The Knoxville real estate market remains hot as buyers take over homes within days and for too high a price.
Knoxville was ranked 13th in the top 100 metropolitan areas for home price growth during the second quarter of 2022. Prices increased 4.9% over the previous quarter and 25.6% over the year earlier, according to the Federal Housing Finance Agency’s home price index.
The average selling price in the Knoxville area in July was $ 324,500, up more than 14% from July 2021, according to the Knoxville Area Association of Realtors’ August Market Pulse report.
Despite year-over-year increases, prices have fallen slightly from this summer’s peak. Realtor.com reported a $ 9,000 drop from June to August.
Home sales are falling. They fell 10.1% from June to July, according to KAAR.
While the housing market is more expensive and housing supply is more limited than it was before the pandemic, Hancen Sale, KAAR’s director of government affairs and policy, told Knox News it is stabilizing for a post-pandemic world. pandemic. This question and answer has been edited for greater length and clarity.
More houses on the way:New subdivisions, homes spanning Knox County
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How would you describe the real estate market in the Knoxville area right now?
Higher interest rates and higher house prices have impacted affordability quite substantially. And it forced the market to correct and start moderating, and that’s not surprising. It was something we expected to see.
I think we will continue to see this throughout the year, but stocks are still far below pre-pandemic levels. So things should remain fairly stable.
Home prices are even higher than before the pandemic, but they have seen some decline. Should buyers buy now or wait for prices to drop more?
Home prices in Knoxville and eastern Tennessee are not likely to drop substantially. When it comes to price cuts and monthly median sales prices, you really don’t want to read too much.
When you see a price cut, it’s not necessarily that your home is losing value. It’s just that the trend hasn’t continued and is starting to stabilize.
I do not believe that the market and the situation we are facing will change in any appreciable way anytime soon, particularly with the lack of housing relative to the demand.
At the same time, higher interest rates have an impact, but it is important to note that interest rates are lower than the inflation rate. So it’s actually a surprisingly good time to take out a mortgage when the inflation is much higher than the effective mortgage rate.
Inventory is on the rise and there are more homes on the market. What does this mean for buyers and sellers?
This is part of what is moderating this market. There are more options, houses get fewer bids per listing and that’s a good thing. We were seeing a large number of bids on each ad, and we were seeing bidding wars, and this is becoming less common.
So it’s certainly still a seller’s market in the traditional sense of the word. Sellers still have the upper hand, but buyers have gained quite a bit of leverage from what was truly a market for ultra sellers and something that wasn’t healthy.
So this is a good thing for homebuyers and really, for the stability of our market. The balance between supply and demand was too wide and created a situation where prices were rapidly appreciating in an unsustainable way.
But that said, 40% of homes in July were sold for more than the asking price. So it’s still a highly competitive market because inventory has increased 50% from a year ago, but it’s still substantially lower than it was before the pandemic. The inventory is even more substantially lower than it was five years ago.
Why do homes continue to sell within days, but don’t exceed the asking price so often?
I think buyers are starting to understand that they have more leverage in many circumstances. Previously, we were going through a period where it was reasonable to expect there were 10 offers on a house and you had to make a rather competitive offer, which often exceeded the asking price and without any unexpected events.
Buyers have realized that this is no longer the situation we are in and we are starting to see it cool down.
I will say that with higher rates, I think we are also seeing some of these small investors – not necessarily institutional investors, but people who are just buying investment properties – starting to pull out of the market with rising rates. So it just created a healthier balance between buyer and seller. And in the end it’s a good thing.
Knox County is one of the largest counties in the state, but it doesn’t build as many new homes for every 10,000 people as Davidson, Rutherford, Williamson, and Hamilton. What does it mean for us?
It’s a really big trend. For the past 20 years, Knox County on a per capita basis has produced housing at a lower rate than many of its peers. This is what set the stage for the rapid price growth we have seen, and particularly the fact that we are outpacing many of our peer cities.
A lot has to do with the type of housing or the amount of single-family housing allowed, but a large part of this is the lack of multi-family housing. The county has done a particularly bad job allowing for multi-family housing such as duplexes and triplexes and condos and townhouses.
What are the obstacles to building more apartments?
Our zoning code does not allow development that is not detached single family. Most places do not allow the construction of multi-family housing.
There is no way to stop growth. The only way to stop growth is to make your community undesirable, and that’s not something anyone wants to do.
We need to look at our zoning and development policies and think about how we can group housing and build different types of housing – multi-family, single-family, row houses and everything in between – to fill a gap. Because we don’t have any right now.
Are we seeing any changes in the home construction rate?
We have begun to see a bit more of home construction in general over the past few years. We saw a lot more accommodations allowed. It wasn’t such a substantial increase, but it’s something.
We have seen many multi-family developments, particularly in the city of Knoxville and especially downtown, but we still found a lack of multi-family in the unincorporated parts of the county, in the city of Farragut.
We are still just producing a lot of multi-family by-product and that missing middle type accommodation.
Looking ahead, what will the residential real estate market look like for the remainder of 2022?
I think we will see continued moderation. We will see more balance between buyers and sellers, but there is really no reason to believe that we will feel a shock, that there will be a month when things change rapidly. It will be stable.
And I think this is what a lot of people don’t realize is that there are very few cases in history where house prices have simply plummeted, or nominal house prices have fallen. They just got slower. I think that’s really what we’re going to see, particularly as Knoxville continues to attract new investments and new residents and there are a number of different services on the way.
Is there anything else you would like to add to the real estate market?
In 2020, homebuyers between the ages of 25 and 34 were the fastest growing segment of the real estate market. They filed for mortgage applications at a higher rate than any other age group. And you really saw it reverse in 2021, when we started seeing rates rise and we started seeing house prices rise.
So it’s very important to think about how this market has influenced young homebuyers, and particularly why one important thing Knoxville is working on is attracting and retaining more young professionals to retain UT graduates in Knoxville and to attract graduates from other cities. in Knoxville. We haven’t seen adequate growth in that younger demographic.
What we see in the data is that younger homebuyers were really struggling to keep up in 2021. Younger buyers are a demographic that traditionally doesn’t have the same financial resources as older homebuyers who can offer cash. They do not have the financial resources to forgo a series of contingencies and offer favorable contractual conditions.
So it’s interesting to see that reflected in the data. It’s not just an anecdote, but it has had a truly disproportionate impact on the younger generation of homebuyers. And those are exactly the people who were working so hard to keep and attract in Knoxville. So I think it’s a really big impact of the last year and a half.