TRI-CITIES, Tenn. – Opinions vary about whether the 2023 Tri-Cities housing market will be up, down, or sideways. Anyway you look at it, next year will be a challenge for everyone concerned, but some submarkets could have the edge.
It’s pretty well accepted that sales will be off their torrid pace next year. Prices are another issue.
Lawrence Yun, The National Association of Realtors (NAR) chief economist, recently told Realtors he thinks sales will be down by 6% next year while prices could increase by 1%.
Core Logic’s analyzes for Fortune that included an assessment of income growth projections, unemployment forecasts, consumer confidence, debt-to-income radios, affordability and mortgage rates, and inventory levels give the Tri-Cities’ metro areas a 20% – 40% chance of a price dip. That’s a chance – not a forecast. They have moved from the Very-Low chance group to the Low-Risk group.
Morgan Stanley expects prices – as measured by the Case-Shiller Index – to fall 4% in 2023 after a 5% decline during the last half of this year. Its forecasters also don’t think a depleted inventory will stem price declines. The thing to remember about Morgan Stanley’s outlook is it’s a major metro centric. It does a good job on the nation’s 322 largest markets. But regional market performance can – and often is – different.
Local prices have been flat since mid-year but are tracking toward a third double-digit annual increase. Prices were up 11.1% last year and up 17.6% in 2020. So far this year, the 10-month trend has them at an 18% increase.
Given current conditions, the region will likely see some price growth rate softening. How much it bites into the current growth rate is the big question.
There is still strong organic pent-up demand and a robust relocation of new residents. That puts emphasis on how prices and inventory behave. Since sales and prices are increasingly compared to the pre-pandemic conditions, note that the local inventory is down 53% from a pre-pandemic benchmark. It’s growing. But at a painfully slow pace.
Inventory is where the Greeneville Region is emerging to a stronger position than its neighbors, according to the TCI Group’s long-range market share and inventory analyzes. The region’s largest commercial real estate firm invests in residential housing analysis because it reflects population and demographic change – a precursor to what happens in the commercial real estate market.
Last month’s 12-month market share analysis showed that while the Johnson City region dominates the overall market, the Kingsport and Greeneville regions have shown more growth in individual price ranges. This month’s inventory analysis shows Greeneville has the strongest inventory increases in six of 11 price ranges. And it has been especially robust in three prime home price ranges – $100,000 to $199,000, $200,000 to $299,999, and $300,000 to $399,999. Greeneville is also at or very near the bottom rung of the balanced market conditions ladder in the $300,000, $400,000, and $500,000 price ranges.
Data analysis is helpful, but even the best can be knocked off track. There are two Tri-Cities area scenarios for 2023.
The bull market example centers on a slowly improving tight inventory and lower-than-expected mortgage rates. Currently, signs are pointing toward lower mortgage rates that could nudge more buyers into the market to take advantage of a little more inventory and sellers’ willingness to come off their asking price.
A recession unleashes the bear market example. It stomps on job creation, increases unemployment, puts downward pressure on wages and consumer spending. That means weaker demand that sends buyers and builders to the sidelines.
The 2023 outlook is for a challenging year with a lot of variables. The local market has shown it is resilient to the current downturn and some strong fundaments are at play. Next year has the potential to put local housing market performance at odds with mass media headlines, again.