Housing moderates, growth focus turns to labor market

By DON FENLEY

TRI-CITIES, Tenn. – One advantage of watching long-term real estate trackers is it helps cut through many of the contradictions and confusion that are staples during market cycle transitions. The TCI’s Appalachian Highlands long-term housing market tracker was the first to report an increase in the 12-month sales trend in March and April as the market entered the prime house buying and selling season. It now shows an adjustment to pre-pandemic levels as the market moves into the traditional slower third and fourth quarters.

The transition is also being defined by the inventory levels in some price bands. Five to six months of inventory is the typical benchmark for balanced market conditions, and the overall market is nowhere near that level. It’s a different story with some price bands and localities.

For instance, while inventory in the $300K-$400K move-up market sweet spot remains crimped in three of the four primary markets, Greeneville had balanced conditions in May. It also has the best inventory performance of most price brands.

A return to balanced market conditions is getting a lot of attention because they represent an equilibrium between supply and demand. Another way to look at it is it’s a landscape that gives neither buyers nor sellers a significant advantage. Given those conditions, home prices tend not to be overly inflated or deflated. For the local market, which could mean the current prices have adjusted from the historic undervalued position to their new normal.

While inventory and mortgage rates will continue to have sway in home sales decisions, job growth will determine the next phase housing demand. That is and will continue to exert a challenge for growth in the affordable and workforce housing inventory. It’s a challenge became most of the gains in payroll jobs have been in the sectors that offer lower wages that put many of those workers on the home buying sidelines.

Homebuilding momentum is picking up in the Appalachian Highlands region. In May it was up about 20%, but the addition of affordable and work-force housing lags construction in the move-up market – homes priced in the $300K to $500K price ranges.

The headwinds to increasing the affordable and workforce housing inventory are varied. While some of the supply chain and material costs issues are moderating, there’s still a labor shortage and public push back on changes that will help builders offer more products with lower price points.

The disparity between wage increases and home price increases also continues to be an issue.

Housing construction peaks have historically moved in 20-year cycles. The local peak was in 2006 and the current level has moved a little past the halfway to a peak level. However, the momentum is increasing. It’s an encouraging sign for sustaining new residents for population stability, commercial real estate and investors who pay close attention to the residential real estate landscape.