The crunch doesn’t apply to just apartments where a new construction boomlet is underway. Those looking for single-family or condo rentals also feel the pinch. And short-term rentals – aka Airbnb – are sizzling.
An exclamation point to that statement is the build-for-rent trend. Nationwide the number of homes built exclusively for rent has increased 30%, according to the National Association of Home Builders. Locally it isn’t expanding at that pace, but it’s gaining momentum.
About a third of the Tri-Cities housing stock during the fourth quarter was single-family and condo investment properties, according to ATTOM Data Solutions. Most are owned by local mom-and-pop investors. Of those 60,463 rental properties 5.7% – 3,460 – were vacant. That’s higher than the national 3.9% vacancy rate and slightly lower than Tennessee’s 6.1%. The local rate has increased from 5.1% during the first quarter of this year.
A vacancy rate drill-down on the regions’ 40 zip codes illustrates a real estate truism. It’s all about location, location, location. The rates range from 1.4% to 15%. For example, rental occupancy in Piney Flats, Limestone, and Johnson City’s 37616 zip code is at or near capacity. That’s not the case in Bulls Gap, Kingsport’s Lynn Garden zip code, and Rogersville’s 37859 zone. The occupancy rates in those areas are OK, but the vacant rates are double – sometimes almost triple – the area rate.
The dynamic behind surging apartment rents and high occupancy rates applies to the single-family and condo market. Check out this report the local multi-family market – Rents will cool off when supply exceeds demand. It’s also behind buying and selling trends. Some landlords have and still are cashing in on the hot sales market and getting out of the game or whittling down their inventory to boost cash reserves. Others are scouring the market to invest. Mobile home park investors are at the top of that list.
A housing shortage is the reason the housing market is so hot. It has been building for years. While home sales have steadily increased, the new home inventory lagged.
Look at it this way. In a balanced market, six existing home sales typically result in one new home. The current local surge in existing homes sales took off in 2015. Since then, the Northeast Tennessee Association of Realtors (NETAR) Home Sales Report has listed 45,645 sales. That’s only sales that were on the regional multiple listing service (MLS). Add an estimated 10,000 sales that were not on MLS. If the local new home industry had performed to the balanced market standard, it would have added 9,300 new homes in that period. Instead, it added 5,216 new homes.
Several factors were behind the balanced market lag. The first was the Tri-Cities was a spec-home market, and financing from local and regional banks dried up during the recovery from the Great Recession. They were operating under so-called banking reforms that made local banks operate under the same rules as those that drove the housing bust. Local builders who typically had up to four spec homes at a time working cut were forced to cut back. The other reason was some many of the older, established builders in the northern part of the region called it quits during the recession.
That was a sure-fire formula for a housing shortage. Savvy investors saw it coming and took advantage of a glut of Great Recession-induced homes on the market at bargain rates. The natural progression of market forces took care of the rest until last year when the pandemic created a flood of refugees fleeing high-cost and densely populated areas.
Local builders are now adding new homes as fast as a labor shortage, the supply change and materials costs will permit. And, for the first time, national builders are active in the Tri-Cities market. The relocation wave is also cresting. People are still relocating, but the range has moved closer to their home state.
The housing market is slowing, but there’s still more demand than supply. It’s estimated that if current condition continue inventory will return to balanced market conditions by 2024.
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