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2023 new home market – it’s complicated

By DON FENLEY

TRI-CITIES, Tenn. – 2023 is proving itself to be a complicated year for the local new home market. Low consumer confidence, expensive housing costs, a potential recession and political brinksmanship over US debt obligations have all but shoved consumer demand to the back of the bus. Still, there are some bright edges to those murky clouds.

A dearth of inventory in the existing home market is pushing prospective buyers to the new-home market and builders are taking notice of the push for affordable homes. Here’s some insider insights from three of the region’s top builders:

“It’s all about interest rates,” according to Kelley Wolfe of Wolfe Development. He said higher rates “seem to present a psychological – or maybe a truly financial one – for folks entering the musket. There seems to be a happy spot at around 6% where folks are comfortable buying with the hope that rates will go lower in a year or two and they can refinance.”

Wolfe added builders he talks to are saying anything over $500K is slow right now. “We’re seeing signs of it in Jonesborough.” So, builders are tying to get under that number and wait out rate increases with a less expensive product.”

Mortgage rates trended higher for the second straight week at the end of May as the market reacted to new economic growth estimates and the debt ceiling impasse. The average rate for a 30-year fixed-rate mortgage increased to 6.57% for the week ending May 25.

Terry Orth, Orth Construction, said rates and lot availability are the headwinds he’s feeling. “Our local infrastructure needs to improve to accommodate future growth.” Orth expects D.R. Horton and more multi-family (condo and townhomes) will have the biggest price impact on the local market. He expects a slightly slower performance for the rest of the year, “but not by much.”

Barak Saltzman, City Manager for the D.R. Horton Knoxville metro area, said “we’re back in growth mode in NE Tenn, subject to the availability of land and lots. We plan to continue to offer interest rate buy-down as needed and we’re working to reduce our costs and sales prices.” Like Orth he thinks local infrastructure to accommodate the current and expected growth are pressure points.

 

Last year’s emphasis on affordability and entry-level buyers is still strong in the new home industry there, but there’s new items that have been added to Zonda’s markets to watch list. They include:

  • Rent v. own math.
  • Percentage of mortgage-free homes. That ups the number of owners who could easily move.
  • The number of new-home projects is below $300K.
  • Change in typical mortgage payments from 2022.
  • Long-term high-income job growth.

Here’s what Realtor.com new construction listings – and the number in the $250K to $300K affordability range – looked like during the last week of May:

  • Greeneville – 95 – 14 in the affordability range.
  • Kingsport – 190 – 63 in the affordability range.
  • Johnson City – 54 – 12 in the affordability range.
  • Bristol, TN – 2 – none in the affordability range.

NETAR’s home sale report had 150 active existing home listings in the affordability range at the end of April. There were 120 new affordable listings and 74 closing on affordable homes. According to that report, affordable home sales accounted for 12% of total sales, down 25% from last year. Affordable active listing accounted for 11.4% of all listings, up 42.9% from last year and new listings accounted for 16.7% of all new listings up 13.9% from last year.



Categories: REAL ESTATE

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