By DON FENLEY
By historical standards, 2022 was a standout year for the Tri-Cities housing market and economy. The shock of mortgage rates doubling helped drive existing home sales from unsustainable levels to a pre-pandemic level. But the FED’s blunt-force inflation-fighting interest rate tactics didn’t pump the brakes on local home prices like it did in some metro markets. It’s a benefit of being a rural market. The Tri-Cities region is one of the leading rural metro markets – one that tends to slowly adjust to new fundamentals rather than swinging with the major metros’ highs and lows.
In some ways, that leaves the 2023 market as somewhat of a blank canvas. There’s the market seen through the lens of locals and the one seen through the lens of out-of-area residents and investors exploring for new opportunities.
With mortgage rates falling throughout December, there should be a rebound of existing home sales in the coming months. But that doesn’t mean a return to the go-go days of 2020 and 2021. Most Realtors are girding for a turbulent 2023 marketplace that Realtor.com Chief Economist Daniel Hale calls a “nobody’s market.”
The significant counterbalance to abundant existing pent-up demand and demand for new residents demand is inventory.
This is where two of the TCI Group charts offer some critical insights. Commercial Realtors watch residential trends closely because population and demographic changes pave the way for commercial activity.
There was about 22% less inventory in December than in December last year. It has been creeping higher, but it’s nowhere near balanced conditions in any price range below $500,000. And that using a four-month inventory as a base. During the 12 months ending in mid-December, that price range accounted for 5% of existing home sales. Inventory would need a big boost in the $300,000 and below price range to move anywhere close to the 5.5 or 6 months of inventory needed for balanced market conditions.
There are plans and continued touting of a surge of new home construction. And while there are some very visible and welcome developments, the surge has not materialized. A materials and labor shortage, continued supply chain issues, and some development push-back from residents and officials are all at play.
Another factor is refinancing outperformed the rest of the market from the fourth quarter of 2019 until the first quarter of 2022. And one in five current homeowners has been in their home for only five years. That begs the question of how many will be reluctant to walk from 3% mortgages. That could limit the number of new existing homes for sale. At the same time, new property-management services and rental marketplaces are making it easy for owners to rent out their houses. Some pundits are already beginning to write about a new era of renters instead of homeowners.
Affordability will also be a top 2023 issue.
Homes in the $300,000 and below price range don’t command 75% of all sales as they did a couple years back. The 2022 12-month market share was 67%. But only slightly more than half the inventory is in that price range. Washington Co. has already dropped out of the affordable housing market category in ATTOM Data Solutions’ Affordability Index, and Sullivan County’s status has been slipping for almost two years. A big issue is local wages haven’t kept pace with home prices.
The other side of the affordability issue is what the outsiders who are helping drive both the residential and commercial markets see. The local median sales price continues to be substantially more attractive than it is in major metro areas. And the value position of the region’s higher-price homes still commands the attention of some of those looking to relocate or purchase a second home.
Turbulence will be a 2023 market factor nationwide. But given current conditions there’s still too much-untapped value and pent-up date for it to dominate the local market. Yes, the Tri-Cities region is still perceived as a rural metro area. But some recognize that it’s a market with a little over 150,000 residents with an economy of almost $30 billion. Lump the region’s two metro areas together, and they ranks very close to the top 100 metro markets in the nation.