Builder confidence, market momentum stronger than permit numbers indicate
The Tri-Cities is the only area in the region that saw an increase in the new residential permits during the third quarter. One story used to explain that is the local new home market is trailing its neighbors and catching up to where they were at the end of last year. Another is several local builders, and a national company, are beginning to focus on a segment of that market that has been underserved and that’s ramping up what was already high consumer interest.
According to The Market Edge’s Q3 Residential Building Permit Trend Report, 810 permits were pulled during the first nine months of this year. That’s a 3% increase over the same period last year. The report also shows new permits in the Knoxville region declined by 10%, Chattanooga was down 9% and Asheville trailed the first nine months of last year by 6%.
Drilling down to the county level, the report shows Washington and Carter were the only counties with positive year-over-year performance. Here’s how the region’s seven-county permits totals for the first three quarters of last year looked compared to the previous year:
- Carter – 81, up 17%.
- Greene – 116, no change.
- Hawkins – 13, down 41%.
- Sullivan – 203, down 7%.
- Washington TN – 334, up 17%.
- Scott VA – 10, down 28%.
- Washington VA – 53, down 13%.
Last year there was 1,017 new home permit pulls compared to 1,073 the year before. New home permits peaked in 2006 and have declined every year since. In 2018 the industry was performing at 39% of its pre-recession peak capacity. So far this year the number of new permits trails the 2008 – the year before the Great Recession hit the local economy – total by 37%.
Last year there were 396 new home sales in the Tri-Cities region and 359 in 2017. During the pre-recession years peek sales were in the 1,200 to 1,112 a year range.
The mood of local builders aligns with the National Home Builders Hobebuilder Confidence Index and is much better than the permit numbers indicate. They’re seeing continued high consumer interest for new homes and enough demand that lot development is flowering.
Kelly Wolfe, Wolfe Development in Jonesborough, said almost all of the pre-recession lots have been absorbed by new demand, and now individuals who are willing to risk capital are stepping up. He’s one of those individuals. He says his company has three different developments where 29 of 38 lots in one have been sold this year, 15 of 21 in another and “in just three months we sold 28 of 48 lots in another development.
Builders saw a lot of pent-up local demand last year. Now they’re seeing more people with bigger buying power. That buying power is driven by the housing market’s overall improvement that permitted homeowners from other areas with higher-priced housing to sell and relocate to markets where they can get more house for their investment.
There has also been a small increase in the number of new builders in the region.
“Historically, you can’t go wrong when interest rates are at record lows, jobless is almost nonexistent and the price of gas is under $2.50,” Wolfe said. The biggest current headwind is during an election year buyers or potential buyers tend to step back and wait to see what happens. “They’re operating on a little fear and emotion over the uncertainty,” Wolfe said.
When asked for a new home outlook for 2020, Wolfe said what is becoming a common refrain. He’s cautiously optimistic for much of the current momentum to stay in place.
National Association of Realtors Chief Economist Lawrence Yun recently told Bloomberg Radio’s Denise Pellegrini that “low taxes, job growth, and the right price point can be a mark or break factors for many housing markets.” Yun, and others, are also quick to point out that not enough new homes were built during the recovery to sustain the housing markets current robust growth.
Locally the price-point is a big factor for both the existing and new home markets. There has been a lot of activity in the new home sector to meet the demand for new homes in the $200,000 to $225,000 price range. Demand for that product is what brought D.R. Horton – the nation’s largest homebuilder – to the local market. Horton has a 200 home development in Piney Flats that has a market delivery pace of 50 new homes a year. Horton has also reportedly been buying up lots in other areas. At the same time, a couple of local builders have turned some of their efforts to that price point.
There has also been a modular home sales increase this year.
According to the Appalachian Highlands Dashboard for Real Estate Analytics, the median price for homes built in 2018 and 2019 and sold so far this year is $278,250. The Dashboard is new a new venture by Don Fenley, supported by TechPoint’s Austin Ramsey and TCI Group’s Nina Heffner, and underwritten by Jerry Petzoldt TCI Lifestyle Investments.
Some of the things the existing and new home markets are expecting next year are:
- Millennials are getting aggressive about becoming homeowners. Here in the Tri-Cities, the oldest member of that generation is nearing 40 while the largest part of the generation will turn 30 this year. That accounts for a little over 60,000 people in the Tri-Cities.
- The housing market will get even more competitive, and prices are expected to flatten, but overall home values will increase.
- Mortgage rates are expected to remain at current levels – or a little higher – next year.
- While the odds of a recession have decreased, housing should be the least affected economic component in a slowdown.
Categories: REAL ESTATE
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