TRI-CITIES, Tenn. – Despite growing affordability concerns, the local housing’s biggest challenge is inventory. The situation can be summed up in a simple, short sentence. Home buying demand is high while housing continues at record lows. Context on the explanation is a little more complex.
The core service area for the Northeast Tennessee Association of Realtors (NETAR) has labored with less than two months of inventory for 32 months. Less than two months of inventory and a lot of demand equal an uber sellers’ market. One that saw the all-time record for sales and prices. It – and the Fed’s war on inflation – set the stage for declining affordability.
The last time the region had balanced market conditions – as measured by months of inventory – was 2018. The region would have needed a minimum of 2,500 additional listings in July for the bottom range (five months) of a balanced market.
There are several factors keeping inventory in the basement.
- New residents and local organic demand are high as more of the local Millennial Generation and the elders of Generation Z – seek to begin building wealth as homeowners. At the same time, many Baby Boomers yearn for more age-friendly housing.
- It’s estimated that about 60% of homeowners have a mortgage in the 4% or under range. And 12,000 locals bought or refinanced when rates were at 3% or below. Those low rates lock-in owners. It makes them reluctant to give up a once-in-a-lifetime low mortgage rate in a market where the average rate for a 30-year loan is 7% or better.
- Builders are ramping up production and there’s a lot of talk about the thousands of new homes in the pipeline. However, new home building permits, a prime indicator of construction, are barely even with where they were last year. Blame that on a labor shortage, land costs, material costs, high interest rates and inflation. So far, there are few predictions for when the pipeline will open up full-force and spew more of those planned developments onto the market.
The region’s current status is existing home sales have declined to pre-pandemic levels, and may begin the seasonal downward arc earlier than usual this year. There are homes on the market and they are selling. But so far, there hasn’t been enough inventory increase to put downward pressure on prices.