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Market Pulse
January 2024
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- Total home sales across the East Tennessee region declined 15.2% from 2022 to 2023, one of the largest annual declines on record. Despite the drop in sales activity, home prices grew 5.3% from the previous year in 2023.
- Looking forward, home sales across East Tennessee region are expected to increase by 11.1% in 2024 while home prices are expected to grow 3.6%, according to East Tennessee REALTORS® 2024 forecast report.
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Apartment rent growth continues to decelerate, with rents across the Knoxville metro areas increasing by 3.9% from the previous year in the fourth quarter of 2023. By comparison, rents were up 0.17% nationally.
- Knoxville ranked No. 22 on United Van Lines list of top inbound metros in 2023, with a 64% inbound mover rate, highlighting the significant role newcomers continue to play in the local housing market.
- East Tennessee REALTORS® Housing Affordability Index declined 3.0% from the third to fourth quarter of 2023, finishing the year at the lowest level since 1985.
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After a prolonged downturn spanning nearly two years, East Tennessee’s housing market is expected to rebound in 2024, culminating in modest home price growth and a significant increase in annual home sales. Much of the growth in home sales can be attributed to the expected decline in mortgage rates over the next year and improving affordability conditions, which will facilitate the return of buyers who were previously priced out of the local market. By comparison, a supply-demand imbalance driven by a chronic undersupply of housing will continue to exert upward pressure on home prices. Other long-term market forces, such as favorable demographic trends, migration and changing household composition, will further stimulate market activity.
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Home price growth continues to decelerate but remains above the historic average. Home prices in the Knoxville metropolitan area rose 11.3% from the previous year in the third quarter of 2023, according to the FHFA House Price Index (HPI).
- After falling 9% and 15% year-over-year in 2022 and 2023, respectively, home sales are poised to rebound in 2024. Total home sales are expected to return to pre-pandemic levels, with home sales forecasted to increase 11.1% in 2024.
- Although affordability conditions remain near a record low, a chronic undersupply of housing continues to exert upward pressure on prices and will provide support for further growth, with home prices forecasted to increase 3.6% in 2024.
- After experiencing double-digit increases in 2022, rent growth slowed considerably in the latter half of 2023. Rents in the Knoxville metro area rose 3.9% from the previous year in the fourth quarter of 2023. This deceleration is expected to continue over the next year, with apartment rent growth forecasted to slow to an average of 3.1% in 2024.
- Knoxville’s apartment occupancy rate declined throughout 2023 but nonetheless remains among the highest in the country. Occupancy is expected to continue falling as new units become available, with the occupancy rate forecasted to decline to an average of 96.4% in 2024.
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Home Sales Report
December 2023
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East Tennessee home sales declined — down 7.1% from the previous month and 13.5% from a year ago. Home sales declined 15.0% from 2022 to 2023.
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The median sale price was $345,000 — up 8.5% from the previous year. On an annual basis, the median sale price rose 5.3% from 2022 to 2023.
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Total housing inventory increased from the previous year – up 13.1% from a year ago.
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Half of the homes sold were under contract in 18 days or less, up from 15 days the previous month and 16 days a year ago.
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43% of homes sold for the asking price or above, with 23% selling for more than the asking price. 11% sold for at least $10,000 over asking and 3.7% sold for at least $25,000 over asking.
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The sale-to-list price ratio declined to 97.6% – down from 97.8% last month.
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New construction represented 12.8% of total home sales.
East Tennessee REALTORS® reports home sales data using a seasonally adjusted annualized rate (SAAR), a statistical measure of home sales that takes into account typical seasonal fluctuations in the real estate market, such as increased home sales during the spring and summer months, by adjusting the data to provide an annualized rate. This rate represents the projected number of homes that would be sold over a year if the current sales pace were to continue.
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For East Tennessee's housing market, 2023 was a year besieged by affordability-constrained housing demand, which provoked one of the largest year-over-year declines in home sales on record as sales fell more than 15% from 2022 to 2023. Despite subdued sales activity, the chronic undersupply of housing continued to exert upward pressure on house prices. On an annual basis, the median sale price climbed 5.3% over the past year.
By comparison, the latest data from the FHFA House Price Index, which is a weighted, repeat-sales index (meaning that it measures average price changes in repeat sales or refinancings on the same properties), indicates house prices in the Knoxville metro area increased 11.3% over the past year in Q3 2023 – the 4th fastest growth among the top 100 U.S. metros and more than twice the national average of 5.5%.
What's the Outlook? Consumer prices continued on their gradual downward trajectory over the past few months with inflation edging closer to the Fed's 2% target rate, opening the door for interest rate cuts in the coming months. The resulting decline in mortgage rates, if realized, would reinvigorate the real estate industry and significantly boost housing demand. For example, if the 30-year fixed mortgage rate falls to 6.5% in 2024, approximately 16,734 households in the Knoxville metro area will once again be able to afford the median-priced home. While some downside risks remain, including a lack of resale inventory, most signs point to a strong rebound for East Tennessee's housing market in 2024.
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Housing Affordability Finishes 2023 at the
Lowest Level in Decades
East Tennessee REALTORS® Housing Affordability Index declined 3.0% from the third to fourth quarter of 2023, finishing the year at the lowest level since 1985 when the 30-year fixed mortgage rate averaged 12.5%. As of the fourth quarter of 2023, the median income family needs to make nearly $20,000 more in order to qualify for a mortgage on a median-priced home. Overall, housing affordability has fallen by 49% since the onset of the pandemic in early 2020.
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ISSUES IN HOUSING:
Foreign Buyer Restrictions
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As the largest economy in the world and a land of immigrants, the U.S. attracts people from across the globe to live, work, and study. International clients are an important market served by REALTORS® and the broader real estate industry, and foreign business and investments can provide a boon to local economies. However, several states, including Florida, Virginia, Montana, Tennessee, Texas, Georgia, Kentucky, Kansas, and Oklahoma, have introduced or passed legislation prohibiting individuals associated with certain countries from purchasing real estate, citing national security concerns.
Federal Landscape
The Committee on Foreign Investment in the United States (CFIUS), an interagency committee chaired by the Secretary of the Treasury, oversees national security risks in foreign direct investment. In 2018, the Foreign Investment Risk Review Modernization Act (FIRRMA) expanded the jurisdiction of CFIUS to address growing national security concerns over foreign purchases of real estate.
Specifically, FIRRMA added new types of covered transactions to CFIUS jurisdiction, including a purchase, lease, or concession by or to a foreign person of real estate located in proximity to sensitive government facilities. Congress has also taken interest in the issue, with members of both the House and Senate introducing several bills regarding ownership of agricultural land by individuals from certain countries.
Economic Impacts
Many laws would prohibit businesses from the listed countries from leasing property in various locations. For example, Georgia’s proposed bills would deny Chinese companies access to ports or air freight terminals. China buys $27 billion in Georgia products annually, but Chinese companies would be barred from leasing coldstorage facilities or export warehouses, or cargo bays and slips at ports and airports.
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Housing inventory declined across most of the East Tennessee REALTORS® footprint over the past month, which is a typical seasonal pattern. As of the end of January, active listings across the region were down 11% from the previous year. 11 of the 12 counties covered by the East Tennessee REALTORS® Multiple Listing Service recorded month-over-month declines in available inventory from December 2023 to January 2024. | | |
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"The latest month's sales look to be the bottom before inevitably turning higher in the new year. Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.
– Lawrence Yun, Chief Economist at NAR
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Knox County growth plan proposal progresses
Knox County's growth plan proposal, put forth by Mayor Glenn Jacobs, has taken its initial steps toward implementation. The proposal aims to update the county's existing growth policy plan, which has remained largely unchanged since its adoption in 2001.
The proposal includes reclassifying 14.5 square miles of "Rural" areas as "Planned Growth," enabling increased development. It also eliminates certain slope and hillside development regulations, deferring to existing county policies. Notably, it reduces the maximum allowed density in the strictest rural zones from three units per acre to two units per acre.
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The proposed changes will help concentrate development in specific areas while allowing for better control over development elsewhere. This proposal is just the first step in a more comprehensive planning process known as Advance Knox. Under state law, the amendment must be separately approved by County Commission, Knoxville City Council and the Farragut Board of Mayor and Aldermen.
In addition to changes to the growth policy plan, a new Comprehensive Land Use and Transportation Plan and Future Land Use Map are moving forward in the adoption process. These items will be heard by the Knoxville-Knox County Planning Commission at their regularly scheduled meeting on February 8, 2024.
For more information, visit advanceknox.org.
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Stay up-to-date with the most recent information about East Tennessee's housing market. Here's the latest from local media: | |
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Mortgage Rates Hovering in the Mid-Six Range
Mortgage interest rates rose to the highest level in more than two decades in 2023, with the 30-year fixed mortgage rate reaching a cyclical peak of 7.79% in October 2023. However, mortgage rates fell precipitously in the final two months of the year before settling in the mid-six range in January. According to Freddie Mac's Primary Mortgage Market Survey, the 30-year fixed mortgage rate (30Y FRM) averaged 6.69% for the week ending January 26th, compared to an average of 6.13% this time last year.
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What's the Outlook? With inflation gradually cooling and the Federal Reserve on track to cut interest rates in the next 12 months, the 30-year fixed mortgage rate is forecasted to average 6.2% in 2024 – down from an average of 6.8% in 2023. If the current progress on inflation continues, mortgage rates could fall slightly below 6% by the final quarter of 2024. | |
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