The Tri-Cities new residential permits report was slammed by a perfect storm of bad consequences during Q3 and the first nine months of this year. Labor and material costs were up, new codes tacked some hefty increases on the average cost of a new home, interest rates increased, and wet weather made it a tough year for on-site construction.
But new home builders are having their second-best year for new home construction since 2008. Unfortunately, that good year is not resulting in an increased inventory of new homes during a period when homes for sale inventory is at record lows.
Area-wide new permits were down 15.9% compared to Q3 last year. The year-to-date tally is down 16.2%, according to The Market Edge’s Q3 building trends report. The report is recognized as the best building permit data resource in Eastern TN because it has representatives visit every local code office to gather data.
The report shows 280 new permits for the region in Q3 and 734 so far this year. The year-to-date total is 142 fewer than 2016, which was the best year for new permits since 2008.
Washington Co. TN saw the red ink in both the Q3 and year-to-date tabulations. So far this year it has seen 124 fewer new home permits than the first nine months of last year.
Carter Co. took the second biggest YTD hit, down 37 permits from last year followed by Sullivan Co. with a decrease of nine permits.
The permit picture for Greene Co. is much brighter. It has seen an increase 21 new permits so far this year. Washington Co. VA’s total is up four permits, and there was a YTD gain of one permit in Hawkins Co.
When higher labor and material costs, higher interest rates, new code requirements, a trade war and one of the wettest years on record all come at one time “it’s no wonder permits are down,” said Kelly Wolfe, Wolfe Development in Jonesborough. “And don’t overlook higher gas prices. That’s a huge factor on local consumer confidence.” Another factor is it’s an elections year. Every time you have an election where the market sees the situation to be less than certain people use it as an excuse to put off making big-ticket decisions, he added.
But with all that said, Wolfe thinks there still room from new home growth in the Tri-Cities region. And despite this year’s soft numbers consumer confidence and the existing home market bear out his assessment.
Sullivan Co. – the region’s second largest new home market – saw a drop in permits during the first nine months of the year, but the decrease was only 4%. Compare that to the 33.2% permit decline in region’s largest market – Washington Co. TN – and the decline doesn’t look so bad. The resale market for Sullivan tells a similar housing demand story. Sullivan has consistently claimed a larger market share of regional resales every month this when compared to its 2016 annual market share.
Much of that new home and resale result is a slow release of pent-up demand, a little better inventory than the other counties and a steadily improving economy.
Eric Kistner, Bridge Point Realty, thinks the new permit lag this year is the result of cyclical conditions and not a sign the market is declining. While the new home market – like the rest of the housing market – is expected to be softer in 2019, he also says there’s room for growth. A new phase at Edinburgh and the Riverwatch development in West Kingsport are examples of the confidence some builders have in the local market.
Wolfe added that builders need to be paying more attention to prices. “My wife is insistent that we find a way to bring the price point down,” he said. Things can’t keep going up the way they have been if the new home market is going to remain viable, he added.
Recovery of the local new home market has been slower than other housing market components. New permits are only at about half of the pre-recession levels during a time when demand has driven the inventory of existing home for sale to record low levels. Those inventory levels are particularly low in the $200,000 and below price range which historically accounts for more than 70% of all local home sales.
Here what the YTD new permits look like compared to the first nine months of last year.
Carter – 60, down 27
Greene – 113, up 21
Hawkins – 22, up 1
Sullivan – 215, down 9
Washington TN – 249, down 124
Scott VA – 59, down 8
Washington VA – 59, up 4