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.

Categories: CORE DATA, REAL ESTATE