Washington County has the best pre-moved index performance rating with 70% of the homes closed in 30 days followed by Hawkins County at 69%. Sullivan had a 30-day performance rating of 67%.

Report methodology

Using data collected from purchase loan applications on residential real estate transactions, the Attom Data Solutions Pre-Mover Housing Index is based on the ratio of homes with a “pre-mover” flag to total single-family homes and condos in a given geography, indexed off the national average. Any index above 100 is above the national average and indicates an above-average ratio of homes that will likely be sold in the next 30 to 90 days in a given market. Historical pre-mover data going back to Q1 2014 shows that 59 percent of homes with a pre-mover flag sell within 30 days of the estimated loan settlement date that is provided in the pre-mover data, and 76 percent sell within 90 days of that settlement date. The loan application data used for the pre-mover index also includes the intended purpose of the potential purchase: primary residence, secondary (vacation) home, or investment property.

 

%d bloggers like this: