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.