Tri-Cities housing market hasn’t run out of steam, but COVID-19 is muting sales

Tri-Cities existing homes sales were up 13.9% during the 12 months ending in mid-May when compared to the same period last year. That’s a silver-lining trend view for housing while COVID-19 is muting resales while gut-punching the economy. Expect more sales moderation from last year’s sales pace through the second quarter. At the same time, sales prices are increasing due to continued consumer demand and an ever-shrinking inventory.

Inventory tightened across the board in May, especially in the $200,000 to $400,000 price range. Sellers’ markets are typically defined as anything below 5 months of inventory.  The normal market conditions benchmark is 6 months of inventory.

February is this year’s monthly annual sales growth rate peak for the region  – 17%. Since then, it has declined. In the submarkets, the Twin Cities had the best growth rate peak of 24.6% at the beginning of the year. By mid-May it had declined by almost 10 points. Those rates vary widely in the region’s submarkets. So do sales by price point performance.

There’s a whiff of optimism in the air since short-term indicators are pointing toward bounce when the Northeast Tennessee Association of Realtors (NETAR) released its May Trends Report. There’s optimism because new pending sales are down but not significantly underperforming their 12-month trend. Consumer foot traffic is up. So are residential and commercial listing Web views. That points to pent-up demand.

Forecasts from the National Homebuilders Association’s (NHBA) economic unit (Meyers Research), the National Association of Realtors (NAR), and the Mortgage Bankers Association (MBA) point to better things in the coming months. But don’t expect a surge until later in the year. And that’s if there’s not another COVID-19 outbreak.

Beyond this year, a major challenge to the housing economy is population growth. The region’s population continues to be stagnant, and that tamps down housing demand. The region’s new home sector is not improving in proportion to the existing housing market, which has seen four record-setting sales years. Things are looking better with several subdivisions under way and new lot inventory. But new home permits are at less than half pre-Great Recession capacity. One of the reasons tossed around about that situation is there’s not enough lot inventory or developable land. While that’s a symptom of current conditions, it’s not the reason. There is land available in even some of the more difficult subregions. What’s lacking is a high enough level of demand driven by population growth (a.k.a. human capital) to put those resources into play.  Another issue is price.

Erik Franks, senior vice president at John Burns Real Estate Consulting, tackled this topic in a recent blog. His take, from a national perspective – and it applies locally, was, “This is plenty of housing demand, but most of the demand is below today’s new home prices. In 2003, before subprime lenders broke the rules, half of the new homes in the county were priced below $191,000.”

Here’s how Tri-Cities resales looked in the five primary price ranges for the 12-months ending mid-May compared to sales for the same period of the previous year.

$200,000 and below

This price tier still has the highest resale market share – 66%. But it has declined by almost 10 points in the past four years.

  • Johnson City region – 1,782, up 111.
  • Kingsport region – 1,419, up 121.
  • Twin Cities region – 885, up 115.
  • Greeneville region – 656, up 54.

$200,000 – $399,999

Market share for this price tier was 29% of the region’s total resales. That’s a 2% increase from the same 12-month period ending May last year. This is a continuation of a trend that has seen its market share increasing in almost direct proportion to the erosion of the $200,000 and below tier.

  • Johnson City region – 1,020, up 165.
  • Kingsport region – 515, up 143.
  • Twin Cities region – 316, up 32.
  • Greeneville region – 213, up 56.

$400,000 – $599,999

While this price tier accounted for only 4% of the region’s total sales, it was a 1-point increase from last year. Resales in this price range, and in the new home sector, was driven by the pre-COVIC-19 economy, low-interest rates, and strong consumer confidence.

  • Johnson City region – 126, up 13.
  • Kingsport region – 47, up 4.
  • Twin Cities region – 54, up 19.
  • Greeneville region – 27, up 17.

$600,000 – $799,999

The market share drops below 1% in this and the higher price tiers, but region-wide sales were up by 13 in the 12-months ending in mid-May.

  • Johnson City region – 31, up 3.
  • Kingsport region – 7, no change from the previous period.
  • Twin Cities region – 12, up 7.
  • Greeneville region – 6, up 3.

$800,000 – $1 million plus

During the 12-month analysis period, resales for the top of the market increased had increased from 18 last year to 28 in the current period. It’s noteworthy that the best growth rate for these high-enders came in the Kingsport and Twin Cities markets.

  • Johnson City region – 12, up 2.
  • Kingsport region – 6, up 4.
  • Twin Cities region – 8, up 3.
  • Greeneville region – 2, up 1.

Categories: REAL ESTATE

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